Meritage Homes Reports First Quarter 2022 Results Including a 68% Increase in Diluted EPS, 560 bps Increase in Home Closing Gross Margin and 12% Increase in Orders over Prior Year

SCOTTSDALE, Ariz., April 27, 2022 (GLOBE NEWSWIRE) -- Meritage Homes Corporation (NYSE: MTH), a leading U.S. homebuilder, reported first quarter results for the period ended March 31, 2022.

Summary Operating Results (unaudited)
(Dollars in thousands, except per share amounts)

    Three Months Ended March 31,
    2022   2021   % Chg
Homes closed (units)     2,858     2,890   (1) %
Home closing revenue   $ 1,245,456   $ 1,079,982   15 %
Average sales price - closings   $ 436   $ 374   17 %
Home orders (units)     3,874     3,458   12 %
Home order value   $ 1,767,710   $ 1,349,130   31 %
Average sales price - orders   $ 456   $ 390   17 %
Ending backlog (units)     6,695     5,240   28 %
Ending backlog value   $ 3,038,927   $ 2,082,259   46 %
Average sales price - backlog   $ 454   $ 397   14 %
Earnings before income taxes   $ 285,883   $ 165,977   72 %
Net earnings   $ 217,254   $ 131,843   65 %
Diluted EPS   $ 5.79   $ 3.44   68 %

MANAGEMENT COMMENTS

“Meritage had a robust start to the 2022 spring selling season even as we continued to navigate labor and supply chain constraints. We achieved our highest quarterly sales order volume in the first quarter of 2022 and our second highest first quarter of home closings. We also set new financial records including our highest quarterly home closing gross margin, our highest first quarter of home closing revenue and the best quarterly SG&A leverage in our company’s history,” said Steven J. Hilton, executive chairman of Meritage Homes. “We believe the sustained demand reflects low supply of new and resale housing inventory and favorable demographics.”

“We recognize that recent interest rate increases and six quarters of strong pricing power will eventually impact both buyer psychology and affordability. To alleviate some uncertainties for our customers, in March, Meritage purchased retroactive interest rate locks on all eligible floating-rate loans for homes in our backlog that are scheduled to close in the second half of 2022. We want to help our buyers remain confident and comfortable with their decision to purchase a Meritage home, and relieve concerns around the higher cost of homeownership since their home purchase decision,” said Phillippe Lord, chief executive officer of Meritage Homes. “While demand is still strong, we acknowledge that current dynamics are not sustainable indefinitely and eventually, homebuilding demand will stabilize. To us, that market stability is welcomed. We believe that our community count growth, focus on entry-level and first move-up product and a strategy of driving lower costs through pre-started inventory give us a competitive advantage to capture incremental volume and market share in a rising rate environment while adding meaningful shareholder value.”

“Meritage’s community count grew 32% year-over-year and 3% sequentially from December 31, 2021 to 268 active communities at March 31, 2022. As we brought more communities online, we started over 4,000 homes in the first quarter of 2022, which led to 12% year-over-year growth in sales orders to 3,874 homes,” Mr. Lord continued. “Despite metering our absorption pace in many of our communities to align our starts with production as well as ensure a continued best-in-class customer experience, our average absorption pace was 4.9 per month, which was a 9% increase sequentially from the fourth quarter of 2021.”

“Our closings of 2,858 homes this quarter were just 32 units shy of our highest first quarter of home closings, which occurred in 2021. As a result of favorable pricing power, home closing revenue increased 15% year-over-year to $1.2 billion for the first quarter of 2022, which combined with a 30.3% home closing gross margin and SG&A leverage of 8.5%, led to a 68% year-over-year increase in diluted EPS to $5.79," Mr. Lord remarked.

“During the quarter, we spent $371.4 million on land acquisition and development and at March 31, 2022, lot supply totaled about 75,100,” said Mr. Lord. “To provide flexibility, we maintained a strong balance sheet, ample liquidity and a net debt-to-capital ratio of 16.9% at March 31, 2022.”

Mr. Lord concluded, "With interest rates increasing, we believe that our affordable entry-level and first move-up homes that offer “surprisingly more” allow us to expand our customer base to include those that are being priced out of move-up communities and consider our homes an attractive alternative. Our mid-year goal of a 300 community count is within reach. We continue to carefully navigate the still-constrained operating environment by expanding our trade base and strengthening critical relationships. We are projecting 14,500-15,500 home closings for the full year 2022, which we anticipate will generate $6.5-6.9 billion in home closing revenue. Home closing gross margin is projected to be in the low 28% range. With a projected effective tax rate of 25%, we expect diluted EPS to be in the range of $26.30-27.90 for 2022.”

