Meritage Homes(US:MTH)2021-10-28 23:14Financial Data and Key Metrics Changes - The company reported a 10% year-over-year increase in home closing revenue to $1.3 billion, driven by a 4% increase in home closings and a 7% higher average selling price (ASP) [35][40] - Home closing gross margin improved by 820 basis points to 29.7% from 21.5% a year ago, attributed to pricing power that offset increased costs of lumber and other commodities [36] - Diluted EPS reached $5.25, an 85% year-over-year increase [39] Business Line Data and Key Metrics Changes - Home closings totaled 3,112, up 4% year-over-year, with entry-level homes comprising 78% of closings, up from 63% in the prior year [20][10] - Total orders for the quarter were 3,441, reflecting an 11% year-over-year decrease, driven by a 15% decline in average absorption pace [21] - The average absorption pace remained elevated at 5.0 sales per month, despite a decrease from the previous year [19][20] Market Data and Key Metrics Changes - The central region, particularly Texas, led in average absorption pace at 5.4 sales per month, although this was a 14% decline from the prior year [23] - The east region saw a 3% year-over-year growth in order volume, attributed to an 8% increase in average active communities [24] - The west region experienced a 24% decline in order volume year-over-year, primarily due to a 25% decrease in average absorption pace [26] Company Strategy and Development Direction - The company continues to focus on affordability, aiming to position products in the mid to low $300,000 range through strategic land acquisitions [17][59] - The goal is to achieve 300 active communities by mid-2022, with a current count of 236 communities [11][54] - The company is investing in digital financial services and self-guided tours to enhance customer experience [13][14] Management's Comments on Operating Environment and Future Outlook - Management noted ongoing supply chain challenges but expressed confidence in navigating these issues due to strong vendor relationships and a streamlined operating model [10][34] - The company anticipates continued elevated demand driven by demographic factors, including household formation among millennials and downsizing among baby boomers [9][8] - Future guidance includes expectations for double-digit growth in unit and home closing revenue for 2022, despite potential challenges from supply chain issues and commodity costs [51][52] Other Important Information - The company ended the quarter with a backlog of over 1,500 units, with a conversion rate decline from 68% to 57% due to supply delays [32] - The land book increased by 46% year-over-year, with nearly 70,000 lots under control, providing a 5.4-year supply based on trailing 12-month closings [44] - The company repurchased over 95,000 shares during the quarter, with an additional 244,000 shares repurchased since the end of the quarter [43] Q&A Session Summary Question: How will the company bring average prices down? - The company aims to source land that allows positioning products in the mid to low $300,000 range, focusing on secondary markets for lower-cost land [58][59] Question: What is the outlook for gross margins? - The company expects margins to remain elevated through next year, with land acquired over the last two years supporting this outlook [61][62] Question: What are the current cycle times compared to previous quarters? - Cycle times have increased by approximately 6 to 7 weeks year-over-year, with no expected improvement in the near term [74][75] Question: What are the biggest challenges in the supply chain? - The primary challenges are related to windows and trusses, with variations in issues across different regions [76] Question: How does the company view the option market for lots? - The company prefers to find land that profiles well for their business model, focusing on owned lots while also considering options where beneficial [84][87]