Financial Data and Key Metrics Changes - The company reported home closing revenue of $1.5 billion for Q2 2023, an increase of 10% year-over-year, driven by an 8% increase in home closing volume and a 1% increase in average selling prices (ASPs) [40][42] - The diluted EPS for Q2 2023 was $5.02, reflecting a 26% year-over-year decline, attributed to lower gross margins and increased overhead costs [16][42] - The effective income tax rate decreased to 22.0% in 2023 from 24.6% in 2022, benefiting from energy tax credits [16] Business Line Data and Key Metrics Changes - Sales orders for the quarter totaled 3,340 homes, with entry-level homes representing 85% of orders, down 11% year-over-year [11] - The backlog conversion rate improved significantly from 48% last year to 89% this quarter, indicating better sales performance [13] - The company ended the quarter with approximately 3,800 homes in backlog and nearly 4,500 spec homes in inventory, up 6% sequentially [17][45] Market Data and Key Metrics Changes - The West region had the lowest average absorption pace at 3.4 sales per month, while the Central region led with an average of 4.3 sales per month [7] - The East region showed strong demand with an average absorption pace of 4.1 sales per month, prompting the company to focus on replenishing inventory [7] - The company added over 2,800 net new lots during the quarter, maintaining a total of approximately 60,000 lots owned or controlled [18] Company Strategy and Development Direction - The company aims to maintain a high level of spec starts to ensure sufficient move-in ready inventory for the remainder of the year [38] - The strategy focuses on affordable entry-level homes, leveraging rate lock or buydown incentives to enhance backlog conversion and competitive advantage [35] - The company plans to accelerate land acquisition and development spending, projecting to exceed $2 billion in 2024 and beyond [17] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in achieving sales pace targets for the remainder of the year, citing a healthy market and strong demand for new homes [23][55] - The company anticipates a strong back half of the year, driven by improved inventory turns and pricing power [21] - Management noted that while incentives remain elevated, they are moderating from previous extremes, contributing to improved margins [40] Other Important Information - The company received a double upgrade to investment grade from S&P, reflecting a strong focus on maintaining a healthy balance sheet and liquidity [17] - The company returned $9.9 million to shareholders in the form of dividends and has $234 million available for share repurchases [43] Q&A Session Summary Question: Demand and Absorption Rates - Management indicated that the market remains healthy, with expectations for stable absorption rates despite potential seasonality [23][24] Question: Pricing Power and Backlog Turnover - Management confirmed that demand is consistent across their footprint, with expectations for meaningful community count growth in the future [26] Question: Gross Margins and Incentives - Management explained that the sequential increase in margins was due to reduced incentives and improved pricing power, with expectations for stable margins in the back half of the year [60][63] Question: Community Count and Future Growth - Management projected significant community count growth as land acquisition ramps up, with a focus on maintaining a strong pipeline for future developments [76] Question: Generational Wealth and Down Payment Assistance - Management noted an increase in down payment assistance, indicating that while generational wealth transfer is not directly observed, support for first-time buyers is evident [82]

Financial Performance - Second quarter 2023 home closing revenue reached $1.5 billion on 3,490 homes, a 9.5% increase from $1.4 billion on 3,221 homes in Q2 2022[92] - The company achieved a home closing gross margin of 24.4% in Q2 2023, down from 31.6% in Q2 2022, attributed to increased incentives[92] - For the six months ended June 30, 2023, home closing revenue totaled $2.8 billion, up 5.7% from $2.7 billion in the prior year[107] - The company's gross profit for Q2 2023 was $377.0 million, with a margin of 24.4%, down from 31.6% in Q2 2022 due to increased sales incentives and elevated costs[119] - Other income for Q2 2023 was $12.9 million, compared to a net expense of $0.5 million in Q2 2022, driven by higher interest earned on cash balances[129] Home Orders and Backlog - Home orders for Q2 2023 totaled 3,340, an 11.3% decrease year-over-year, with home order value declining 18.5% to $1.5 billion[94] - The company ended Q2 2023 with a backlog of 3,772 homes valued at $1.7 billion, representing decreases of 47.9% and 50.9% year-over-year[95] - Total home orders for Q2 2023 decreased by 11.3% to 3,340 homes compared to 3,767 homes in Q2 2022, with a total order value of $1.5 billion, down 18.5% year-over-year[106] - The order backlog at June 30, 2023, was valued at $1.7 billion, down 50.9% from $3.4 billion at June 30, 2022, with homes in backlog decreasing by 47.9% to 3,772 units[102] Sales and Pricing - Average sales price (ASP) on closings improved by 1.1% to $442.1 thousand despite increased incentives, driven by a favorable mix of closings in higher-priced markets[92] - The average sales price (ASP) for homes ordered in Q2 2023 was $441.5 thousand, a decrease of 