Meritage Homes(US:MTH)2022-01-27 21:05Financial Data and Key Metrics Changes - In Q4 2021, home closing revenue grew 6% year-over-year to $1.5 billion, driven by a 13% increase in average selling price (ASP) despite a 6% decline in home closing volume due to supply chain issues [44][50]. - Home closing gross margin improved by 500 basis points to 29% from 24% a year ago, primarily due to pricing power outweighing cost pressures [45]. - Diluted EPS increased by 57% year-over-year to $6.25, reflecting strong profit growth and lower outstanding share count [50]. Business Line Data and Key Metrics Changes - Entry-level homes comprised 81% of total closings in Q4 2021, up from 72% in the prior year, indicating a strategic focus on this segment [27][30]. - Total orders for Q4 2021 were 3,367, a 6% increase year-over-year, supported by a 24% increase in average active community count [28]. Market Data and Key Metrics Changes - The Central region, particularly Texas, led in average absorption pace with 5.3 homes per month, contributing to an 11% increase in order volume [31]. - The East region saw a 34% increase in average community count year-over-year, although average absorption pace decreased by 21% [33]. Company Strategy and Development Direction - The company aims to capitalize on strong demand for entry-level homes, with a forecast of continued double-digit community growth in 2022 [14][66]. - A disciplined land acquisition strategy is in place, focusing on larger parcels to reduce costs and enhance affordability [65]. Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in maintaining strong margins despite rising costs, citing the ability to leverage pricing power due to high demand and limited supply [79][80]. - The company anticipates a robust spring selling season in 2022, with projected closings between 14,500 and 15,500 units and home closing revenue of $6.1 billion to $6.5 billion [67]. Other Important Information - The company opened 48 new communities in Q4 2021, increasing community count by 33% year-over-year to 259 [58]. - The balance sheet remains strong, with a cash balance of $618 million and a net debt-to-cap ratio of 15.1% as of December 31, 2021 [52][53]. Q&A Session Summary Question: Impact of interest rate outlook on demand - Management noted that January showed strong demand with no discernible impact from rising interest rates, attributing demand to a lack of housing supply [73][76]. Question: Drivers of gross margin compression - Management indicated that the modest compression in gross margin is entirely related to rising costs, with no changes in incentives or marketing costs anticipated [78][80]. Question: Cycle times and future expectations - Cycle times lengthened by two weeks in Q4, with no expected improvement in 2022 due to ongoing supply chain challenges [85][89]. Question: Pricing power and ASP trends - Management stated that while ASPs were stable in Q4, they have seen an acceleration in pricing power in January, indicating a strong demand environment [104][110]. Question: Customer demographics and migration trends - The company is seeing a diverse customer base, including millennials and baby boomers, with significant in-migration to key markets like Florida and Texas [119][120]. Question: Cash flow outlook for 2022 - Management expects to be neutral or slightly positive in operating cash flow for 2022, despite significant land acquisition spending [122].