FIRST QUARTER RESULTS

  • Orders of 3,874 homes for the first quarter of 2022 increased 12% year-over-year, driven by a 32% growth in average active communities that was partially offset by a 16% decrease in average absorptions per store to 4.9 per month from 5.8 per month in the first quarter of 2021. Entry-level represented 83% of first quarter 2022 sales orders, compared to 76% in the same quarter of 2021. Average sales price ("ASP") on orders in the first quarter of 2022 exceeded $450,000.
  • The 15% year-over-year increase in home closing revenue to $1.2 billion for the quarter reflected a 17% increase in ASP on closings due to sustained homebuying demand even as we shifted our product mix toward entry-level homes. This was partially offset by a 1% decline in home closing volume year-over-year.
  • Home closing gross margin improved 560 bps to 30.3% in the first quarter 2022 from 24.7% in the prior year with higher ASPs more than offsetting high commodity costs as well as the benefit of the lower interest costs stemming from lower interest rates on our refinanced debt.
  • Selling, general and administrative expenses ("SG&A") as a percentage of first quarter 2022 home closing revenue of 8.5% improved 130 bps from 9.8% in the first quarter of 2021 due to lower commissions, greater leverage of fixed costs on higher home closing revenue as well as the benefits of technology for our sales and marketing functions.
  • The first quarter effective income tax rate was 24.0% in 2022 compared to 20.6% in 2021. The higher rate in 2022 reflects the expiration of the 2019 Taxpayer Certainty and Disaster Tax Relief Act, under which we earned eligible energy tax credits on qualifying homes closed in 2021.
  • First quarter 2022 pre-tax margin increased 690 bps to 22.1%, compared to 15.2% in the first quarter of 2021. Net earnings were $217.3 million ($5.79 per diluted share) for the first quarter of 2022, a 65% increase over $131.8 million ($3.44 per diluted share) for the first quarter of 2021. Strong earnings growth reflected pricing power, expanded gross margin and improved overhead leverage, which combined with a lower outstanding share count in the current quarter, led to a 68% year-over-year improvement in diluted EPS.

BALANCE SHEET

  • Cash and cash equivalents at March 31, 2022 totaled $520.4 million, compared to $618.3 million at December 31, 2021, primarily as a result of net cash used for investments in real estate and share repurchases. Real estate assets increased from $3.7 billion at December 31, 2021 to $4.0 billion at March 31, 2022.
  • A total of about 75,100 lots were owned or controlled as of March 31, 2022, compared to approximately 58,000 total lots at March 31, 2021. We added over 4,100 net new lots in the first quarter of 2022, representing an estimated 27 future communities, of which 93% are for entry-level communities.
  • Debt-to-capital and net debt-to-capital ratios were 26.9% and 16.9%, respectively, at March 31, 2022, which compared to 27.6% and 15.1%, respectively, at December 31, 2021.
  • The Company repurchased 1,037,967 shares of stock for a total of $99.3 million during the first quarter of 2022. $54.1 million remained available to repurchase under our authorized share repurchase program as of March 31, 2022.

CONFERENCE CALL

Management will host a conference call to discuss its first quarter results at 8:00 a.m. Mountain Standard Time (11:00 a.m. Eastern Daylight Time) on Thursday, April 28, 2022. The call will be webcast live with an accompanying slideshow available on the "Investor Relations" page of the company's website at https://investors.meritagehomes.com. Telephone participants will be able to join by dialing in to 1-877-407-6951 US toll free or 1-412-902-0046 on the day of the call.

A replay of the call will be available via webcast beginning at approximately 11:00 a.m. Mountain Standard Time (2:00 p.m. Eastern Daylight Time) on April 28, 2022 and extending through May 12, 2022, at https://investors.meritagehomes.com.


