Exhibit 99.1
mhlogo1linetaga121.jpg
 
 
Contacts:Emily Tadano, VP Investor Relations
(480) 515-8979 (office)
investors@meritagehomes.com

Meritage Homes reports record third quarter 2020 orders 71% higher than prior year; 56% increase in net earnings with 21% revenue growth and 21.5% gross margin

SCOTTSDALE, Ariz., October 21, 2020 - Meritage Homes Corporation (NYSE: MTH), a leading U.S. homebuilder, reported third quarter results for the period ended September 30, 2020.

Summary Operating Results (unaudited)
(Dollars in thousands, except per share amounts)
 Three Months Ended September 30,Nine Months Ended September 30,
 20202019% Chg20202019% Chg
Homes closed (units)3,004 2,419 24 %8,090 6,437 26 %
Home closing revenue$1,133,221 $939,185 21 %$3,055,229 $2,500,888 22 %
Average sales price - closings$377 $388 (3)%$378 $389 (3)%
Home orders (units)3,851 2,258 71 %10,550 7,523 40 %
Home order value$1,488,480 $858,395 73 %$3,958,870 $2,879,369 37 %
Average sales price - orders$387 $380 2 %$375 $383 (2)%
Ending backlog (units)5,242 3,519 49 %
Ending backlog value$2,004,981 $1,397,033 44 %
Average sales price - backlog$382 $397 (4)%
Earnings before income taxes$135,506 $92,366 47 %$338,201 $192,410 76 %
Net earnings$109,118 $69,809 56 %$270,948 $146,049 86 %
Diluted EPS$2.84 $1.79 59 %$7.04 $3.76 87 %



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MANAGEMENT COMMENTS
"Our third quarter of 2020 results continued to outperform and reflect the current strength in the homebuilding market. Meritage had many remarkable achievements this past quarter: We delivered our highest quarterly sales orders, our strongest absorptions since 2005, record quarterly home closing revenue, and our best quarterly gross margin since 2014 - while also achieving our lowest net debt to capital in our company's history,” said Steven J. Hilton, chairman and chief executive officer of Meritage Homes. “These strong results are the combination of existing favorable market factors including historically-low mortgage interest rates and increased demand for healthier, safer homes, and Meritage's strategy of focusing on affordable entry-level and first move-up homes that allowed us to capitalize on that demand.
“Our sales orders of 3,851 homes this quarter were 71% more than the third quarter of 2019 and surpassed our previous quarterly record set in the second quarter of 2020. Over just the first nine months of this year, we sold a total of 10,550 homes - well over the full year 2019 sales volume. We also closed 24% more homes than we did in the same quarter of the prior year. Home closing revenue increased 21% year-over-year to $1.1 billion for the third quarter of 2020, which combined with a 21.5% home closing gross margin to drive a 56% increase in our net earnings compared to the third quarter of 2019."
He continued, "To meet the surge in demand we are experiencing, we are investing significantly for additional growth. We spent nearly $300 million on land acquisition and development and put a record near 9,000 new lots under control this quarter, bringing the total lot supply to nearly 48,000 lots, as we increase our market share in our existing geographies and push toward our 300 community count goal by early to mid 2022."
Mr. Hilton concluded, "Based on our performance through the first three quarters of 2020 and confidence in our ability to deliver our backlog, we are projecting 11,200-11,500 total home closings for approximately $4.2-4.4 billion total home closing revenue and home closing gross margin of 21.0-21.5% for the full year 2020. We expect that to translate into approximately $10.25-10.50 diluted earnings per share, a year-over-year increase of more than 60%."

THIRD QUARTER RESULTS
•The record total sales orders for the third quarter of 2020 reflected an increase of 71% year-over-year, driven by a 94% increase in absorption pace over the prior year’s third quarter with high demand for Meritage's entry-level LiVE.NOW® product. Entry-level represented almost 70% of third quarter 2020 orders, compared to 54% in the same quarter in 2019. Absorptions doubled in Texas to six per month, compared to three per month in the third quarter last year, even with a 14% decline in average active communities. Absorptions were up 88% in the West region and 87% in the East region year-over-year, with significant increases across all states led by California's 137% increase.

