Core Points - Meritage Homes Corporation declared a quarterly dividend of $0.75 per share, payable on December 31, 2024, to shareholders of record as of December 17, 2024 [1] - The Board of Directors approved a $250 million increase to the Company's share repurchase authorization, bringing the total authorized share repurchase program to $334 million as of November 21, 2024 [2] - Meritage is the fifth-largest public homebuilder in the U.S., offering energy-efficient and affordable homes across multiple states [3] - The Company has delivered over 190,000 homes in its 38-year history and is recognized for its quality construction and customer experience [4]

Home Closing Performance - Home closing units volume increased by 8.4% to 3,942 homes in Q3 2024 compared to 3,638 homes in Q3 2023[108] - Home closing revenue decreased by 1.5% to $1.6 billion in Q3 2024, primarily due to a 9.1% decrease in average sales price (ASP) to $402.3 thousand[108] - Home closing gross margin for Q3 2024 was 24.8%, a decrease of 190 basis points from 26.7% in Q3 2023, resulting in a gross profit of $392.6 million[108] - Home orders for Q3 2024 were 3,512, slightly up from 3,474 in the prior year, with a home order value of $1.4 billion, down 4.7% year-over-year[110] - Total home orders for the three months ended September 30, 2024, were $1.4 billion, a decrease of 4.7% from $1.5 billion in the same period of 2023[130] - Home order volume for the nine months ended September 30, 2024, was 11,302, an increase of 9.7% from 10,301 in the prior year[131] Backlog and Cancellation Rates - The cancellation rate improved to 10% in Q3 2024 from 11% in Q3 2023[112] - The company ended Q3 2024 with a backlog of 2,284 homes valued at $0.9 billion, a decrease of 36.7% from the previous year[113] - The backlog at September 30, 2024, was valued at $931.7 million, down 40.2% from $1.6 billion at the same time in 2023[126] - Homes in backlog decreased by 36.7% to 2,284 units at September 30, 2024, compared to 3,608 units in 2023[126] - The year-to-date cancellation rate improved to 10% from 14% in the prior year period[133] - The East Region's cancellation rate dropped to 8% from 11% in the prior year[138] Financial Performance - Net income for the nine months ended September 30, 2024, was $613.5 million, up from $539.9 million in the same period of 2023, reflecting a 13.7% increase[109] - For the nine months ended September 30, 2024, home closing revenue reached $1.7 billion, a 12.3% increase driven by an 18.4% rise in home closing volume[133] - Financial services profit for Q3 2024 was $3.1 million, a decrease of $2.6 million from $5.7 million in the same prior year period[146] - The Central Region closed 1,174 homes in Q3 2024, a 6.5% increase, but home closing revenue decreased by 7.9% to $416.8 million due to a 13.6% drop in ASP[136] - The East Region saw a 16.6% increase in home closing volume and an 11.2% increase in revenue, closing 4,462 homes for $1.7 billion in revenue for the nine months ended September 30, 2024[138] Sales and Marketing Expenses - Commissions and other sales costs decreased by $1.2 million to $97.9 million for the three months ended September 30, 2024, representing 6.2% of home closing revenue[147] - General and administrative expenses for the three months ended September 30, 2024, were $59.2 million, a decrease of $3.9 million from the prior year, improving to 3.7% of home closing revenue[148] Tax and Debt Management - The effective income tax rate for Q3 2024 was 21.6%, benefiting from energy tax credits under the Inflation Reduction Act[108] - The effective tax rate was 21.6% for the three months ended September 30, 2024, compared to 22.4% for the same period in 2023[153] - The company maintains a debt-to-capital ratio of 20.7% and a net debt-to-capital ratio of 8.8% as of Q3 2024[115] - The debt-to-capital ratio increased to 20.7% as of September 30, 2024, compared to 17.9% at the end of 2023[165] - Net debt increased to $482.7 million as of September 30, 2024, from $86.99 million at the end of 2023[165] Cash Flow and Capital Management - Net cash used in operating activities totaled $128.0 million for the nine months ended September 30, 2024, compared to net cash provided of $460.1 million for the same period in 2023[161] - Net cash provided by financing activities was $69.8 million for the nine months ended September 30, 2024, compared to net cash used of $238.2 million in the prior year[163] - Total capital increased to $6.34 billion as of September 30, 