Executive Summary

Q1 2025 revenue was $1.365B and diluted EPS $1.69; both modestly above S&P Global consensus (Revenue $1.331B*, EPS $1.676*). Home closing gross margin compressed to 22.0% and SG&A rose to 11.3% as incentives remained elevated, driving a YoY EPS decline .
Management reiterated FY 2025 guidance (closings 16,250–16,750; revenue $6.6–$6.9B) and introduced Q2 2025 guidance (closings 3,800–4,100; revenue $1.50–$1.65B; gross margin ~21.5%; EPS $1.85–$2.10), signaling confidence in community count growth and real‑time demand pacing .
Operational execution remained strong: absorption pace 4.4 per month, backlog conversion hit an all‑time high of 221%, and liquidity strengthened with $1.0B cash and net debt-to-capital at 13.7% after a $500M 5.650% 2035 notes issuance .
Key narrative: focus on affordability and 60‑day move‑in ready inventory, deeper realtor engagement (92% co‑broke), and agile incentive use underpin volume while margins reflect mix and higher financing incentives .
Watch items: tariff uncertainty (especially lumber) likely a 2026 issue, higher tax rate from fewer IRA credits, and softer pockets in CO/UT; management cites labor slack and direct cost reductions as offsets .

What Went Well and What Went Wrong

What Went Well

Record backlog conversion and healthy demand pacing: “Our backlog conversion rate was yet another all‑time high…221%,” with absorption pace of 4.4/month, supporting intra‑quarter closings .
Liquidity and capital markets access: Ended Q1 with $1.0B cash; net debt-to-capital 13.7% after issuing $500M 5.650% senior notes due 2035, preserving flexibility for land and growth .
Cost execution and margin resilience: Management reduced direct costs ~2% per sqft YoY and reiterated long‑term gross margin target of 22.5–23.5% despite elevated incentives .

What Went Wrong

Margin compression and higher SG&A: Home closing gross margin fell 380 bps YoY to 22.0%; SG&A rose to 11.3% of closing revenue on lower leverage and startup overheads (Gulf Coast/Huntsville) .
Pricing/mix headwinds: ASP on closings dropped 6% YoY to $393K; ASP on orders down 2% to $402K as financing incentives expanded .
Higher effective tax rate: Q1 2025 tax rate increased to 23.3% vs 20.5% last year due to fewer homes qualifying for IRA energy tax credits .

Financial Results

Metric	Q1 2024	Q3 2024	Q4 2024	Q1 2025
Revenue ($USD Billions)	$1.475	$1.597	$1.622	$1.365
Diluted EPS ($)	$2.53	$5.34	$4.72	$1.69
Home Closing Gross Margin %	25.8%	24.8%	23.2%	22.0%
SG&A % of Home Closing Revenue	10.4%	9.9%	10.8%	11.3%
Effective Tax Rate %	20.5%	21.6%	22.1%	23.3%

Segment breakdown (Q1 2025):

Region	Closings (units)	Closing Revenue ($USD Millions)
West	998	$479.6
Central	1,187	$412.5
East	1,231	$449.9
Total	3,416	$1,342.1

KPIs

KPI	Q1 2024	Q1 2025
Orders (units)	3,991	3,876
Home Order Value ($USD Millions)	$1,631.2	$1,558.2
ASP – Orders ($USD Thousands)	$409	$402
Closings (units)	3,507	3,416
Home Closing Revenue ($USD Millions)	$1,466.1	$1,342.1
ASP – Closings ($USD Thousands)	$418	$393
Ending Backlog (units)	3,033	2,004
Ending Backlog Value ($USD Millions)	$1,244.3	$812.4
ASP – Backlog ($USD Thousands)	$410	$405
Ending Active Communities	275	290
Average Community Count	272.5	291.0
Absorption Pace (net sales/month)	—	4.4
Backlog Conversion (%)	—	221%
Cancellation Rate (%)	—	9%

Notes: Q4 2024 absorption pace 3.9/month and backlog conversion 177% provide context for sequential trend .

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Home Closing Volume	FY 2025	16,250–16,750 units	16,250–16,750 units	Maintained
Home Closing Revenue	FY 2025	$6.6–$6.9B	$6.6–$6.9B	Maintained
Closings	Q1 2025	3,200–3,500 units	—	Prior quarter guidance (for context)
Revenue	Q1 2025	$1.26–$1.40B	—	Prior quarter guidance (for context)
Home Closing Gross Margin	Q1 2025	~22%	—	Prior quarter guidance (for context)
Diluted EPS	Q1 2025	$1.59–$1.83	—	Prior quarter guidance (for context)
Closings	Q2 2025	—	3,800–4,100 units	New
Revenue	Q2 2025	—	$1.50–$1.65B	New
Home Closing Gross Margin	Q2 2025	—	~21.5%	New
Effective Tax Rate	Q2 2025	—	~24.5%	New
Diluted EPS	Q2 2025	—	$1.85–$2.10	New
Dividend per Share	Q1 2025 vs Q1 2024	$0.375 (Q1 2024)	$0.43 (Q1 2025)	Raised