•A 21% year-over-year increase in home closing revenue to a record $1.1 billion for the quarter ended September 30, 2020 reflected a 24% increase in home closing volume partially offset by a 3% reduction in
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average sales price ("ASP"), which was primarily due to the shift in product mix toward entry-level as compared to 2019.

•Home closing gross margin improved 170 bps to 21.5% from 19.8% a year ago. The additional closing volume and efficiencies gained from streamlined operations more than offset record high lumber prices and contributed to a 31% increase in total home closing gross profit over the prior year's third quarter.

•Selling, general and administrative expenses ("SG&A") were 10.1% of third quarter 2020 home closing revenue, a 70 bps improvement over 10.8% in the third quarter of 2019 due to greater leverage of fixed expenses on higher home closing revenue, as well as cost savings from technology enhancements, particularly as related to the Company's sales and marketing efforts.

•The third quarter effective income tax rate decreased to 19.5% in 2020 compared to 24.4% in 2019 primarily due to eligible energy tax credits on qualifying energy-efficient homes closed in 2020 that were not available in 2019, under the Taxpayer Certainty and Disaster Tax Relief Act enacted in December 2019.

•Third quarter 2020 pre-tax margin increased 210 bps to 11.9%, compared to 9.8% in the third quarter of 2019. Net earnings were $109.1 million ($2.84 per diluted share) for the third quarter of 2020, a 56% increase over $69.8 million ($1.79 per diluted share) reported for the third quarter of 2019. Strong earnings growth reflected the increases in home closing revenue, gross margins and improved overhead leverage, which combined with the reduction in diluted shares after the repurchase of one million shares in the first quarter of 2020, led to a 59% year-over-year improvement in earnings per diluted share.

YEAR TO DATE RESULTS
•Total orders for the first nine months of 2020 increased 40% year-over-year, driven by a 58% increase in absorptions on an 11% lower average community count, compared to the first nine months of 2019.

•Home closings of 8,090 for the first nine months of 2020 increased 26% year-over-year with a 3% reduction in ASP on closings due to the product mix shift toward Meritage's entry-level product, resulting in a 22% year-over-year increase in home closing revenue to $3.1 billion.

•Home closing gross margin increased 250 bps to 21.0% for the first nine months of 2020, compared to 18.5% in the same period of 2019, reflecting a 39% increase in total home closing gross profit for the first nine months of 2020.

•SG&A expenses as a percentage of home closing revenue improved to 10.3% in the first nine months of 2020, compared to 11.2% in the first nine months of 2019, reflecting greater leverage of overhead expenses on higher home closing revenue, as well as technology and cost savings initiatives implemented at the start of the COVID-19 pandemic.

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•Interest expense decreased $6.2 million year-over-year, primarily due to lower debt balances reflecting the early redemption in December 2019 of $300 million senior notes that were due in early 2020.

•The effective tax rate for the first nine months of 2020 was 19.9%, compared to 24.1% for the same period in 2019, primarily due to approximately $10 million in year-to-date 2020 estimated energy tax credits.

•The pre-tax margin for the first nine months of 2020 increased 340 bps to 11.0%, compared to 7.6% for the first nine months of 2019. Year-to-date 2020 net earnings were $270.9 million ($7.04 per diluted share), an 86% increase over $146.0 million ($3.76 per diluted share) for year-to-date 2019, reflecting increases in home closing revenue and gross margin, combined with lower SG&A expenses and a lower effective tax rate in 2020, which combined with the reduction in diluted shares after the repurchase of one million shares in the first quarter of 2020, led to an 87% year-over-year improvement in earnings per diluted share.

BALANCE SHEET
•Cash and cash equivalents at September 30, 2020 totaled $610.0 million, compared to $319.5 million at December 31, 2019, reflecting positive cash flow from operations of $373.1 million. Real estate assets at September 30, 2020 held relatively steady to December 31, 2019 as an increase in sold inventory resulted in a decrease in spec inventory.

•Nearly 16,000 new lots were put under control in the first nine months of 2020, with over 55% coming from the third quarter of 2020 alone. The Company has been actively securing new lots following a short-lived dip in March and April due to COVID-19-related shutdowns. A total of nearly 48,000 lots were owned or controlled as of September 30, 2020, compared to approximately 37,000 total lots at September 30, 2019.