Meritage Homes Corporation and Subsidiaries
Consolidated Income Statements
(In thousands, except per share data)
(Unaudited)

  Three Months Ended March 31,
    2022       2021     Change $   Change %
Homebuilding:              
Home closing revenue $ 1,245,456     $ 1,079,982     $ 165,474     15 %
Land closing revenue   41,478       3,799       37,679     992 %
Total closing revenue   1,286,934       1,083,781       203,153     19 %
Cost of home closings   (867,807 )     (813,327 )     54,480     7 %
Cost of land closings   (30,685 )     (3,252 )     27,433     844 %
Total cost of closings   (898,492 )     (816,579 )     81,913     10 %
Home closing gross profit   377,649       266,655       110,994     42 %
Land closing gross profit   10,793       547       10,246     1,873 %
Total closing gross profit   388,442       267,202       121,240     45 %
Financial Services:              
Revenue   4,672       4,751       (79 )   (2) %
Expense   (2,512 )     (2,171 )     341     16 %
Earnings from financial services unconsolidated entities and other, net   1,174       1,180       (6 )   (1) %
Financial services profit   3,334       3,760       (426 )   (11) %
Commissions and other sales costs   (65,540 )     (67,744 )     (2,204 )   (3) %
General and administrative expenses   (39,995 )     (37,949 )     2,046     5 %
Interest expense   (41 )     (90 )     (49 )   (54) %
Other (expense)/income, net   (317 )     798       (1,115 )   (140) %
Earnings before income taxes   285,883       165,977       119,906     72 %
Provision for income taxes   (68,629 )     (34,134 )     34,495     101 %
Net earnings $ 217,254     $ 131,843     $ 85,411     65 %
               
Earnings per common share:              
Basic         Change $ or shares   Change %
Earnings per common share $ 5.87     $ 3.50     $ 2.37     68 %
Weighted average shares outstanding   36,996       37,644       (648 )   (2) %
Diluted              
Earnings per common share $ 5.79     $ 3.44     $ 2.35     68 %
Weighted average shares outstanding   37,527       38,339       (812 )   (2) %


Meritage Homes Corporation and Subsidiaries
Consolidated Balance Sheets
(In thousands)
(Unaudited)

    March 31, 2022   December 31, 2021
Assets:        
Cash and cash equivalents   $ 520,395   $ 618,335
Other receivables     155,380     147,548
Real estate(1)     4,027,950     3,734,408
Real estate not owned     8,011     8,011
Deposits on real estate under option or contract     93,432     90,679
Investments in unconsolidated entities     5,631     5,764
Property and equipment, net     38,299     37,340
Deferred tax asset, net     40,515     40,672
Prepaids, other assets and goodwill     168,548     124,776
Total assets   $ 5,058,161   $ 4,807,533
Liabilities:        
Accounts payable   $ 280,114   $ 216,009
Accrued liabilities     388,921     337,277
Home sale deposits     48,278     42,610
Liabilities related to real estate not owned     7,210     7,210
Loans payable and other borrowings     22,561     17,552
Senior notes, net     1,142,762     1,142,486
Total liabilities     1,889,846     1,763,144
Stockholders' Equity:        
Preferred stock        
Common stock     367     373
Additional paid-in capital     321,519     414,841
Retained earnings     2,846,429     2,629,175
Total stockholders’ equity     3,168,315     3,044,389
Total liabilities and stockholders’ equity   $ 5,058,161   $ 4,807,533
(1)Real estate – Allocated costs:        
Homes under contract under construction   $ 1,294,680   $ 1,039,822
Unsold homes, completed and under construction     496,058     484,999
Model homes     81,770     81,049
Finished home sites and home sites under development     2,155,442     2,128,538
Total real estate   $ 4,027,950   $ 3,734,408

Supplemental Information and Non-GAAP Financial Disclosures (Dollars in thousands – unaudited):

  Three Months Ended March 31,
    2022       2021  
Depreciation and amortization $ 5,759     $ 6,535  
       
Summary of Capitalized Interest:      
Capitalized interest, beginning of period $ 56,253     $ 58,940  
Interest incurred   15,213       16,092  
Interest expensed   (41 )     (90 )
Interest amortized to cost of home and land closings   (12,343 )     (17,402 )
Capitalized interest, end of period $ 59,082     $ 57,540  
       
  March 31, 2022   December 31, 2021
Senior notes, net, loans payable and other borrowings $ 1,165,323     $ 1,160,038  
Stockholders' equity   3,168,315       3,044,389  
Total capital $ 4,333,638     $ 4,204,427  
Debt-to-capital   26.9 %     27.6 %
       