8.1% from $480.5 thousand in Q2 2022[106] - The West Region reported home closing revenue of $519.2 million for Q2 2023, up 6.8% from $486.1 million in Q2 2022, despite a decrease in ASP on closings[108] - The Central Region saw a 4.4% increase in home closings to 1,094 homes in Q2 2023, with revenue rising 8.2% to $456.8 million[110] Cancellation and Construction - The cancellation rate returned to a normalized 12% in Q2 2023, down from 15% in Q1 2023 and 13% in Q2 2022[94] - The cancellation rate for Q2 2023 was 12%, slightly improved from 13% in Q2 2022, aligning with historical averages[106][104] - Construction cycle time was reduced by over three weeks for new home starts in Q2 2023 compared to Q1 2023, nearing historical averages[91] Financial Services - Financial services reported a loss of $2.6 million in Q2 2023, compared to a profit of $4.1 million in Q2 2022, primarily due to $7.9 million in charges for expired interest rate locks[92] - Financial services reported a loss of $2.6 million in Q2 2023, primarily due to $7.9 million in charges related to unused prepaid interest rate locks[124] Tax and Expenses - The effective income tax rate decreased to 22.0% in Q2 2023 from 24.6% in 2022, benefiting from energy tax credits under the Inflation Reduction Act[92] - The effective tax rate decreased to 22.0% in Q2 2023 from 24.6% in Q2 2022, reflecting energy-efficient homes tax credits introduced in 2022[130] - Commissions and other sales costs increased to $95.8 million in Q2 2023, representing 6.2% of home closing revenue, up from 4.9% in the prior year[126] - General and administrative expenses for Q2 2023 were $52.1 million, maintaining 3.4% of home closing revenue, consistent with the previous year[127] Cash Flow and Liquidity - Net cash provided by operating activities for the six months ended June 30, 2023, totaled $355.9 million, compared to a net cash used in operations of $206.8 million for the same period in 2022[141] - The company expects to meet short-term liquidity requirements primarily through cash and cash equivalents on hand and net cash flows from operations[134] - Net cash used in financing activities for the six months ended June 30, 2023, was $32.1 million, significantly lower than $121.1 million for the same period in 2022[143] Debt and Capital - As of June 30, 2023, the debt-to-capital ratio was 21.4%, down from 22.6% as of December 31, 2022[144] - The company had no debt maturities until 2025, with maximum exposure to loss on purchase agreements generally limited to non-refundable deposits[137] - The minimum tangible net worth requirement under the Credit Facility is $2.8 billion, with the actual net worth reported at $4.25 billion as of June 30, 2023[147] - The leverage ratio as of June 30, 2023, was reported at (0.1)%, indicating compliance with the maximum leverage covenant of 60%[148] Dividends - The company paid a quarterly cash dividend of $0.27 per share during the three months ended June 30, 2023, totaling $0.54 per share for the six months ended June 30, 2023[145]

Financial Performance - In Q1 2023, the company achieved home closing revenue of $1.3 billion on 2,897 homes, a 1.3% increase from $1.2 billion on 2,858 homes in Q1 2022[87]. - The gross margin for home closings declined by 790 basis points to 22.4%, resulting in a gross profit of $282.5 million, down from $377.6 million in Q1 2022[87]. - The company reported financial services profit of $2.9 million for Q1 2023, down from $3.3 million in the prior year[109]. - Operating cash flow for Q1 2023 was $124.5 million, a significant increase from $12.2 million in Q1 2022, driven by net earnings of $131.3 million[125]. - Commissions and other sales costs increased to $82.8 million, representing 6.6% of home closing revenue, up from 5.3% in the previous year[110]. - General and administrative expenses rose to $47.5 million, accounting for 3.8% of home closing revenue, an increase from 3.2% in Q1 2022[111]. Home Orders and Backlog - Home orders totaled 3,487, a 10.0% decrease year-over-year, with a cancellation rate improving to 15% from 39% in Q4 2022[88]. - The company ended Q1 2023 with a backlog of 3,922 homes valued at $1.8 billion, representing a 41.4% decrease in units and a 42.0% decrease in value from March 31, 2022[88]. - Homes ordered in Q1 2023 totaled 3,487, down by 387 units or 10.0% from 3,874 in Q1 2022[96]. - The order backlog as of March 31, 2023, was $1,763,832, down $1,275,095 or 42.0% from $3,038,927 in the previous year[98]. - Homes in backlog decreased to 3,922, a reduction of 2,773 homes or 41.4% compared to 6,695 homes in Q1 2022[98]. - The total cancellation rate increased to 15% in Q1 2023, up from 10% in Q1 2022[97]. Sales Performance - The average sales price (ASP) for home closings was flat at $435.6 thousand, while ASP on orders decreased by 5.3%[87][88]. - The average sales price for homes in Q1 2023 was $432.1, a decline of $24.2 or 5.3% from $456.3 in Q1 2022[96]. - The average sales price in the East Region increased by 2.9% to $427.9 in Q1 2023, compared to $415.9 in Q1 2022[98]. - The average sales price in the West Region decreased by 6.8% to $492.5 in Q1 2023, down from $528.6 in Q1 2022[98]. Regional Performance - The West Region saw a 9.1% decrease in home closing volume to 785 homes, with revenue down 9.9% to $417.3 million[100]. - The Central Region experienced a 20.0% increase in volume to 1,048 homes, resulting in a 22.2% increase in revenue