2024, from $5.62 billion at the end of 2023[165] - The company has a minimum tangible net worth requirement of $3.3 billion, with an actual net worth of $4.98 billion as of September 30, 2024[169] Regional Performance - The West Region generated $594.5 million in home closing revenue for Q3 2024, a decrease of 2.0% from $606.8 million in Q3 2023[132] - The average sales price in the West Region decreased by 5.9% year-over-year due to a shift towards more entry-level homes[132] - The West Region ended Q3 2024 with 598 homes in backlog valued at $286.3 million, down from 1,179 units valued at $579.8 million at September 30, 2023[133] Other Financial Metrics - Other income, net, was $10.7 million for the three months ended September 30, 2024, down from $13.3 million in the prior year period[150] - Seasonal variations in quarterly operating results are expected, with higher orders typically in the first half of the fiscal year[170] - The company is in compliance with all Credit Facility covenants as of September 30, 2024[168] - The company has $1.3 billion in fixed rate debt, primarily consisting of senior and convertible senior notes, which do not expose it to interest rate risk[172] - The Credit Facility is subject to interest rate changes based on SOFR or Prime rates[172] - Recent accounting pronouncements are discussed in the unaudited consolidated financial statements[171]

Financial Data and Key Metrics Changes - In Q3 2024, Meritage Homes reported home closing revenue of $1.6 billion, a 2% year-over-year decrease, with an 8% increase in home closing volumes offset by a 9% decrease in average selling price (ASP) [33][34] - The diluted EPS for Q3 2024 was $5.34, down 11% from $5.98 in Q3 2023 [39] - Book value per share increased by 15% year-over-year to $139.2, with a return on equity of 17.2% [11] Business Line Data and Key Metrics Changes - Q3 2024 orders totaled 3,512 homes, with 92% of the volume from entry-level homes, reflecting a 1% year-over-year increase [16] - The cancellation rate for the quarter was 10%, below the historical average in the mid-teens [16] - The average community count was 278, with 20 new communities brought online in Q3 2024, totaling 90 year-to-date [18] Market Data and Key Metrics Changes - The central region, primarily Texas, had the highest average absorption pace of 4.6 homes per month, exceeding the minimum target of 125% for backlog conversion [20] - The West region saw a year-over-year growth in average absorption pace to 4.2 homes per month, up from 3.6 in Q3 2023 [21] - The East region maintained an average absorption pace of 3.8 net sales per month, consistent with traditional seasonality [24] Company Strategy and Development Direction - The company is focusing on affordable, move-in ready homes, which has resonated well with home buyers, leading to strong order volumes [9] - The acquisition of Elliott Homes is expected to enhance market presence in the Gulf Coast, with plans to generate significant volume from this new division starting in 2025 [15] - The strategic evolution aims to bring homes to near completion before sales to align with existing resale timelines, targeting entry-level and first move-up homes [25][26] Management's Comments on Operating Environment and Future Outlook - Management noted that despite a volatile mortgage rate environment, demand remains steady, with expectations of lower rates in the coming quarters [55] - The company anticipates that the combination of favorable demographics and an undersupply of homes will support continued growth in market share [54] - Management expressed confidence in the ability to maintain sales pace through financial incentives, including rate buydowns, to address affordability for buyers [32] Other Important Information - Meritage Homes received the EPA's 2024 Indoor AirPLUS Leader Award for the fourth consecutive year, recognizing its commitment to healthier indoor environments [12] - The company has been recognized as a Great Place to Work for two consecutive years and made the Fortune Best Workplaces in Construction list [13] - The company plans to continue its capital allocation strategy focused on organic growth and shareholder returns, with a projected land spend of $2 billion to $2.5 billion for 2024 [43][44] Q&A Session Summary Question: What are the long-term targets for backlog turns and specs per community? - Management indicated a target backlog conversion rate of over 125%, with current performance around 145% [58][60] Question: Can you provide