Meritage Homes(US:MTH)2020-04-29 21:59Financial Data and Key Metrics Changes - The company reported a 180% earnings growth in Q1 2020 compared to the same period last year, driven by a 27% increase in home closing revenue and a 31% increase in closings [35][36][42] - Home closing gross margins increased by 330 basis points to 20% for Q1 2020, benefiting from pricing power and construction efficiencies [36][42] - SG&A expenses decreased to 10.7% from 12.3% year-over-year, indicating improved operational efficiency [39] Business Line Data and Key Metrics Changes - Entry-level orders increased by 69% year-over-year, representing 61% of total orders for Q1 2020, up from 45% in Q1 2019 [25][36] - Spec inventory at the end of the quarter was up 23% year-over-year, with 48% of homes completed [26] - The company experienced a 23% order growth overall, with 70% of that growth coming from spec inventory [12][24] Market Data and Key Metrics Changes - Orders in the West region increased by 35% year-over-year, with California seeing total orders and order value more than double compared to Q1 2019 [28] - Arizona reported a 25% order growth for the quarter, with absorption rates up 44% year-over-year [29] - The East region experienced an 11% year-over-year order growth, driven by a 20% increase in absorption [30] Company Strategy and Development Direction - The company is focused on entry-level and first move-up homes, which make up 90% of their communities, and is adapting operations to leverage technology for remote sales [11][19][56] - The management emphasized maintaining a competitive edge by managing spec starts and inventory effectively, while also curtailing discretionary spending [57][58] - The company plans to continue its strategy of simplifying operations and reducing costs to enhance affordability for buyers [55][58] Management's Comments on Operating Environment and Future Outlook - Management acknowledged the impact of COVID-19 on operations but expressed confidence in the company's strong balance sheet and liquidity to weather the uncertainty [10][43] - The management noted that demand for homes remains strong, particularly in entry-level segments, and that the company is well-positioned to capture market share during the downturn [54][56] - The company is monitoring market conditions closely and is prepared to adjust pricing and inventory strategies as necessary [38][99] Other Important Information - The company has suspended share repurchases indefinitely due to current economic conditions, with $23 million remaining authorized for repurchases [42] - The company reported a solid backlog with limited cancellations, expecting most to close quickly [32][44] - The management highlighted a new charitable initiative contributing $250,000 to feed America during the pandemic [59] Q&A Session Summary Question: Can you provide context on recent activity and year-over-year declines? - Management noted a significant slowdown in early April but observed improvement in the latter half of the month, with declines expected to be around 25% to 30% [63][64] Question: What percentage of orders came from virtual tours? - Approximately 15% of net orders came from virtual tours, with buyers typically needing to visit the home before closing [67][68] Question: How is the company adjusting its strategy in response to changing market conditions? - The company is actively managing spec starts and land acquisitions, with a focus on maintaining inventory for quick sales [76][78] Question: Are there differences in demand across different markets? - Management expressed concerns about Orlando and California but noted strong sales in Houston and Arizona [82][84] Question: What would trigger the company to reengage the land market? - The company is reviewing its land pipeline and will strategically engage based on market conditions and opportunities [88][90]