Senior notes, net, loans payable and other borrowings $ 1,165,323     $ 1,160,038  
Less: cash and cash equivalents   (520,395 )     (618,335 )
Net debt $ 644,928     $ 541,703  
Stockholders’ equity   3,168,315       3,044,389  
Total net capital $ 3,813,243     $ 3,586,092  
Net debt-to-capital   16.9 %     15.1 %


Meritage Homes Corporation and Subsidiaries
Consolidated Statements of Cash Flows 
(In thousands)
(Unaudited)

    Three Months Ended March 31,
      2022       2021  
Cash flows from operating activities:        
Net earnings   $ 217,254     $ 131,843  
Adjustments to reconcile net earnings to net cash provided by/(used in) operating activities:        
Depreciation and amortization     5,759       6,535  
Stock-based compensation     5,975       5,367  
Equity in earnings from unconsolidated entities     (936 )     (750 )
Distribution of earnings from unconsolidated entities     1,069       1,100  
Other     208       2,651  
Changes in assets and liabilities:        
Increase in real estate     (283,885 )     (193,395 )
Increase in deposits on real estate under option or contract     (2,753 )     (4,821 )
Increase in other receivables, prepaids and other assets     (52,098 )     (7,118 )
Increase in accounts payable and accrued liabilities     115,927       38,743  
Increase in home sale deposits     5,668       5,899  
Net cash provided by/(used in) operating activities     12,188       (13,946 )
Cash flows from investing activities:        
Investments in unconsolidated entities           (1 )
Purchases of property and equipment     (6,423 )     (4,993 )
Proceeds from sales of property and equipment     178       84  
Maturities/sales of investments and securities     2,213       2,566  
Payments to purchase investments and securities     (2,213 )     (2,566 )
Net cash used in investing activities     (6,245 )     (4,910 )
Cash flows from financing activities:        
Repayment of loans payable and other borrowings     (4,580 )     (1,947 )
Repurchase of shares     (99,303 )     (8,385 )
Net cash used in financing activities     (103,883 )     (10,332 )
Net decrease in cash and cash equivalents     (97,940 )     (29,188 )
Cash and cash equivalents, beginning of period     618,335       745,621  
Cash and cash equivalents, end of period   $ 520,395     $ 716,433  


Meritage Homes Corporation and Subsidiaries
Operating Data
(Dollars in thousands)
(Unaudited)

                 
    Three Months Ended March 31,
    2022   2021
    Homes   Value   Homes   Value
Homes Closed:                
Arizona   458   $ 198,095   410   $ 137,268
California   275     187,410   277     171,899
Colorado   131     77,919   175     84,263
West Region   864     463,424   862     393,430
Texas   873     347,828   963     318,385
Central Region   873     347,828   963     318,385
Florida   438     168,075   417     140,828
Georgia   127     56,434   146     55,139
North Carolina   297     119,004   299     107,013
South Carolina   121     39,713   85     27,846
Tennessee   138     50,978   118     37,341
East Region   1,121     434,204   1,065     368,167
Total   2,858   $ 1,245,456   2,890   $ 1,079,982
                 
Homes Ordered:                
Arizona   550   $ 240,007   602   $ 222,435
California   346     247,343   286     173,391
Colorado   209     125,999   169     89,779
West Region   1,105     613,349   1,057     485,605
Texas   1,296     548,567   1,115     391,968
Central Region   1,296     548,567   1,115     391,968
Florida   572     226,914   479     179,109
Georgia   220     100,891   164     61,557
North Carolina   373     163,008   419     157,687
South Carolina   154     52,656   76     26,402
Tennessee   154     62,325   148     46,802
East Region   1,473     605,794   1,286     471,557
Total   3,874   $ 1,767,710   3,458   $ 1,349,130
                 
Order Backlog:                
Arizona   1,237   $ 535,586   1,185   $ 429,171
California   464     331,321   453     276,202
Colorado   406     246,932   202     110,279
West Region   2,107     1,113,839   1,840     815,652
Texas   2,301     973,828   1,782     645,959
Central Region   2,301     973,828   1,782     645,959
Florida   1,002     411,478   612     253,188
Georgia   296     136,266   174     64,355
North Carolina   641     269,898   574     214,079
South Carolina   166     57,643   111     39,785
Tennessee   182     75,975   147     49,241
East Region   2,287     951,260   1,618     620,648
Total   6,695   $ 3,038,927   5,240   $ 2,082,259