•Debt-to-capital and net debt-to-capital ratios were 31.7% and 15.7%, respectively, at September 30, 2020, down from 34.0% and 26.2%, respectively, at December 31, 2019.


CONFERENCE CALL
Management will host a conference call to discuss the results at 8:00 a.m. Arizona Time (11:00 a.m. Eastern Time) on Thursday, October 22. The call will be webcast live with an accompanying slideshow, both of which will be available on the "Investor Relations" page of the Company's web site at https://investors.meritagehomes.com. For those unable to participate via the webcast, telephone participants can dial in to 1-800-437-2398 US toll free on the day of the call. The international dial-in number is 1-929-477-0577.
A replay of the call will be available beginning at approximately 10:00 a.m. Arizona Time (1:00 p.m. Eastern Time) on October 22 and extending through November 5, 2020, on the website noted above or by dialing 1-800-437-2398 US toll free, 1-929-477-0577 for international and referencing conference number 1805364.
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Meritage Homes Corporation and Subsidiaries
Consolidated Income Statements
(In thousands, except per share data)
(Unaudited)

 
 Three Months Ended September 30,
20202019Change $Change %
Homebuilding:
Home closing revenue$1,133,221 $939,185 $194,036 21 %
Land closing revenue4,870 1,695 3,175 187 %
Total closing revenue1,138,091 940,880 197,211 21 %
Cost of home closings(889,654)(753,068)136,586 18 %
Cost of land closings(4,360)(1,721)2,639 153 %
Total cost of closings(894,014)(754,789)139,225 18 %
Home closing gross profit243,567 186,117 57,450 31 %
Land closing gross profit/(loss)510 (26)536 N/M
Total closing gross profit244,077 186,091 57,986 31 %
Financial Services:
Revenue4,939 4,317 622 14 %
Expense(2,026)(1,725)301 17 %
Earnings from financial services unconsolidated entities and other, net
1,402 2,990 (1,588)(53)%
Financial services profit4,315 5,582 (1,267)(23)%
Commissions and other sales costs(73,282)(63,450)9,832 15 %
General and administrative expenses(40,737)(37,191)3,546 10 %
Interest expense(55)(1,068)(1,013)(95)%
Other income, net1,188 2,402 (1,214)(51)%
Earnings before income taxes135,506 92,366 43,140 47 %
Provision for income taxes(26,388)(22,557)3,831 17 %
Net earnings$109,118 $69,809 $39,309 56 %
Earnings per common share:
BasicChange $ or sharesChange %
Earnings per common share$2.90 $1.82 $1.08 59 %
Weighted average shares outstanding37,607 38,296 (689)(2)%
Diluted
Earnings per common share$2.84 $1.79 $1.05 59 %
Weighted average shares outstanding38,405 39,079 (674)(2)%





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 Nine Months Ended September 30,
20202019Change $Change %
Homebuilding:
Home closing revenue$3,055,229 $2,500,888 $554,341 22 %
Land closing revenue16,954 12,747 4,207 33 %
Total closing revenue3,072,183 2,513,635 558,548 22 %
Cost of home closings(2,412,606)(2,039,191)373,415 18 %
Cost of land closings(17,509)(14,149)3,360 24 %
Total cost of closings(2,430,115)(2,053,340)376,775 18 %
Home closing gross profit642,623 461,697 180,926 39 %
Land closing gross loss(555)(1,402)847 60 %
Total closing gross profit642,068 460,295 181,773 39 %
Financial Services:
Revenue13,329 11,705 1,624 14 %
Expense(5,519)(4,949)570 12 %
Earnings from financial services unconsolidated entities and other, net
3,132 9,559 (6,427)(67)%
Financial services profit10,942 16,315 (5,373)(33)%
Commissions and other sales costs(204,863)(176,130)28,733 16 %
General and administrative expenses(111,083)(105,536)5,547 5 %
Interest expense(2,176)(8,350)(6,174)(74)%
Other income, net3,313 5,816 (2,503)(43)%
Earnings before income taxes338,201 192,410 145,791 76 %
Provision for income taxes(67,253)(46,361)20,892 45 %
Net earnings$270,948 $146,049 $124,899 86 %
Earnings per common share:
BasicChange $ or sharesChange %
Earnings per common share$7.17 $3.83 $3.34 87 %
Weighted average shares outstanding37,763 38,119 (356)(1)%
Diluted
Earnings per common share$7.04 $3.76 $3.28 87 %
Weighted average shares outstanding38,491 38,841 (350)(1)%


