Document


	Three Months Ended December 31,										Twelve Months Ended December 31,
	2019		2018		% Chg		2019		2018		% Chg
Homes closed (units)	2,830		2,505		13	%	9,267		8,531		9	%
Home closing revenue	$	1,103,741	$	996,063	11	%	$	3,604,629	$	3,474,712	4	%
Average sales price - closings	$	390	$	398	(2)	%	$	389	$	407	(4)	%
Home orders (units)	2,093		1,653		27	%	9,616		8,089		19	%
Home order value	$	804,133	$	644,210	25	%	$	3,683,502	$	3,240,091	14	%
Average sales price - orders	$	384	$	390	(1)	%	$	383	$	401	(4)	%
Ending backlog (units)							2,782		2,433		14	%
Ending backlog value							$	1,098,158	$	1,015,918	8	%
Average sales price - backlog							$	395	$	418	(5)	%
Earnings before income taxes	$	110,535	$	91,776	20	%	$	302,945	$	283,254	7	%
Net earnings	$	103,614	$	75,485	37	%	$	249,663	$	227,332	10	%
Diluted EPS	$	2.65	$	1.91	39	%	$	6.42	$	5.58	15	%

“We delivered another quarter of strong results in the fourth quarter, capping off a solid performance for the full year 2019. The housing market remained strong through a traditionally quiet quarter, and with our strategic shift to entry-level fully implemented, Meritage was well positioned to capitalize on healthy demand, growing our sales volume, improving profitability and strengthening our balance sheet, while also positioning the company for long-term growth," said Steven J. Hilton, chairman and chief executive officer of Meritage Homes. “Our fourth quarter results continued the momentum we had achieved over the prior three quarters, producing the strongest quarterly year-over-year growth in orders all year; the highest home closing gross margin, which was very close to our underwriting target; the most efficient overhead leverage; and nearly a 40% increase in diluted earnings per share.

“Our total orders for new homes increased 27% in the fourth quarter year-over-year, driven by a 37% increase in absorptions and benefiting from our strategic focus on delivering more affordable homes. Home closing revenue was up 11% and our home closing gross margin improved 80 bps due to the efficiencies we’re realizing from streamlining and simplifying our operations,” he continued. “Total SG&A expenses as a percentage of home closing revenue were 50 bps lower year-over-year and our net earnings increased 37% with the benefit of energy tax credits recognized retroactively for two years after their renewal and extension in December of 2019. We used positive cash flow from operations to retire $300 million of debt, reducing our net debt to capital ratio to 26.2%, while also securing more than 6,800 additional lots in the fourth quarter for future growth and ending the year with $319 million in cash.

“Our LiVE.NOW.^® homes for value-conscious buyers and our innovative approach to interior personalization with our Studio M^® Design Collections for first move-up buyers are delivering what home buyers want, while also providing efficiencies for Meritage that translate to improved profitability,” Mr. Hilton explained. “Absorptions in our LiVE.NOW. communities are significantly out-pacing traditional move-up communities, with equal or better margins.”

He concluded, “Based on our expectation that economic drivers remain positive for housing demand, and our ability to deliver homes that provide great value at lower price points for the broadest sectors of homebuyers, we feel we are well positioned to drive future growth and success. We secured more than 18,000 new lots in 2019, compared to approximately 10,000 in 2018, greatly expanding our pipeline for community count growth and positioning us to deliver strong volume growth as those communities are opened and begin selling over the next 4-6 quarters. We believe we can grow earnings faster than our top-line growth in 2020, leveraging the operating improvements we’ve made over the past few years while continuing to expand and refine them. For the full year 2020, we are projecting 9,700-10,200 total home closings and ASP’s between $360-370,000, with home closing gross margin in the mid-19’s percent and a tax rate of approximately 22%.”

•Total orders for the fourth quarter of 2019 increased 27% year-over-year, driven by a 37% year-over-year increase in absorptions, largely due to strong demand for Meritage’s entry-level priced LiVE.NOW. homes. Higher absorptions offset an 8% year-over-year decline in average community count for the fourth quarter, resulting from early close-outs of communities in 2019. Absorptions were up 38% in the West region, 46% in the Central and 29% in the East region, demonstrating broad strength across Meritage’s markets. As a result of the Company's strategic product shift to lower-priced homes, fourth quarter average sales price (ASP) on orders and ending backlog were down 1% and 5%, respectively, compared to 2018.

