Meritage Homes(US:MTH)2024-02-01 20:14Financial Data and Key Metrics Changes - Home closing gross margin for Q4 2023 was 25.2%, with diluted EPS of $5.38, reflecting a 24% year-over-year decline [10][53] - Book value per share increased by 17% year-over-year to $126.61, with a return on equity of 17% for the full year 2023 [10] - Fourth quarter 2023 home closing revenue was $1.6 billion, a 13% decrease in home closing volume and a 5% decrease in average selling prices (ASPs) compared to the prior year [24][53] Business Line Data and Key Metrics Changes - Average sales price (ASP) on orders for Q4 2023 was $415,000, up 6% from the prior year, with a cancellation rate of 13% [14] - The company opened 28 new communities in Q4 2023 and 111 new communities throughout the year, achieving a backlog conversion rate of 110% [16][21] - The average absorption pace improved to 3.6 homes per month in Q4 2023, up from 2.2 in the prior year [14] Market Data and Key Metrics Changes - The Central region had the highest average absorption pace of 4.1 homes per month, compared to 2.6 last year, while the East region had the lowest cancellation rate [17][19] - The West region's average absorption pace increased to 3.0 homes per month, an 88% increase from the prior year [44] - The company is focusing on high-growth, lower ASP markets in the East region, which is expected to generate a greater share of business [19] Company Strategy and Development Direction - The company aims to grow its community count mid to high-single digits year-over-year by the end of 2024, with a focus on affordable entry-level homes [42][59] - A disciplined capital allocation strategy is in place, with $654 million spent on land acquisition and development in Q4 2023, the highest quarterly spend ever [28][30] - The company plans to leverage land banking relationships to support growth while maintaining liquidity [58][113] Management's Comments on Operating Environment and Future Outlook - Management noted that home buying demand remained healthy as mortgage rates fell below 7% in December, with expectations for rates to stabilize or decrease further in 2024 [34][36] - The company anticipates a reduction in ASP to the low $400,000 range in 2024, aligning with long-term business objectives [59] - Management expressed confidence in the spring selling season, citing a strong start in January and positive buyer sentiment [87] Other Important Information - The company received recognition for its DE&I efforts and was listed among the Best Companies to Work For [37] - The effective income tax rate for Q4 2023 was 23.2%, slightly down from 23.3% in 2022 [53] - The company plans to reset the 2024 quarterly cash dividend amount, with $185 million remaining under the buyback authorization program [56][81] Q&A Session Summary Question: What is embedded in the 2024 gross margin guidance? - Management indicated that the guidance reflects new land coming online at a higher basis and does not assume a pullback in incentives yet [63] Question: How will SG&A expenses trend in 2024? - Management expects SG&A to decrease, driven by restructuring performance-based compensation and controlling discretionary spending [66][79] Question: What are the expectations for cash flow and buyback programs? - The company plans to maintain its share repurchase strategy while increasing land acquisition spending, with a focus on balancing growth and shareholder returns [92][113]