Meritage Homes CORP Q3 FY2024 earnings call

• Welcomed new Board member Erin Lantz and continued the declassification of the Board of Directors. - Announced the acquisition of Elliott Homes, a strategic fit for affordability and first-time homebuyers in Gulf Coast markets. - Q3 backlog conversion rate was 145%, generating 3,942 home deliveries. - Central region had the highest absorption pace, and the West region saw the largest YOY growth in absorption pace. - Impact of hurricanes on the East region, with employees safe but minor construction delays. - Land spend focused on organic growth, with $659 million spent in Q3, on track for $2 billion to $2.5 billion in full-year 2024 land spend.

In the third quarter of 2024, Meritage Homes had 3,512 home orders, with 92% of volume from entry-level homes. Orders were up 1% year-over-year (YOY). The average selling price (ASP) on orders was $406,000, down 6% YOY due to geographic and product mix shifts and increased financing incentives. Home closing revenue was $1.6 billion, a 2% YOY decrease. Home closing gross margin was 24.8%, down 190 basis points (bps) YOY. Year-to-date, orders were up 10%, closings up 15%, home closing revenue up 7%, home closing gross margin improved by 80 bps to 25.5%, and SG&A as a percentage of home closing revenue decreased to 9.8%.

• Q4 2024 guidance: Closings expected to be between 3,750 and 3,950 units, home closing revenue between $1.5 billion and $1.59 billion, home closing gross margin between 22.5% and 23.5%, effective tax rate around 22.5%, and diluted EPS in the range of $4.10 to $4.60. - Full-year 2025 guidance: Closings anticipated to be 16,500 to 17,500 units, home closing revenue $6.7 billion to $7.1 billion, including the Elliott Homes acquisition.

• Volatile mortgage rate environment affecting demand and financing incentives. - Uncertainty in interest rate movements impacting margin and sales. - Competition for finished lots and challenges in land development.

Q: Stephen Kim on production and backlog turns.

A: Phillippe Lord discussed backlog conversion targets around 145% and cycle times aiming for 120 days.

Q: Stephen Kim on Elliott acquisition and land.

A: Hilla Sferruzza provided details on Elliott's impact with no purchase price adjustments and plans for future closings.

Q: Alan Ratner on margin guide and incentives.

A: Hilla Sferruzza talked about higher incentives due to volatile interest rates impacting Q4 margin guidance.

Q: Michael Rehaut on finished lots and Elliott impact.

A: Phillippe Lord and Hilla Sferruzza discussed scarce finished lots and Elliott's contribution to 2025 guidance.

Q: Trevor Allinson on 4Q margin guide and demand.

A: Phillippe Lord and Hilla Sferruzza on margin conservatism and demand elasticity influenced by rates.

Q: John Lovallo on rate impacts and capital allocation.

A: Phillippe Lord and Hilla Sferruzza on rate tailwinds/headwinds and future capital allocation plans.

Q: Carl Reichardt on Elliott and land spend.

A: Phillippe Lord and Hilla Sferruzza on Elliott's strategic fit and land spend plans.

Q: Susan Maklari on costs and capital allocation.

A: Hilla Sferruzza on cost volatility and future capital allocation disclosures.

Q: Alex Barron on Elliott and price points.

A: Phillippe Lord on Elliott's price points and profitability in low-cost markets.

Q: Jay McCanless on Elliott communities and 2025 guidance.

A: Phillippe Lord on Elliott's community impact and 2025 growth expectations