•The 11% increase in home closing revenue for the quarter reflected a 13% increase in home closing volume, partially offset by a 2% reduction in ASP due to the Company’s strategic shift toward more affordable homes. Both West and East regions’ home closing revenues were up 19% year-over-year, while Central region home closing revenue was 8% lower in 2019 than 2018, primarily due to fewer active communities open in the fourth quarter of 2019.

•Home closing gross margin improved 80 bps to 19.8% from 19.0% a year ago, contributing to a 16% increase in total home closing gross profit over the prior year's fourth quarter. Fourth quarter 2019 gross margin was reduced by $3.1 million of inventory write-downs. Excluding real estate write-downs in both years ($0.9 million in 2018), home closing gross margins were 20.1% for the fourth quarter of 2019 and 19.1% for the fourth quarter of 2018.

•Total orders for the full year 2019 increased 19% year-over-year, as absorptions increased to 37.3 for the year (approximately 3.1 per month) in 2019, over 31.4 (approximately 2.6 per month) for 2018. The 19% increase in absorptions was primarily driven by the shift toward more entry-level communities, which sell at a higher pace. At year-end 2019, entry-level communities made up 47% of total communities, compared to 33% at the end of 2018.

•SG&A expenses as a percentage of home closing revenue for the full year were flat at 10.9% in both 2019 and 2018, as leverage and operating efficiencies in 2019 were partially offset by costs associated with the start-up and operation of our Studio M design studios, in addition to severance expenses and accelerated equity compensation expense taken in the first quarter of 2019 as a result of changes in tax rules.

•Net earnings of $249.7 million ($6.42 per diluted share) increased 10% (15% for diluted EPS) for the full year of 2019, compared to $227.3 million ($5.58 per diluted share) in 2018. Increases in home closing revenue and gross margin year-to-date in 2019 were partially offset by higher interest expense and the $5.6 million charge for early extinguishment of debt in the fourth quarter of 2019, resulting in a net 7% increase in earnings before income taxes. The effective tax rate for the full year 2019 was 18%, compared to 20% in 2018, reflecting the benefit of the retroactive energy tax credits renewed in 2019. Full year diluted EPS also increased due to a 5% reduction in weighted average shares outstanding, as compared to 2018, resulting from share repurchases in late 2018 and early 2019.

Management will host a conference call to discuss the results at 7:30 a.m. Arizona Time (9:30 a.m. Eastern Time) on Thursday, January 30. The call will be webcast with an accompanying slideshow available on the "Investor Relations" page of the Company's web site at http://investors.meritagehomes.com. Telephone participants can avoid delays by preregistering for the call using the following link to receive a special dial-in number and PIN.


		Three Months Ended December 31,
		2019				2018				Change $				Change %
Homebuilding:
	Home closing revenue	$	1,103,741			$	996,063			$	107,678			11	%
	Land closing revenue	33,107				12,716				20,391				160	%
	Total closing revenue	1,136,848				1,008,779				128,069				13	%
	Cost of home closings	(884,778)				(806,550)				(78,228)				10	%
	Cost of land closings	(32,750)				(13,541)				(19,209)				142	%
	Total cost of closings	(917,528)				(820,091)				(97,437)				12	%
	Home closing gross profit	218,963				189,513				29,450				16	%
	Land closing gross profit/(loss)	357				(825)				1,182				143	%
	Total closing gross profit	219,320				188,688				30,632				16	%
Financial Services:
	Revenue	4,756				4,412				344				8	%
	Expense	(1,832)				(1,618)				(214)				13	%
	Earnings from financial services unconsolidated entities and other, net	1,340				5,058				(3,718)				(74)	%
	Financial services profit	4,264				7,852				(3,588)				(46)	%
Commissions and other sales costs				(70,598)				(68,040)				(2,558)				4	%
General and administrative expenses				(40,557)				(37,474)				(3,083)				8	%
Interest expense				(20)				(552)				532				(96)	%
Other income, net				3,761				1,302				2,459				189	%
Loss on early extinguishment of debt				(5,635)				—				(5,635)				n/a
Earnings before income taxes				110,535				91,776				18,759				20	%
Provision for income taxes				(6,921)				(16,291)				9,370				(58)	%
Net earnings				$	103,614			$	75,485			$	28,129			37	%

Earnings per common share:
	Basic									Change $ or shares				Change %
	Earnings per common share	$	2.71			$	1.93			$	0.78			40	%
	Weighted average shares outstanding	38,252				39,026				(774)				(2)	%
	Diluted
	Earnings per common share	$	2.65			$	1.91			$	0.74			39	%
	Weighted average shares outstanding	39,137				39,575				(438)				(1)	%


