Meritage Homes(US:MTH)2020-10-22 21:06Financial Data and Key Metrics Changes - Meritage Homes reported a 56% year-over-year earnings growth in Q3 2020, with a 21% increase in closing revenue and a 170 basis points improvement in home closing gross margin [35][39][48] - The company achieved record quarterly closing revenue and gross margins, despite high lumber prices, and maintained the lowest net debt to capital ratio in its history at 15.7% [13][44] - Year-to-date results showed an 86% increase in net earnings and a 40% rise in orders [43] Business Line Data and Key Metrics Changes - The company delivered 3,851 homes in Q3 2020, a 71% increase compared to Q3 2019, with entry-level homes representing 60% of average active communities [14][22] - Absorption rates for entry-level communities were 75% higher than the previous year, while first move-up communities saw an 86% increase in absorption [23][30] - The company put approximately 16,000 new lots under control in the first nine months of 2020, translating to about 123 new communities [26] Market Data and Key Metrics Changes - The central region, particularly Texas, led order growth with an 82% increase year-over-year, while California saw a 158% growth in orders [30][32] - All regions experienced solid year-over-year performance, with the East region showing a 63% increase in orders [34] Company Strategy and Development Direction - The company is focused on increasing its community count to 300 by early to mid-2022, with a strategy emphasizing affordable entry-level homes [18][53] - Meritage Homes plans to ramp up land investments, having spent nearly $300 million in Q3 2020, the highest in its history [46][125] - The company aims to maintain a nimble land acquisition strategy to adapt to market conditions [46] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to capitalize on current market demand, citing favorable macroeconomic factors such as low mortgage rates and increased demand for new homes [15][52] - The company anticipates continued strength in Q4 2020, but acknowledges potential impacts from election uncertainty and COVID-19 [48] Other Important Information - The effective tax rate for Q3 2020 was 19.5%, down from 24.4% the previous year, contributing to improved earnings per share [42] - The company has a strong liquidity position with $610 million in cash and no drawn credit facility [44] Q&A Session Summary Question: Concerns about builders needing to slow activity pace - Management acknowledged the need for long-term focus, indicating that while short-term fluctuations may occur, the company is well-positioned for future growth [60][64] Question: Community count decline and market growth - Management noted that while community count is a concern, they are focused on backlog and spec counts to drive sales in 2021 [78][82] Question: Gross margin outlook for 2020 - Management indicated that gross margins are expected to improve due to pricing and operational efficiencies, despite some cost pressures from lumber [97][100] Question: LiVE.NOW brand penetration and future opportunities - Management highlighted the importance of maintaining affordability and noted that they are actively pursuing larger land deals to support growth [145][116]