to $424.9 million[101]. - The East Region closed 1,064 homes for $419.7 million, a 3.3% decrease in revenue despite a 1.9% increase in ASP[102]. - The Central Region's backlog decreased by 56.9% to $419,822 in Q1 2023, down from $973,828 in Q1 2022[98]. Operational Efficiency - The construction cycle time improved by approximately one week compared to the same period last year, despite ongoing labor and supply chain challenges[86]. - Active communities increased to 278 in Q1 2023, compared to 268 in Q1 2022, reflecting a growth of 3.7%[97]. Financial Position and Strategy - The company maintains a debt-to-capital ratio of 22.1% and a net debt-to-capital ratio of 4.5% as of the end of Q1 2023[93]. - The company plans to fund its material cash requirements primarily through cash flows generated by operations, with potential additional debt or equity financing if necessary[121]. - As of March 31, 2023, the debt-to-capital ratio was 22.1%, slightly down from 22.6% at the end of 2022[128]. - The net debt-to-capital ratio improved to 4.5% as of March 31, 2023, compared to 6.8% at the end of 2022[128]. - The leverage ratio was reported at 3.8%, well below the maximum covenant limit of 60%[130]. - The interest coverage ratio stood at 21.33, significantly above the required minimum of 1.50[130]. Recognition and Future Plans - The company was awarded the 2023 ENERGY STAR® Partner of the Year for Sustained Excellence, marking its tenth recognition since 2013[91]. - The company plans to leverage technological solutions and expand its energy efficiency program to enhance market differentiation[93]. - Seasonal variations in home sales are expected, with higher sales typically occurring in the first half of the fiscal year, impacting working capital needs[131].

Financial Data and Key Metrics Changes - In Q1 2023, the company achieved home closing revenue of $1.3 billion, slightly exceeding the prior year, with 2,897 homes closed, which was a 1% increase year-over-year [19][58] - The home closing gross margin for the quarter was 22.4%, down from 30.3% in the prior year, primarily due to price concessions and elevated direct costs [64][66] - The diluted EPS for Q1 2023 was $3.54, reflecting a 39% year-over-year decline [66] Business Line Data and Key Metrics Changes - Sales orders for Q1 2023 were 3,487 homes, up 93% sequentially from Q4 2022 but down 10% year-over-year [32] - Entry-level homes comprised 87% of orders, up from 83% in the prior year [32] - The cancellation rate for Q1 2023 was 15%, down from 39% in Q4 2022, aligning with historical averages [32] Market Data and Key Metrics Changes - The average absorption pace in Arizona was 5.2 homes per month, the highest, but it experienced the largest year-over-year decline in average selling prices (ASPs) [24] - The Central region, primarily Texas, had an absorption pace of 4.4 homes per month, showing improvement due to better availability of completed specs [24] - The East region's average absorption pace was 3.8 homes per month, with demand remaining strong despite lower supply of completed specs [34] Company Strategy and Development Direction - The company focuses on affordable entry-level homes and a spec building strategy, which has positioned it as a top five builder in the U.S. based on home closings in 2022 [20][31] - The company aims to maintain a sales pace of three to four net sales per month while managing incentives and pricing strategically [44][71] - The company is committed to reducing cycle times and improving backlog conversion rates, targeting an 80% conversion rate [36][62] Management's Comments on Operating Environment and Future Outlook - Management noted that the housing market remains undersupplied, which is expected to support long-term home buying demand [29] - The company anticipates that the pro-business environment and in-migration trends in Texas will positively impact future home buyer demand [34] - Management expressed optimism about achieving improved cycle times and backlog conversion rates in the latter half of the year [36][71] Other Important Information - The company ended Q1 2023 with nearly 3,900 spec homes in inventory, down 21% sequentially [35] - The company generated $96 million in free cash flow and had $957 million in cash at the end of the quarter, maintaining a strong liquidity position [40] - The company announced its inaugural quarterly cash dividend of $0.27 per share, totaling approximately $10 million for the quarter [67] Q&A Session Summary Question: What is the expected backlog turnover rate? - Management expects to sustain an 80% plus backlog conversion rate, contingent on supply chain stability [46] Question: When will starts match or exceed order pace? - Management anticipates that starts will begin to match sales in Q2 2023 [46] Question: What is the impact of cancellations on ASP? - Cancellations had a significant impact on ASP, with a portion of the ASP increase attributed to rate buydowns and pricing adjustments [74] Question: What are the expectations for SG&A expenses going forward? - SG&A expenses are expected to normalize as the company reduces advertising and commission costs [85] Question: How does the company view capital allocation? - The company is committed to returning capital to shareholders through dividends and share buybacks, reflecting a strong cash position [120]