		Twelve Months Ended December 31,
		2019				2018				Change $				Change %
Homebuilding:
	Home closing revenue	$	3,604,629			$	3,474,712			$	129,917			4	%
	Land closing revenue	45,854				38,707				7,147				18	%
	Total closing revenue	3,650,483				3,513,419				137,064				4	%
	Cost of home closings	(2,923,969)				(2,842,762)				(81,207)				3	%
	Cost of land closings	(46,899)				(41,504)				(5,395)				13	%
	Total cost of closings	(2,970,868)				(2,884,266)				(86,602)				3	%
	Home closing gross profit	680,660				631,950				48,710				8	%
	Land closing loss	(1,045)				(2,797)				1,752				63	%
	Total closing gross profit	679,615				629,153				50,462				8	%
Financial Services:
	Revenue	16,461				15,162				1,299				9	%
	Expense	(6,781)				(6,454)				(327)				5	%
	Earnings from financial services unconsolidated entities and other, net	10,899				15,336				(4,437)				(29)	%
	Financial services profit	20,579				24,044				(3,465)				(14)	%
Commissions and other sales costs				(246,728)				(241,897)				(4,831)				2	%
General and administrative expenses				(146,093)				(138,478)				(7,615)				5	%
Interest expense				(8,370)				(785)				(7,585)				n/m
Other income, net				9,577				11,217				(1,640)				(15)	%
Loss on early extinguishment of debt				(5,635)				—				(5,635)				n/a
Earnings before income taxes				302,945				283,254				19,691				7	%
Provision for income taxes				(53,282)				(55,922)				2,640				(5)	%
Net earnings				$	249,663			$	227,332			$	22,331			10	%

Earnings per common share:
	Basic									Change $ or shares				Change %
	Earnings per common share	$	6.55			$	5.67			$	0.88			16	%
	Weighted average shares outstanding	38,100				40,107				(2,007)				(5)	%
	Diluted
	Earnings per common share	$	6.42			$	5.58			$	0.84			15	%
	Weighted average shares outstanding	38,891				40,728				(1,837)				(5)	%


	December 31, 2019		December 31, 2018
Assets:
Cash and cash equivalents	$	319,466	$	311,466

Other receivables	88,492		77,285
Real estate ⁽¹⁾	2,744,361		2,742,621

Deposits on real estate under option or contract	50,901		51,410
Investments in unconsolidated entities	4,443		17,480
Property and equipment, net	50,606		54,596
Deferred tax asset	25,917		26,465
Prepaids, other assets and goodwill	114,063		84,156
Total assets	$	3,398,249	$	3,365,479
Liabilities:
Accounts payable	$	155,024	$	128,169
Accrued liabilities	226,008		177,862
Home sale deposits	24,246		28,636

Loans payable and other borrowings	22,876		14,773
Senior notes	996,105		1,295,284
Total liabilities	1,424,259		1,644,724
Stockholders' Equity:
Preferred stock	—		—
Common stock	382		381
Additional paid-in capital	505,352		501,781
Retained earnings	1,468,256		1,218,593
Total stockholders’ equity	1,973,990		1,720,755
Total liabilities and stockholders’ equity	$	3,398,249	$	3,365,479
⁽¹⁾ Real estate – Allocated costs:
Homes under contract under construction	$	564,762	$	480,143
Unsold homes, completed and under construction	686,948		644,717
Model homes	121,340		146,327
Finished home sites and home sites under development	1,371,311		1,471,434
Total real estate	$	2,744,361	$	2,742,621


	Three Months Ended December 31,								Twelve Months Ended December 31,
	2019			2018			2019		2018
Depreciation and amortization	$	8,370		$	7,508		$	27,923	$	26,966

Summary of Capitalized Interest:
Capitalized interest, beginning of period	$	88,195		$	88,064		$	88,454	$	78,564
Interest incurred	19,629			21,490			83,856		85,278
Interest expensed	(20)			(552)			(8,370)		(785)
Interest amortized to cost of home and land closings	(25,790)			(20,548)			(81,926)		(74,603)
Capitalized interest, end of period	$	82,014		$	88,454		$	82,014	$	88,454

	December 31, 2019			December 31, 2018
Notes payable and other borrowings	$	1,018,981		$	1,310,057
Stockholders' equity	1,973,990			1,720,755
Total capital	2,992,971			3,030,812
Debt-to-capital	34.0		%	43.2		%