details on the Elliott acquisition and its impact? - The acquisition did not include any VIP, and the company expects to start units in Q4, benefiting from closings by the end of Q1 2025 [64][66] Question: How do you expect margins to normalize in Q4? - Management anticipates a sequential decline in margins due to increased incentives, but long-term targets remain intact [70][74] Question: How has demand responded to recent rate changes? - Demand was elastic to rates, with September seeing increased orders due to rate declines, but moderation was noted in October as rates rose [96][98] Question: What is the availability of finished lots across the footprint? - The availability of finished lots has decreased over the last decade, with competition for existing lots remaining high [84][86]

Financial Performance - Home closings increased by 8% to 3,942 units in 3Q24 compared to 3,638 units in 3Q23[12] - Home closing revenue decreased by 2% to $1.586 billion in 3Q24 from $1.610 billion in 3Q23[12] - Home closing gross margin was 24.8% in 3Q24, a decrease of 190 bps compared to 26.7% in 3Q23[12] - Diluted EPS decreased by 11% to $5.34 in 3Q24 compared to $5.98 in 3Q23[12] Sales and Orders - Net sales orders increased by 1% year-over-year in 3Q24, reaching 3,512 orders[5] - Average absorption pace was 4.1 per month in 3Q24, consistent with 3Q23[6] - Average selling price (ASP) on orders decreased by 6% year-over-year to $406K[10] Land and Development - Total lots controlled reached 74,819 in 3Q24[16] - The supply of lots is 4.8 years[16] - Land spend was $717 million in 3Q24, with 92% allocated to land acquisition[15] Geographic Footprint - The East Region had the highest average active communities with 123[10] - Entry-level homes accounted for 92% of average communities[10] Guidance - The company expects home closings between 3,750 and 3,950 units for the fourth quarter of 2024[17] - The company expects home closing revenue between $1.50 and $1.59 billion for the fourth quarter of 2024[17]

Core Viewpoint - Meritage Homes Corporation reported third-quarter 2024 results with earnings and total closing revenues exceeding the Zacks Consensus Estimate, marking the seventh consecutive quarter of such performance, although both metrics declined year over year [1][3]. Financial Performance - Earnings per share (EPS) was $5.34, surpassing the Zacks Consensus Estimate by 5.7%, but down 11% from $5.98 in the same quarter last year [3]. - Total revenues reached $1.6 billion, a decrease of 1.4% from $1.62 billion year over year [3]. - Total closing revenues were $1.588 billion, down 2% from the prior year but exceeding the consensus estimate of $1.57 billion by 0.7% [4]. Operational Highlights - The company closed 3,942 homes, an 8% increase from the previous year, with an average sales price (ASP) of $402,000, down 9% year over year [5]. - Total home orders increased by 1% to 3,512 homes, but in dollar terms, they decreased by 5% to $1.43 billion due to a 6% lower ASP of $406,000 [6]. - Entry-level buyers constituted 92% of sales orders, up from 88% in the previous year [7]. Strategic Initiatives - The company emphasized a strategic shift towards affordable, quick-turn homes, achieving a 145% backlog conversion and a 17.2% return on equity [2]. - Capital allocation focused on growth, with $659.4 million invested in land, acquiring 7,800 new lots, and returning $57.1 million to shareholders [2]. Margin and Cost Analysis - Adjusted home closing gross margin contracted by 190 basis points to 24.8%, influenced by increased lot costs and financing incentives [8]. - Selling, general and administrative expenses as a percentage of home closing revenues improved by 20 basis points to 9.9% due to lower performance-based compensation costs [9]. Balance Sheet and Cash Flow - Cash and cash equivalents at the end of the third quarter totaled $831.6 million, down from $921.2 million at the end of 2023 [9]. - Total debt to capital ratio increased to 20.7% from 17.9% at the end of 2023, while net debt to capital rose to 8.8% from 1.9% [10]. Shareholder Returns - The company paid quarterly cash dividends of 75 cents per share, totaling $27.1 million, and repurchased 151,220 shares for $30 million [11]. Future Guidance - For Q4 2024, Meritage Homes expects 3,750-3,950 closings, generating revenues between $1.5 billion and $1.59 billion, down from $1.64 billion reported a year ago [12]. - EPS is projected to be between $4.10 and $4.60, a decrease from $5.38 in the previous year [12].