Financial Performance - First quarter home closings and home closing revenue reached a record high[1] - First quarter 2023 home closing revenue was $1.2619 billion, a 1% increase year-over-year from $1.2455 billion[19] - First quarter 2023 net earnings were $131.3 million, a 40% decrease year-over-year[43] - First quarter 2023 diluted EPS was $3.54, a 39% decrease year-over-year[43] - First quarter 2023 home closing gross margin was 22.4%, a 790 bps decrease year-over-year[35] Balance Sheet and Capital Allocation - The company had $957 million in cash[2] - Land spend totaled $310 million[2] - Net debt was $194 million[21] - The company repurchased over 93,000 shares for $10 million[21] Land and Lots - Total lots controlled as of the end of the first quarter 2023 were 60,942, compared to 75,176 in the first quarter 2022[3] - 75% of lots controlled are owned, while 25% are optioned[3] Guidance - Second quarter 2023 home closings are projected to be 2,800-3,100[23] - Second quarter 2023 home closing revenue is projected to be $1.22-1.36 billion[23] - Second quarter 2023 home closing gross margin is expected to be around 22%[23]

Financial Performance - Home closing revenue for 2022 reached $6.2 billion, a 21.8% increase year-over-year, driven by a 10.2% rise in closing volume and a 10.6% increase in average sales price [27][30]. - Net earnings increased by 34.5% to $992.2 million, with diluted EPS rising by 38.6% compared to the previous year [27][30]. - The gross margin on home closings improved to 28.6%, up 80 basis points from 27.8% in 2021, marking the highest full-year margin in company history [30]. - Earnings before income taxes increased by 35.0% to $1.3 billion in 2022, up from $954.8 million in 2021 [154]. - Home closing gross profit increased by $354.6 million to $1.8 billion in 2022, with a gross margin improvement to 28.6% [181]. - Financial services profit for 2022 was $18.3 million, a slight increase of $0.3 million compared to 2021, despite higher home closing volumes [186]. Sales and Orders - The company experienced a 14.8% reduction in order volume in the second half of 2022, leading to a 9.3% decrease in home order value compared to 2021 [30][29]. - The company experienced significant cancellations in the last half of 2022, attributed to economic uncertainty and rising interest rates, with expectations for cancellations to trend above normal in early 2023 [90]. - Homes in backlog decreased by 41.3% year-over-year, totaling 3,332 units valued at $1.5 billion as of December 31, 2022, down from 5,679 units valued at $2.5 billion in 2021 [153]. - The company experienced a 14.8% decline in order volume, with 11,759 orders in 2022 compared to 13,808 in 2021, attributed to decreased demand and a higher cancellation rate of 21.0% [153]. - Cancellation rates increased to 21.0% in 2022, compared to 10.2% in 2021, indicating a significant rise in cancellations [173]. Inventory and Land Acquisition - As of December 31, 2022, the company had cash and cash equivalents of $861.6 million, up from $618.3 million at the end of 2021, while inventory grew by 16.7% to $4.4 billion [31]. - In 2022, the company invested approximately $1.5 billion in land acquisition and development, securing about 2,000 net new lots, a significant decrease from 34,000 in 2021 [32]. - As of December 31, 2022, the company had 63,182 lots under control, down from 75,049 in 2021, maintaining a 4.5-year supply of lots based on 2022 closings [32]. - At the end of 2022, the company had 46,317 owned lots and 16,865 lots under committed purchase or option contracts, with a total purchase price of approximately $738.5 million [39]. Debt and Liquidity - The debt-to-capital ratio was 22.6% and the net debt-to-capital ratio was 6.8% at the end of 2022, compared to 27.6% and 15.1% respectively at the end of 2021 [31]. - As of December 31, 2022, the company had approximately $1.2 billion in indebtedness and $861.6 million in cash and cash equivalents [102]. - The company has $725.6 million available to be drawn under its credit facility, which may be necessary for working capital needs [102]. - The company's credit ratings were BB+, Ba1, and BB+ from Standard and Poor's, Moody's, and Fitch Ratings, respectively, as of December 31, 2022 [104]. Operational Challenges - The company experienced building material cost pressures and supply chain constraints throughout 2022, impacting construction timelines [45]. - Supply chain and labor constraints in 2021 and 2022 led to lengthened construction cycle times, with expectations for these conditions to persist at least through early 2023 [91]. - The company faced higher material and labor costs in recent months, negatively impacting profitability, although it has historically passed cost increases onto customers [87]. - The company experienced delays in construction schedules due to a limited pool of subcontract labor, impacting construction cycle times in 2021 and 2022 [112]. Market Conditions - In 2022, long-term interest rates increased significantly from historically low averages, impacting home sales and cash flow, with potential material effects on the business [84]. - Home prices declined in the latter half of 2022 due to rising interest rates, with expectations for this trend to continue into 2023 and potentially beyond, adversely affecting homebuilding volumes and cash flows [92]. - The company is subject to competitive pressures from national, regional, and local developers, with competition expected to intensify in the housing industry [97]. - The company’s operational success is dependent on the availability of lots and land that meet its investment criteria, which is influenced by external factors [107]. Strategic Initiatives - The company’s strategy includes a focus on affordable, quick move-in homes, with a goal of achieving a 100% speculative home building strategy for entry-level products [20][21]. - The company’s marketing strategy includes digital offerings such as virtual tours and a chatbot for customer support, enhancing the home buying experience [51]. - The company aims for a 100% spec home building strategy for entry-level products, with spec inventory per active community increasing to 18.0 units or 4,891 units as of December 31, 2022, compared to 12.3 units or 3,180 units a year prior [54]. - The company believes favorable homebuyer demographics support long-term demand for homes, despite current downward pressure on the housing market [151]. Environmental and Regulatory Factors - Meritage Homes has adopted an Environmental Responsibility Policy and issued its inaugural Task Force on Climate-Related Financial Disclosures report in 2022 [23]. - The company has received multiple awards for its commitment to energy efficiency, including the 2022 EPA's ENERGY STAR Partner of the Year for Sustained Excellence [24]. - California's updated building codes require all homes constructed with permits obtained in 2020 and beyond to have solar panels, which may increase future operating and compliance costs [123]. - The company anticipates that new building code requirements imposing stricter energy efficiency standards could significantly increase construction costs [124]. - The SEC's proposed climate-related disclosure rules could impose significant compliance costs if adopted, impacting the company's financial performance [125].

Financial Data and Key Metrics Changes - Home closing revenue grew 32% year-over-year to $2 billion in Q4 2022, driven by a 29% increase in home closing volume and a 3% increase in average selling prices (ASPs) [11][49] - The fourth quarter 2022 home closing gross margin was 25.2%, a decline of 380 basis points from 29.8% in Q4 2021, attributed to higher incentives and direct costs [22][49] - Diluted EPS increased by 13% year-over-year to $7.09, supported by higher closing volume and a lower outstanding share count [24][52] Business Line Data and Key Metrics Changes - The company delivered 4,540 homes in Q4 2022, a 29% increase year-over-year, with entry-level homes making up 85% of closings, up from 81% in the prior year [16][49] - Sales orders for Q4 2022 totaled 1,808 homes, with 89% being entry-level homes, an increase from 82% in Q4 2021 [16][43] - The cancellation rate in Q4 2022 was 39%, up from 12% in Q4 2021, significantly impacting net sales [43][49] Market Data and Key Metrics Changes - The highest regional absorption pace was 2.6 homes per month in the Central region, while the West region saw a decline in orders with an absorption pace of 1.6 homes per month [17][18] - In Florida, average selling prices on orders increased by 11% despite a 25% reduction in orders, indicating a shift in product mix [18] - The East region had the lowest decline in orders at 41% year-over-year, with a gross sales pace in line with the target of 3 to 4 homes per month [44] Company Strategy and Development Direction - The company aims to maintain a sales pace of 3 to 4 net sales per month by prestarting 100% of entry-level homes, which are ready for quick sale [30][40] - The strategy includes moderating construction starts to align with lower demand, with approximately 2,100 homes started in Q4 2022 compared to over 3,700 in Q4 2021 [19] - The company is focused on cost reductions and operational efficiencies, targeting a long-term gross margin of 22% or higher [50][81] Management's Comments on Operating Environment and Future Outlook - Management noted that ongoing economic uncertainty, rising mortgage rates, and inflation have overshadowed favorable demographics and low housing inventory [5][39] - The company expressed cautious optimism about January sales, reporting a net absorption pace greater than 4 homes per month, indicating potential recovery in demand [45][65] - Management highlighted the importance of move-in ready inventory in driving sales, as buyers prefer homes that can close within 45 to 60 days [40][70] Other Important Information - The company ended Q4 2022 with a backlog of 3,300 units, improving the conversion rate from 60% last year to 75% this year [20] - The company maintained a strong cash position with over $860 million in cash and generated $562 million of free cash flow in Q4 2022 [25][53] - The company has no impaired communities despite reduced ASPs and higher direct costs, indicating confidence in asset valuations [26][103] Q&A Session Questions and Answers Question: Can you help us think through Q1 gross margins? - Management indicated that Q1 margins are expected to be choppy due to various cost factors and market conditions, with no clear guidance beyond Q1 [32][80] Question: What are the potential cost tailwinds outside of lumber? - Management is actively rebidding vertical costs to capture savings, with some divisions reporting savings of $15,000 per home [35][62] Question: How does the company view the current market conditions? - Management noted that while January showed improvement, the overall market remains uncertain, and they are focused on operational discipline [65][94] Question: What is the strategy regarding community openings? - Management stated that they will prioritize opening communities with strong inventory and cost structures rather than rushing to increase community counts [94][95]

