Financial Data and Key Metrics Changes - Meritage Homes reported home closing revenue of $1.5 billion for Q1 2024, reflecting a 21% increase in home closing volume year-over-year, partially offset by a 4% decrease in average selling price (ASP) [20][37] - The company achieved a gross margin of 25.8%, an increase of 340 basis points from 22.4% in the prior year [21][37] - Book value per share increased by 17% year-over-year to $129.98, with a return on equity of 18% [8] Business Line Data and Key Metrics Changes - Entry-level homes accounted for over 90% of total order volume, with an ASP of $409,000, down 5% from the prior year [13] - The company had approximately 6,000 spec homes in inventory as of March 31, 2024, up 54% from about 3,900 specs a year earlier [46] - 93% of home closings in Q1 2024 came from previously started inventory, up from 87% in the prior year [17] Market Data and Key Metrics Changes - The West region had an average absorption pace of 4.8 net sales per month, compared to 4.5 last year, with significant sales momentum regained in Arizona and Colorado [15] - The Central region, particularly Texas, had the highest regional average absorption pace of 5.2 sales per month, driven by economic growth [44] - The East region experienced a year-over-year growth in average absorption pace from 3.8 to 4.7 net sales per month [45] Company Strategy and Development Direction - The company is focused on increasing its community count and expects to end 2024 with mid to high-single digit growth, with greater projected growth in 2025 [14] - Meritage is implementing a move-in ready strategy to satisfy homebuyers' desire for quick closing times, which has helped improve market share [8][11] - The company plans to utilize off-balance sheet financing to control more land and increase its supply of lots beyond what its balance sheet can absorb [28][29] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the current market conditions and anticipates continued strong demand for affordable housing, particularly from millennials and Gen Z [7][8] - The company expects ASP for the rest of the year to remain consistent, with potential reductions from geographic mix and new entry-level communities [50] - Management noted that the effective income tax rate for Q1 2024 was 20.5%, benefiting from energy tax credits [79] Other Important Information - Meritage received the President's Volunteer Service Award for its commitment to community service, packaging nearly 260,000 meals to fight childhood hunger [9] - The company has a formal share repurchase plan with a minimum buyback commitment of $15 million each quarter, and it repurchased an additional $41 million in Q1 2024 [27] Q&A Session Summary Question: What is the outlook for gross margins given the current market conditions? - Management indicated that while incentives remain elevated, they expect to maintain lower costs for rate locks due to quicker sales and closings [68][69] Question: How does the company view its backlog turnover ratio? - Management believes the current backlog turnover ratio of over 100% will be the new normal, supported by stable cycle times and production capacity [86] Question: What is the company's strategy regarding land acquisition? - Management confirmed that the timing of land deals is currently favorable, and they are on track to meet their land acquisition targets for 2025 and beyond [92][94] Question: Can you elaborate on the average buyer profile? - The average buyer has a FICO score near 740, with debt-to-income ratios around 41-42, indicating a stable buyer profile [55][140] Question: What are the expectations for ASP in the coming quarters? - Management stated that ASP guidance is influenced by the land being purchased, with a focus on producing more affordable homes while still taking pricing when the market allows [101][102]
Meritage Homes(MTH) - 2024 Q1 - Earnings Call Transcript