Meritage Homes(US:MTH)2023-04-27 20:26Financial 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]