Financial Performance - The company achieved a record home closing revenue of $1.6 billion for Q3 2022, a 25.4% increase from $1.3 billion in Q3 2021, driven by a 12.1% increase in volume and an 11.9% increase in average sales price (ASP) to $450,000[89]. - Year-to-date net income for the nine months ended September 30, 2022, was $729.8 million, compared to $500.0 million for the same period in 2021, reflecting a significant increase in profitability[90]. - Home Closing Revenue for the nine months ended September 30, 2022, was $4,223,435, an increase of $627,375 or 17.4% compared to $3,596,060 in 2021[100]. - Home closing gross profit for Q3 2022 was $450.6 million, a 21.2% increase from $371.7 million in Q3 2021[120]. - Financial services profit for Q3 2022 was $4.8 million, up from $4.2 million in Q3 2021, attributed to a higher number of closings[125]. Home Orders and Sales - Home orders for Q3 2022 were 2,310, down 32.9% year-over-year, with a cancellation rate of 30%, compared to 10% in the prior year, indicating increased buyer uncertainty[91]. - Homes ordered decreased to 2,310, down by 1,131 homes or 32.9% compared to 3,441 in the previous year[101]. - Total home orders for the nine months ended September 30, 2022, amounted to $4,551,894, representing a 4.9% increase from $4,337,753 in 2021[102]. - Homes ordered decreased to 9,951 in 2022 from 10,441 in 2021, reflecting a decline of 4.7%[102]. - Cancellation rates for the three months ended September 30, 2022, rose to 30% compared to 10% in 2021[105]. Average Sales Price - The average sales price for home orders decreased by 2.5% year-over-year to $450,000, largely due to increased incentives and a shift towards more affordable products[92]. - Average sales price rose to $441.5, reflecting an increase of $53.8 or 13.9% from $387.7 in 2021[100]. - The average sales price increased by 10.1% to $457.4 in 2022 from $415.5 in 2021[102]. - Average sales price (ASP) on closings increased by 11.9% year-over-year, contributing to improved revenue despite lower order volumes[107]. Backlog and Inventory - The company ended Q3 2022 with a backlog of 6,064 homes valued at $2.8 billion, representing a 3.9% increase in units and a 10.6% increase in value compared to the previous year[92]. - The backlog increased to 6,064 homes valued at $2.8 billion, up from 5,838 homes valued at $2.6 billion year-over-year[108]. Regional Performance - In the West Region, home orders dropped to $241,098, down by $329,831 or 57.8% from $570,929 in the previous year[101]. - The Central Region saw home orders decrease to $253,321, a decline of $174,368 or 40.8% compared to $427,689 in 2021[101]. - The East Region saw a 47.7% increase in home closing revenue to $1.1 billion, with 2,671 homes in backlog valued at $1.1 billion, a 40.5% increase from the prior year[115]. - The West Region experienced a 15.7% decrease in backlog value to $0.9 billion, with a cancellation rate of 43%[109]. - The Central Region's home closing revenue increased by 30.4% to $499.7 million, despite a 40.7% decline in order volume due to a 37% cancellation rate[111]. Costs and Margins - The gross margin for home closings declined by 100 basis points to 28.7%, resulting in a gross profit of $450.6 million, up from $371.7 million in Q3 2021[89]. - Home closing gross margin decreased by 100 basis points to 28.7% in Q3 2022 compared to 29.7% in Q3 2021, primarily due to rising direct costs and increased sales incentives[120]. - The West Region's home closing gross margin decreased by 170 basis points to 26.6% in Q3 2022, while year-to-date gross margin improved by 280 basis points to 29.2%[122]. - The Central Region had the highest home closing gross margin at 30.1% in Q3 2022, down 200 basis points from the prior year due to increased sales incentives and direct costs[123]. - The East Region's gross margin improved by 90 basis points to 29.9% in Q3 2022, with a year-to-date increase of 430 basis points to 30.6%[124]. Cash Flow and Debt Management - The company maintains a debt-to-capital ratio of 23.9% and a net debt-to-capital ratio of 18.9% as of the end of Q3 2022, indicating a strong balance sheet[95]. - The company has no debt maturities until 2025, with plans to fund contractual obligations primarily through cash flows generated by operations[138]. - As of September 30, 2022, the debt-to-capital ratio was 23.9%, down from 27.6% as of December 31, 2021, indicating improved capital structure[146]. - The net debt-to-capital ratio increased to 18.9% as of September 30, 2022, compared to 15.1% at the end of 2021, reflecting a rise in net debt[146]. - The company has never declared cash dividends and plans to utilize cash for liquidity management and community growth[147]. Strategic Focus - The company plans to focus on growing market share and improving the home buying experience through innovation and simplification of processes[95]. - The company continues to invest in energy-efficient product offerings and automation to differentiate its brand in the competitive new home market[94]. - The average number of actively selling communities increased by 16.5% year-over-year, ending the quarter with 275 communities[107].