Acquisition Details - Meritage Homes acquires Elliott Homes, a top five Gulf Coast homebuilder, marking its entry into the Gulf Coast markets [1][2] - The acquisition includes over 5,500 lots, with production operations expected to commence in existing entry-level communities by the end of the year [2] - The operations are anticipated to make a meaningful contribution to Meritage's performance in 2025 [2] Strategic Alignment and Leadership - The acquisition aligns with Meritage's strategy of building affordable entry-level homes and is the company's first acquisition since 2014 [3] - Phillippe Lord, CEO of Meritage Homes, highlights the acquisition as a strategic move to expand into desirable Gulf Coast markets [3] - Brandon Elliott, founder and CEO of Elliott Homes, expresses pride in his team's growth and looks forward to leveraging Meritage's national scale to deliver affordable, quality homes [3] Company Overview - Meritage Homes is the fifth-largest public homebuilder in the U.S., based on homes closed in 2023 [4] - The company operates in multiple states, including Arizona, California, Colorado, Utah, Texas, Florida, Georgia, North Carolina, South Carolina, and Tennessee [4] - Meritage has delivered over 190,000 homes in its 38-year history and is recognized for energy-efficient homebuilding, having received multiple awards from the U.S. Environmental Protection Agency [5] Industry and Market Position - Meritage Homes specializes in energy-efficient and affordable entry-level and first move-up homes, catering to a broad market segment [4] - The company's reputation is built on distinctive style, quality construction, and award-winning customer experience [5] - The acquisition of Elliott Homes strengthens Meritage's presence in the Gulf Coast region, a highly desirable market for homebuilding [3]

Company Performance - Meritage Homes reported quarterly earnings of $5.34 per share, exceeding the Zacks Consensus Estimate of $5.05 per share, but down from $5.98 per share a year ago, representing an earnings surprise of 5.74% [1] - The company posted revenues of $1.59 billion for the quarter ended September 2024, surpassing the Zacks Consensus Estimate by 0.65%, although this is a slight decrease from year-ago revenues of $1.61 billion [2] - Over the last four quarters, Meritage has consistently surpassed consensus EPS estimates [2] Stock Outlook - Meritage shares have increased by approximately 5.9% since the beginning of the year, while the S&P 500 has gained 22.1% [3] - The current consensus EPS estimate for the upcoming quarter is $4.70 on revenues of $1.56 billion, and for the current fiscal year, it is $21.09 on revenues of $6.3 billion [7] - The estimate revisions trend for Meritage is currently unfavorable, resulting in a Zacks Rank 4 (Sell) for the stock, indicating expected underperformance in the near future [6] Industry Context - The Building Products - Home Builders industry, to which Meritage belongs, is currently ranked in the top 26% of over 250 Zacks industries, suggesting a favorable outlook compared to lower-ranked industries [8] - Empirical research indicates a strong correlation between near-term stock movements and trends in earnings estimate revisions, which can be tracked by investors [5]

Financial Performance - Meritage Homes reported a third quarter 2024 home closing volume of 3,942 units, an 8% increase year-over-year, with a record backlog conversion rate of 145%[1][3] - Home closing revenue for Q3 2024 was $1.6 billion, a 2% decrease from Q3 2023, attributed to a 9% decline in average sales price (ASP) on closings[2][5] - The average sales price for home closings in Q3 2024 was $402,000, down 9% from $443,000 in Q3 2023, with entry-level homes representing 93% of sales[2][4] - Net earnings for Q3 2024 were $196 million, or $5.34 per diluted share, reflecting a 12% decrease from $221.8 million, or $5.98 per diluted share, in Q3 2023[2][10] - Home closing revenue for Q3 2024 was $1,585,784, a decrease of 2% from $1,610,317 in Q3 2023[29] - Total closing revenue for Q3 2024 was $1,588,449, down 2% from $1,613,100 in Q3 2023[29] - Net earnings for Q3 2024 were $195,966, a decrease