Meritage Homes (MTH) Investor Day 2024 Part 2 summary

Strategic evolution and business model

• The strategy is built on three pillars: a 60-day closing guarantee, move-in-ready homes, and deepening Realtor relationships to better compete with resale inventory and expand market share.

• Move-in-ready homes include features like ceiling fans, blinds, landscaping, and appliances, reducing buyers' out-of-pocket costs and increasing average selling prices.

• Realtor engagement increases external commissions to local market rates, reduces internal commissions, and shifts marketing focus from buyers to Realtors, aiming for 100% co-broke participation.

• The strategy aims to maintain 4-6 months of spec inventory, with a higher share of finished homes to support the 60-day guarantee and maintain absorption pace as resale inventory returns.

• Incremental costs from the guarantee and move-in-ready features are expected to be offset by ASP increases and operational efficiencies.

Financial guidance and targets

• Long-term home closing gross margin target is set at 22.5%-23.5%, a 200-300 bps improvement over pre-strategy levels.

• SG&A as a percentage of home closing revenue is targeted at 9.5% over the next 3-4 years.

• Backlog conversion rate target of at least 125% and a sales pace floor of 4 net sales per month per community.

• Annual home closings targeted to grow from 14,750 in 2024 to 20,000 within 3-4 years, leveraging existing markets and overhead.

• Inventory turns goal of three per year, with a third of specs finished at any time.

Land and capital allocation

• No change to disciplined land underwriting; focus remains on larger parcels in current MSAs.

• Off-balance-sheet land financing ceiling set at 40%, with 2024 land spend guidance of $2-2.5 billion, excluding off-balance-sheet deals.

• Exploring various structures for land acquisition, including JVs and hybrid vehicles, to balance risk and cost.

• Net debt-to-capital ratio ceiling remains in the low 20% range, with most cash flow reinvested for growth.