Financial Data and Key Metrics Changes - Home closing revenue increased by 25% year-over-year to $1.6 billion due to a 12% greater home closing volume and a 12% increase in average selling prices (ASPs) [43][48] - The gross margin for home closings was 28.7%, a 100 basis points decline from 29.7% a year ago, primarily due to increased incentives and $8.8 million in write-offs for option deposits [44][48] - Diluted EPS reached a record high of $7.10, reflecting a 35% year-over-year increase [48] Business Line Data and Key Metrics Changes - Sales order volume decreased by 33% year-over-year to 2,310 homes, with a cancellation rate of 30%, significantly above the historical average [13][27] - The absorption pace was 2.7 homes per month, down from 5.0 homes per month in the prior year [13][27] - Entry-level homes constituted 84% of closings, up from 78% in the prior year [26] Market Data and Key Metrics Changes - The East region outperformed other regions with an average absorption pace of 3.8 homes per month, while the West region struggled with a pace of 1.5 homes per month [28][29] - Florida maintained strong performance, representing 44% of the East region's orders, with an absorption pace of 5.0 net sales per month [33] - The company experienced the highest cancellation rates in the West region, particularly in Colorado and Arizona, due to affordability issues and supply chain challenges [30][31] Company Strategy and Development Direction - The company is focusing on pre-starting 100% of entry-level homes and prioritizing pace over price to navigate the current market environment [20][63] - A significant pullback on new land deals has been implemented, with a focus on exceptional opportunities only [22][24] - The company aims to maintain a strong balance sheet and liquidity while managing through changing market conditions [50][51] Management's Comments on Operating Environment and Future Outlook - Management anticipates continued weaker demand in the near term due to rising mortgage rates and economic uncertainty [12][20] - The company expects further deterioration in buyer confidence, impacting both new customers and those in the backlog [20] - Future gross margins are projected to be materially impacted by aggressive incentive actions and increasing costs in a rising interest rate environment [60][62] Other Important Information - The company ended the third quarter with a backlog of approximately 6,100 units, with a conversion rate decline from 57% last year to 48% this year [41] - The company has ample liquidity, with a cash balance of $299 million and no draws on its credit facility [50][51] - The company is forecasting total closings for Q4 2022 to be between 4,300 and 4,700 units, with home closing revenue projected at $1.85 billion to $2.10 billion [60][61] Q&A Session Summary Question: What are the expectations for gross margins in the current environment? - Management indicated that predicting future margins is challenging due to fluctuating market dynamics and costs, but they believe they can outperform despite the need for incentives [66][68] Question: What are the current incentive levels across markets? - Incentives vary by region, with high teens in the West and more normal adjustments in the East, reflecting the need to remain competitive [75][78] Question: Has the speed of price adjustments surprised management? - Management expressed surprise at the rapid increase in mortgage rates, which necessitated significant price rollbacks to maintain consumer confidence [88][90] Question: What is the outlook for impairments in the current market? - Management does not anticipate broad-based impairments unless there are significant further declines in ASPs, as many communities are still above impairment thresholds [94][96] Question: What is the expected sales pace for Q4? - Management does not expect a significant improvement in sales pace for Q4, citing ongoing market challenges and the need for rate stabilization [105]

Revenue and Sales Performance - Total home closing revenue for Q2 2022 was $1.4 billion, an 11.4% increase from $1.3 billion in Q2 2021, driven by a 13.2% increase in average sales price (ASP) to $437.4 thousand[96]. - Home closing gross margin improved by 430 basis points to 31.6%, resulting in a gross profit of $444.7 million compared to $345.3 million in Q2 2021[96]. - Home orders reached a record 3,767 in Q2 2022, a 6.4% increase from 3,542 in Q2 2021, with home order value increasing by 20.7% year-over-year to $1.8 billion[97]. - The company ended Q2 2022 with a backlog of 7,241 homes valued at $3.4 billion, representing a 31.4% increase in units and a 48.4% increase in value compared to June 30, 