of 12% compared to $221,760 in Q3 2023[29] - Home closing gross profit for Q3 2024 was $392,565, down 9% from $429,575 in Q3 2023[29] - Total closing gross profit for Q3 2024 was $393,245, a decrease of 9% from $429,823 in Q3 2023[29] - Home closing revenue for the nine months ended September 30, 2024, was $4,745,618, an increase of 7% from $4,415,261 in the same period of 2023[31] - Net earnings for the nine months ended September 30, 2024, increased to $613,537, compared to $539,897 for the same period in 2023, representing a growth of approximately 13.6%[35] Operational Metrics - The company’s gross margin for home closings in Q3 2024 was 24.8%, a decrease of 190 basis points from 26.7% in the prior year due to higher lot costs and increased financing incentives[2][6] - For the first nine months of 2024, total sales orders increased by 10%, driven by a 10% increase in average absorption pace compared to the same period in 2023[11] - The company plans to close between 3,750 and 3,950 units in Q4 2024, with expected revenue of $1.50 to $1.59 billion and a gross margin of 22.5% to 23.5%[25] - The total order backlog as of September 30, 2024, was 2,284 homes valued at $931,656, compared to 3,608 homes valued at $1,558,637 in the same period of 2023, indicating a significant decrease in backlog value of approximately 40.1%[38] - Homes ordered in the three months ended September 30, 2024, totaled 3,512, valued at $1,425,610, compared to 3,474 homes valued at $1,495,542 in the same period of 2023, reflecting a decrease in value of approximately 4.7%[37] - Total homes closed in the three months ended September 30, 2024, reached 3,942, with a total value of $1,585,784, compared to 3,638 homes valued at $1,610,317 in the same period of 2023, indicating a decrease in value of about 1.5%[37] Financial Position - The company’s cash and cash equivalents at September 30, 2024, totaled $831.6 million, down from $921.2 million at December 31, 2023[20] - Total assets as of September 30, 2024, were $7,103,452, up from $6,353,134 at the end of 2023[32] - Total stockholders' equity increased to $5,029,790 as of September 30, 2024, compared to $4,611,900 at the end of 2023[33] - The debt-to-capital ratio increased to 20.7% as of September 30, 2024, up from 17.9% as of December 31, 2023[42] - The company reported a net cash used in operating activities of $(128,013) for the nine months ended September 30, 2024, compared to $460,092 for the same period in 2023[35] Market and Strategic Insights - The company is focused on offering entry-level and first move-up homes as part of its market strategy[47] - The company has 278 active communities as of September 30, 2024, compared to 272 active communities at the end of 2023, showing a slight increase[39] - The company has delivered over 190,000 homes in its 38-year history, emphasizing its reputation for quality construction and customer experience[45] - Meritage Homes Corporation is the fifth-largest public homebuilder in the U.S., with operations across multiple states including Arizona, California, and Texas[44] Risks and Challenges - The company faces significant uncertainties and risks that may lead to fluctuations in stock and note prices, including interest rate increases and mortgage availability issues[47] - Inflation in material costs for community development and home construction is a concern, potentially impacting profit margins[47] - The company is experiencing challenges related to supply chain and labor constraints, which could affect operational efficiency[47] - Cancellation rates and slow absorption rates are potential risks that may adversely impact sales performance[47] - The company has limited geographic diversification, which may expose it to regional market fluctuations[47] - There are concerns regarding the availability and cost of finished lots and undeveloped land, which could hinder growth[47] - Potential disruptions from epidemics or pandemics could impact business operations and sales[49] - The company is subject to various regulatory compliance requirements that may affect its financial services operations[47] - Key personnel loss and information technology failures pose risks to the company's operational stability[47]