Notes payable and other borrowings	$	1,018,981		$	1,310,057
Less: cash and cash equivalents	(319,466)			(311,466)
Net debt	699,515			998,591
Stockholders’ equity	1,973,990			1,720,755
Total net capital	$	2,673,505		$	2,719,346
Net debt-to-capital	26.2		%	36.7		%


	Twelve Months Ended December 31,
	2019		2018
Cash flows from operating activities:
Net earnings	$	249,663	$	227,332
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization	27,923		26,966

Stock-based compensation	19,607		17,170
Loss on early extinguishment of debt	5,635		—

Equity in earnings from unconsolidated entities	(11,945)		(16,333)
Deferred tax asset revaluation	—		(2,741)
Distribution of earnings from unconsolidated entities	13,438		16,142
Other	9,273		15,847
Changes in assets and liabilities:
Decrease/(increase) in real estate	3,621		(19,426)
Decrease in deposits on real estate under option or contract	453		12,444
(Increase)/decrease in receivables, prepaids and other assets	(9,112)		3,042
Increase/(decrease) in accounts payable and accrued liabilities	42,654		(12,820)
Decrease in home sale deposits	(4,390)		(5,423)
Net cash provided by operating activities	346,820		262,200
Cash flows from investing activities:
Investments in unconsolidated entities	(1,113)		(808)
Distributions of capital from unconsolidated entities	11,550		597
Purchases of property and equipment	(24,385)		(33,415)
Proceeds from sales of property and equipment	459		99
Maturities/sales of investments and securities	754		1,181
Payments to purchase investments and securities	(754)		(1,181)


Net cash used in investing activities	(13,489)		(33,527)
Cash flows from financing activities:

Repayment of loans payable and other borrowings	(3,676)		(15,755)
Repayment of senior notes and senior convertible notes	(305,620)		(175,000)
Proceeds from issuance of senior notes	—		206,000

Payment of debt issuance costs	—		(3,198)



Repurchase of shares	(16,035)		(100,000)
Net cash used in financing activities	(325,331)		(87,953)
Net increase in cash and cash equivalents	8,000		140,720
Beginning cash and cash equivalents	311,466		170,746
Ending cash and cash equivalents	$	319,466	$	311,466



	Three Months Ended
	December 31, 2019				December 31, 2018
	Homes	Value		Homes	Value
Homes Closed:
Arizona	581	$	187,670	453	$	141,622
California	285	181,307		206	144,179
Colorado	204	102,989		212	111,461
West Region	1,070	471,966		871	397,262
Texas	800	273,566		836	298,824
Central Region	800	273,566		836	298,824
Florida	372	147,227		317	126,136
Georgia	147	51,052		152	54,732
North Carolina	265	98,769		166	63,078
South Carolina	70	21,858		98	32,011
Tennessee	106	39,303		65	24,020
East Region	960	358,209		798	299,977
Total	2,830	$	1,103,741	2,505	$	996,063

Homes Ordered:
Arizona	354	$	115,404	300	$	98,290
California	231	143,573		109	72,227
Colorado	142	71,276		116	60,398
West Region	727	330,253		525	230,915
Texas	697	232,644		591	209,787
Central Region	697	232,644		591	209,787
Florida	255	97,025		190	79,632
Georgia	106	37,004		94	32,413
North Carolina	207	73,999		149	55,929
South Carolina	49	14,785		66	20,652
Tennessee	52	18,423		38	14,882
East Region	669	241,236		537	203,508
Total	2,093	$	804,133	1,653	$	644,210


	Twelve Months Ended
	December 31, 2019				December 31, 2018
	Homes	Value		Homes	Value
Homes Closed:
Arizona	1,707	$	556,432	1,505	$	485,867
California	749	486,153		849	588,975
Colorado	711	367,468		628	342,984
West Region	3,167	1,410,053		2,982	1,417,826
Texas	2,976	1,033,755		2,840	1,006,221
Central Region	2,976	1,033,755		2,840	1,006,221
Florida	1,181	468,591		1,078	455,292
Georgia	527	183,492		468	161,969
North Carolina	823	303,635		654	254,207
South Carolina	272	88,371		309	104,622
Tennessee	321	116,732		200	74,575
East Region	3,124	1,160,821		2,709	1,050,665
Total	9,267	$	3,604,629	8,531	$	3,474,712