Meritage Homes Corporation and Subsidiaries
Operating Data
(Unaudited)

                 
    Three Months Ended March 31,
    2022   2021
    Ending   Average   Ending   Average
Active Communities:                
Arizona   40   39.5   33   33.0
California   23   22.5   19   17.5
Colorado   18   17.5   12   11.5
West Region   81   79.5   64   62.0
Texas   75   74.0   59   61.0
Central Region   75   74.0   59   61.0
Florida   41   41.0   30   30.5
Georgia   15   15.0   12   9.5
North Carolina   29   27.5   24   22.5
South Carolina   13   13.5   6   6.0
Tennessee   14   13.0   8   7.5
East Region   112   110.0   80   76.0
Total   268   263.5   203   199.0

About Meritage Homes Corporation
Meritage Homes is the seventh-largest public homebuilder in the United States, based on homes closed in 2021. The Company offers a variety of homes that are designed with a focus on entry-level and first move-up buyers. Operations span across Arizona, California, Colorado, Texas, Florida, Georgia, North Carolina, South Carolina, Tennessee and Utah.

Meritage Homes has delivered over 150,000 homes in its 36-year history, and has a reputation for its distinctive style, quality construction, and award-winning customer experience. The Company is the industry leader in energy-efficient homebuilding and an eight-time recipient of the U.S. Environmental Protection Agency’s (EPA) ENERGY STAR® Partner of the Year for Sustained Excellence Award since 2013 for innovation and industry leadership in energy-efficient homebuilding, and the recipient of the EPA Indoor airPLUS Leader Award.

For more information, visit www.meritagehomes.com.

The information included in this press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements include expectations about the housing market in general; projected 2022 home closings, home closing revenue, home closing gross margins, effective tax rate and diluted earnings per share; future community counts; trends in construction costs; and expectations about our future results.

Such statements are based on the current beliefs and expectations of Company management and current market conditions, which are subject to significant uncertainties and fluctuations. Actual results may differ from those set forth in the forward-looking statements. The Company makes no commitment, and disclaims any duty, except as required by law, to update or revise any forward-looking statements to reflect future events or changes in these expectations. Meritage's business is subject to a number of risks and uncertainties. As a result of those risks and uncertainties, the Company's stock and note prices may fluctuate dramatically. These risks and uncertainties include, but are not limited to, the following: changes in interest rates and the availability and pricing of residential mortgages; the potential benefits of rate locks; inflation in the cost of materials used to develop communities and construct homes; supply chain and labor constraints; our ability to acquire and develop lots may be negatively impacted if we are unable to obtain performance and surety bonds; the ability of our potential buyers to sell their existing homes; legislation related to tariffs; the adverse effect of slow absorption rates; impairments of our real estate inventory; cancellation rates; competition; home warranty and construction defect claims; failures in health and safety performance; fluctuations in quarterly operating results; our level of indebtedness; our ability to obtain financing if our credit ratings are downgraded; our potential exposure to and impacts from natural disasters or severe weather conditions; the availability and cost of finished lots and undeveloped land; the success of our strategy to offer and market entry-level and first move-up homes; a change to the feasibility of projects under option or contract that could result in the write-down or write-off of earnest money or option deposits; our limited geographic diversification; the replication of our energy-efficient technologies by our competitors; shortages in the availability and cost of subcontract labor; our exposure to information technology failures and security breaches and the impact thereof; the loss of key personnel; changes in tax laws that adversely impact us or our homebuyers; our inability to prevail on contested tax positions; failure of our employees and representatives to comply with laws and regulations; our compliance with government regulations related to our financial services operations; negative publicity that affects our reputation; potential disruptions to our business by an epidemic or pandemic (such as COVID-19), and measures that federal, state and local governments and/or health authorities implement to address it; and other factors identified in documents filed by the Company with the Securities and Exchange Commission, including those set forth in our Form 10-K for the year ended December 31, 2021 under the caption "Risk Factors," which can be found on our website at www.investors.meritagehomes.com.

   
Contacts: Emily Tadano, VP Investor Relations
  (480) 515-8979 (office)
  investors@meritagehomes.com

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Source: Meritage Homes Corporation