Core Insights - Meritage Homes Corporation reported third quarter results for 2024, showing a slight increase in home orders and a decrease in average sales price, reflecting a strategic pivot towards affordable homes [1][3][4] Summary of Operating Results - Homes closed in Q3 2024 totaled 3,942 units, an 8% increase from 3,638 units in Q3 2023 [2] - Home closing revenue decreased by 2% to $1.585 billion from $1.610 billion year-over-year [2] - Average sales price for closings fell by 9% to $402,000 compared to $443,000 in the previous year [2] - Home orders increased by 1% to 3,512 units from 3,474 units in Q3 2023 [2] - Home order value decreased by 5% to $1.426 billion from $1.496 billion year-over-year [2] Financial Performance - Net earnings for Q3 2024 were $196 million, down 12% from $222 million in Q3 2023, resulting in diluted EPS of $5.34, a decrease of 11% from $5.98 [2][9] - Earnings before income taxes were $250 million, a 13% decrease from $286 million in the prior year [2][9] - Home closing gross margin was 24.8%, down from 26.7% in Q3 2023, attributed to higher lot costs and increased financing incentives [6] Management Strategy - The company emphasized a shift towards affordable, quick-turning move-in ready homes, which contributed to achieving the highest third quarter closing volume [3] - Management noted that nearly 45% of this quarter's closings were also sold within the same quarter, leading to a record backlog conversion rate of 145% [3] Capital Allocation and Liquidity - Land acquisition and development spending totaled $659.4 million in Q3 2024, with nearly 7,800 net new lots acquired [3][18] - The company ended the quarter with cash of $831.6 million and a net debt-to-capital ratio of 8.8% [3][20] Year-to-Date Results - For the first nine months of 2024, total sales orders increased by 10%, driven by a 10% increase in average absorption pace [10] - Home closing revenue for the first nine months rose by 7% to $4.746 billion, reflecting a 15% increase in home closing volume [11] - Net earnings for the first nine months were $614 million, a 14% increase from $540 million in the same period of 2023 [17] Guidance - The company provided guidance for Q4 2024, projecting home closing volume between 3,750 and 3,950 units, with expected home closing revenue of $1.50 to $1.59 billion [22]

Core Points - Meritage Homes has appointed Erin Lantz as an independent director to its Board of Directors, effective October 14, 2024, increasing the board size to 11 directors [1] - The appointment reflects the company's commitment to board refreshment and diversity of thought [4] - The Board plans to consider Ms. Lantz for committee appointments in upcoming meetings [1] Company Background - Meritage Homes is the fifth-largest public homebuilder in the U.S., focusing on energy-efficient and affordable homes [10] - The company has delivered over 185,000 homes in its 38-year history and is recognized for quality construction and customer experience [11] Erin Lantz's Experience - Ms. Lantz has over 20 years of leadership experience in technology-related offerings, currently serving as Chief Revenue Officer for Ethos [2] - She has held significant positions at Zillow Group and Bank of America, bringing valuable insights to the board [2][3] - Her public company director experience includes roles at Blend Labs, TrueCar, and Washington Federal [3] Board Declassification Proposal - The Board has approved a proposal to declassify the Board of Directors, which will be presented to stockholders at the 2025 annual meeting [5] - This move is in response to stockholder feedback favoring annually elected boards for increased accountability [5] - The declassification aligns with the company's refreshment initiative to transition longer-tenured directors over time [5] Governance and Communication - The company plans to file a proxy statement with the SEC regarding the Declassification Proposal, urging stockholders to review the materials [6] - Key participants in the solicitation of proxies include the executive chairman and other directors [7][8]