Homes Ordered:
Arizona	1,875	$	608,795	1,522	$	499,353
California	803	511,767		622	432,134
Colorado	722	361,336		614	331,389
West Region	3,400	1,481,898		2,758	1,262,876
Texas	3,043	1,031,937		2,801	995,473
Central Region	3,043	1,031,937		2,801	995,473
Florida	1,180	466,528		1,004	422,925
Georgia	537	186,735		440	157,706
North Carolina	865	315,572		588	224,552
South Carolina	254	80,325		299	101,426
Tennessee	337	120,507		199	75,133
East Region	3,173	1,169,667		2,530	981,742
Total	9,616	$	3,683,502	8,089	$	3,240,091

Order Backlog:
Arizona	511	$	186,194	343	$	133,567
California	145	92,171		91	66,391
Colorado	196	97,508		185	103,470
West Region	852	375,873		619	303,428
Texas	1,048	372,520		981	372,826
Central Region	1,048	372,520		981	372,826
Florida	371	163,385		372	164,728
Georgia	133	49,742		123	46,344
North Carolina	219	79,446		177	67,316
South Carolina	71	24,427		89	32,333
Tennessee	88	32,765		72	28,943
East Region	882	349,765		833	339,664
Total	2,782	$	1,098,158	2,433	$	1,015,918



	Three Months Ended
	December 31, 2019			December 31, 2018
	Ending	Average	Ending	Average
Active Communities:
Arizona	31	34.0	40	42.0
California	24	24.0	17	15.5
Colorado	18	19.0	20	20.0
West Region	73	77.0	77	77.5
Texas	77	75.5	95	93.5
Central Region	77	75.5	95	93.5
Florida	33	34.5	31	30.5
Georgia	18	18.0	22	22.0
North Carolina	25	23.5	25	22.5
South Carolina	9	9.5	12	12.0
Tennessee	9	9.0	10	10.0
East Region	94	94.5	100	97.0
Total	244	247.0	272	268.0



	Twelve Months Ended
	December 31, 2019			December 31, 2018
	Ending	Average	Ending	Average
Active Communities:
Arizona	31	35.5	40	39.0
California	24	20.5	17	18.5
Colorado	18	19.0	20	15.5
West Region	73	75.0	77	73.0
Texas	77	86.0	95	93.5
Central Region	77	86.0	95	93.5
Florida	33	32.0	31	29.5
Georgia	18	20.0	22	20.5
North Carolina	25	25.0	25	21.0
South Carolina	9	10.5	12	12.5
Tennessee	9	9.5	10	8.0
East Region	94	97.0	100	91.5
Total	244	258.0	272	258.0

The Company has designed and built over 125,000 homes in its 35-year history, and has a reputation for its distinctive style, quality construction, and positive customer experience. Meritage is the industry leader in energy-efficient homebuilding and has received the U.S. Environmental Protection Agency's ENERGY STAR® Partner of the Year for Sustained Excellence Award every year since 2013 for innovation and industry leadership in energy efficient homebuilding.

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 management's projected full year 2020 home closings, home closing revenue, home closing gross margin and tax rate, as well as expectations regarding new community openings, the U.S. economy and housing market.

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, to update or revise any forward-looking statements to reflect future events or changes in these expectations, except as required by law. 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; legislation related to tariffs; the availability and cost of finished lots and undeveloped land; shortages in the availability and cost of labor; the success of strategic initiatives; the ability of our potential buyers to sell their existing homes; inflation in the cost of materials used to develop communities and construct homes; the adverse effect of slow absorption rates; impairments of our real estate inventory; cancellation rates; competition; changes in tax laws that adversely impact us or our homebuyers; a change to the feasibility of projects under option or contract that could result in the write-down or write-off of earnest or option deposits; our potential exposure to and impacts from natural disasters or severe weather conditions; home warranty and construction defect claims; failures in health and safety performance; our success in prevailing on contested tax positions; our ability to obtain performance and surety bonds in connection with our development work; the loss of key personnel; failure to comply with laws and regulations; our limited geographic diversification; fluctuations in quarterly operating results;

our level of indebtedness; our ability to obtain financing if our credit ratings are downgraded; our ability to successfully integrate acquired companies and achieve anticipated benefits from these acquisitions; our compliance with government regulations, the effect of legislative and other governmental actions, orders, policies or initiatives that impact housing, labor availability, construction, mortgage availability, our access to capital, the cost of capital or the economy in general, or other initiatives that seek to restrain growth of new housing construction or similar measures; legislation relating to energy and climate change; the replication of our energy-efficient technologies by our competitors; our exposure to information technology failures and security breaches; negative publicity that affects our reputation 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, 2018 and our Form 10-Q for the quarter ended September 30, 2019 under the caption "Risk Factors," which can be found on our website at www.investors.meritagehomes.com.