Earnings Call Themes & Trends

Topic	Q3 2024 (Prior‑2)	Q4 2024 (Prior‑1)	Q1 2025 (Current)	Trend
Incentives & affordability	Elevated incentives; ASP pressure; 24.8% margin	Incentives stepped up; 23.2% margin; guiding ~22%	Incentives remained elevated; 22.0% margin; long‑term margin 22.5–23.5% reiterated	Persistent; stabilizing within target range
Realtor strategy & co‑broke	Deeper broker ties; commissions flat YoY as %	Increased commissions to drive volume	Co‑broke 92%; repeat broker business rising	Strengthening channel
60‑day move‑in & backlog conversion	Record 145% conversion; cycle times improving	Backlog conversion 177%; cycle times at ~120 days	Backlog conversion 221%; ~120 days maintained	Accelerating conversion efficiency
Regional trends	West strong (AZ), East more balanced; hurricanes impact	Texas strongest absorption; CO/UT challenging	Central highest absorption; CO/UT still tougher	Mixed; Central leading
Land strategy & off‑balance sheet	Pursuing off‑book structures; targeting 4–5 yrs supply	JV land financing in CA launched; broader land banking intact	Added ~2,200 net lots; 84.2K owned/controlled; disciplined underwriting	Expanding with capital‑efficient structures
Tariffs & lumber	Lumber uptick; costs stabilized overall	Monitoring tariffs/immigration; strategy nimble	Tariffs likely a 2026 issue; 2025 closings largely at current lumber; labor slack	Watchful; near‑term manageable
Buyer credit metrics	FICO ~730s; DTI ~41–42; LTV mid‑80s	Similar profile maintained	Similar profile maintained	Stable credit quality

Management Commentary

“Our backlog conversion rate was yet another all‑time high…221%,” supported by 4.4 net sales per month and attractive financing in a volatile mortgage rate environment .
“Our business strategy was designed around a sales pace of 4 net sales per month…utilize more incentives and/or increased external commissions to achieve that target,” preserving long‑term land value and adjusting cadence by community .
“We demonstrated margin resiliency…Home closing gross margin of 22%…down 380 bps YoY…partially offset by savings in direct costs,” with long‑term gross margin target 22.5–23.5% unchanged .
“We issued $500 million of new debt…At March 31, 2025…cash of $1 billion and a net debt‑to‑capital ratio of 13.7%,” balancing growth investment and shareholder returns .
“The first quarter’s effective income tax rate was 23.3%…reflects fewer homes qualifying for energy tax credits under the IRA,” noting structural shift in thresholds .

Q&A Highlights

ASP trajectory: backlog ASP $405K suggests mix‑driven lift vs Q1 closing ASP $393K; not pricing power per se .
Incentive framework: current thresholds achieved targeted per‑store volumes; April tracking similar to Feb/March; confident in Q2 .
Community openings cadence: double‑digit YoY growth in 2H; openings in strong markets with 60‑day move‑in inventory .
Investor sales mix: historically ~5% of sales to investors; no recent increase; BTR slowed .
Land financing: new CA JV off‑balance sheet structure to enhance capital efficiency; may expand if successful .
Labor/tariffs: labor slack evident; tariffs more likely to impact 2026; 2025 starts largely locked at current costs .
Volume vs margin: aim to hold ~4–4.5 net sales/store with 22–23% margin at ~7% mortgage rates; lower rates could raise both .

Estimates Context

Metric	Q1 2024	Q4 2024	Q1 2025
Actual Revenue ($USD Billions)	$1.475	$1.622	$1.365
Consensus Revenue ($USD Billions)*	$1.277*	$1.574*	$1.331*
Actual Diluted EPS ($)	$2.53	$4.72	$1.69
Consensus Diluted EPS ($)*	$1.76*	$2.201*	$1.676*

Q1 2025: Revenue beat by ~$34M and EPS beat by ~$0.01; Q4 2024 prior quarter showed large positive surprise vs consensus EPS due to higher backlog conversion and margins.
Values retrieved from S&P Global.*

Where estimates may adjust: continued elevated incentives and higher tax rate could temper margin assumptions; however, stronger community count growth and backlog conversion efficiency may support volume and revenue revisions upward .

Key Takeaways for Investors

Execution remains robust despite macro: real‑time conversion (221%) and 4.4/month absorption underpin revenue resilience; expect Q2 volumes supported by new community openings .
Margin trajectory likely troughing within long‑term band: direct cost savings and stable cycle times offset incentives; watch for stabilization in rates to ease lock costs and support margins .
Capital strength and flexibility: $1.0B cash, modest net leverage, and new $500M notes support aggressive land acquisition and off‑balance sheet expansion without overburdening the balance sheet .
Mix/ASP dynamics: backlog ASP $405K and region shifts suggest modest ASP tailwind from mix rather than pricing power; incentives remain primary affordability lever .
Strategic catalysts: deeper broker engagement (92% co‑broke, repeat business), 60‑day move‑in guarantee, and new geographies (Gulf Coast, Huntsville) are share‑gain drivers .
Risk monitoring: tariff outcomes (lumber), IRA credit changes, and pockets of regional softness (CO/UT); management expects 2025 closings largely insulated from tariff impacts .
Trading implications: modest beat with reiterated FY guide and tangible Q2 ranges should anchor near‑term expectations; upside risk if rate volatility abates and incentives moderate, with volume supported by community count growth .

Meritage Homes CORP (MTH)·Q1 2025 Earnings Summary