2021[98]. - Total revenue for the quarter reached $444.62 million, an increase of $30.78 million or 3.2% compared to the previous quarter[104]. - The company reported a total of 583,263 dollars in sales, with a 4.0% increase from the previous quarter[104]. - Total home orders increased to $1,809,870, a 20.7% increase from $1,499,672 in the previous year[105]. - Homes ordered increased to 7,641, up by 641 homes or 9.2% from 7,000 in the previous year[106]. Average Sales Price Trends - Average sales price for homes closed was $380.4 thousand, reflecting a 4.8% increase from the prior quarter[104]. - Average sales price in California was $370.13 thousand, down by $9.09 thousand or 2.5% from the previous quarter[104]. - Average sales price in Colorado was $415.25 thousand, a decrease of $3.78 thousand or 2.4% compared to the last quarter[104]. - Average sales price in Texas was $722.22 thousand, showing a 6.6% increase from the previous quarter[104]. - Average sales price in Georgia was $611.76 thousand, with a 7.0% increase from the previous quarter[104]. - Average sales price in North Carolina was $822.85 thousand, reflecting an 8.1% increase compared to the last quarter[104]. - Average sales price in South Carolina was $560.55 thousand, an increase of $28.02 thousand or 5.3% from the previous quarter[104]. - The average sales price across all regions was $461.0 thousand, reflecting a 5.1% increase from the previous quarter[104]. - The average sales price rose to $468.2 thousand, reflecting an increase of $61.2 thousand or 15.0% compared to $407.0 thousand in 2021[106]. Market Dynamics and Order Trends - Order cancellation rates increased to 13% in Q2 2022, up from 8% in the prior year, indicating a softening market[97]. - The average orders pace decreased to 4.4 per month in Q2 2022, down from 5.5 in Q2 2021, reflecting a shift in market dynamics[111]. - The East Region's order volume increased by 64.2% year-over-year, with backlog value rising to $1.1 billion, a 64.2% increase[110]. - The East Region achieved the highest gross margin improvement of 550 basis points to 32.0% in Q2 2022, compared to 26.5% in the prior year[126]. Financial Performance and Expenses - Earnings before income taxes improved by $116.0 million, or 54%, year-over-year to $331.7 million for Q2 2022[96]. - Net earnings for Q2 2022 were $250.1 million, compared to $167.4 million in Q2 2021, reflecting a higher effective income tax rate of 24.6%[96]. - General and administrative expenses increased by $4.8 million, or 11.1%, due to higher headcount and travel expenses, but remained consistent as a percentage of revenue[96]. - Financial services profit decreased to $4.1 million in Q2 2022 from $4.6 million in Q2 2021, and to $7.4 million for the six months ended June 30, 2022, down from $8.4 million in the prior year[129]. - Commissions and other sales costs decreased to $69.4 million in Q2 2022, representing 4.9% of home closing revenue, down from 5.8% in the prior year[130]. - The effective tax rate increased to 24.6% for Q2 2022, up from 22.4% in Q2 2021, due to the expiration of certain tax credits[135]. Cash Flow and Capital Management - Net cash used in operating activities for the six months ended June 30, 2022, totaled $206.8 million, compared to $143.5 million for the same period in 2021[145]. - Operating cash flows in the first half of 2022 benefited from net earnings of $467.3 million and an increase in accounts payable and accrued liabilities of $113.4 million[145]. - Net cash used in investing activities during the first half of 2022 was $18.3 million, primarily due to property and equipment purchases of $12.9 million and investments in unconsolidated entities of $5.7 million[146]. - Net cash used in financing activities for the six months ended June 30, 2022, was $121.1 million, primarily reflecting $109.3 million in share repurchases[148]. - As of June 30, 2022, the debt-to-capital ratio was 25.3%, down from 27.6% as of December 31, 2021[149]. - The net debt-to-capital ratio as of June 30, 2022, was 20.6%, compared to 15.1% as of December 31, 2021[149]. - The company has no debt maturities until 2025, with significant cash requirements for land acquisition, home construction, and operating expenses[141]. - The company expects to meet short-term liquidity needs primarily through cash and cash equivalents on hand and net cash flows from operations[138]. - The company plans to utilize cash to manage liquidity and grow community count, with no cash dividends declared historically[149]. - The company was in compliance with all Credit Facility covenants as of June 30, 2022, including a minimum tangible net worth of $3.37 billion and a leverage ratio of 19.7%[152].