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Meritage Homes Corporation and Subsidiaries
Consolidated Balance Sheets
(In thousands)
(Unaudited)
 
September 30, 2020December 31, 2019
Assets:
Cash and cash equivalents$609,979 $319,466 
Other receivables96,702 88,492 
Real estate (1)
2,741,016 2,744,361 
Deposits on real estate under option or contract62,967 50,901 
Investments in unconsolidated entities3,819 4,443 
Property and equipment, net42,730 50,606 
Deferred tax asset28,425 25,917 
Prepaids, other assets and goodwill101,680 114,063 
Total assets$3,687,318 $3,398,249 
Liabilities:
Accounts payable$167,788 $155,024 
Accrued liabilities274,371 226,008 
Home sale deposits25,509 24,246 
Loans payable and other borrowings23,031 22,876 
Senior notes, net996,770 996,105 
Total liabilities1,487,469 1,424,259 
Stockholders' Equity:
Preferred stock— — 
Common stock377 382 
Additional paid-in capital460,268 505,352 
Retained earnings1,739,204 1,468,256 
Total stockholders’ equity2,199,849 1,973,990 
Total liabilities and stockholders’ equity$3,687,318 $3,398,249 

(1) Real estate – Allocated costs:
Homes under contract under construction$967,222 $564,762 
Unsold homes, completed and under construction395,151 686,948 
Model homes86,933 121,340 
Finished home sites and home sites under development1,291,710 1,371,311 
Total real estate$2,741,016 $2,744,361 




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Supplemental Information and Non-GAAP Financial Disclosures (Dollars in thousands – unaudited):
 
 Three Months Ended September 30,Nine Months Ended September 30,
 2020201920202019
Depreciation and amortization$7,945 $7,172 $22,496 $19,553 
Summary of Capitalized Interest:
Capitalized interest, beginning of period$72,882 $88,307 $82,014 $88,454 
Interest incurred16,103 21,319 50,188 64,227 
Interest expensed(55)(1,068)(2,176)(8,350)
Interest amortized to cost of home and land closings(21,380)(20,363)(62,476)(56,136)
Capitalized interest, end of period$67,550 $88,195 $67,550 $88,195 
 September 30, 2020December 31, 2019
Notes payable and other borrowings$1,019,801 $1,018,981 
Stockholders' equity2,199,849 1,973,990 
Total capital$3,219,650 $2,992,971 
Debt-to-capital31.7 %34.0 %
Notes payable and other borrowings$1,019,801 $1,018,981 
Less: cash and cash equivalents(609,979)(319,466)
Net debt$409,822 $699,515 
Stockholders’ equity2,199,849 1,973,990 
Total net capital$2,609,671 $2,673,505 
Net debt-to-capital15.7 %26.2 %
 


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Meritage Homes Corporation and Subsidiaries
Consolidated Statements of Cash Flows 
(In thousands)
(Unaudited)
Nine Months Ended September 30,
 20202019
Cash flows from operating activities:
Net earnings$270,948 $146,049 
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization22,496 19,553 
Stock-based compensation15,724 15,719 
Equity in earnings from unconsolidated entities(2,821)(8,934)
Distribution of earnings from unconsolidated entities2,449 11,261 
Other1,881 3,902 
Changes in assets and liabilities:
Decrease/(increase) in real estate9,080 (110,295)
(Increase)/decrease in deposits on real estate under option or contract(12,910)5,773 
Decrease/(increase) in other receivables, prepaids and other assets4,933 (3,108)
Increase in accounts payable and accrued liabilities60,039 84,632 
Increase in home sale deposits1,263 2,808 
Net cash provided by operating activities373,082 167,360 
Cash flows from investing activities:
Investments in unconsolidated entities(4)(1,112)
Distributions of capital from unconsolidated entities1,000 7,250 
Purchases of property and equipment(14,771)(18,376)
Proceeds from sales of property and equipment528 267 
Maturities/sales of investments and securities632 675 
Payments to purchase investments and securities(632)(675)
Net cash used in investing activities(13,247)(11,971)
Cash flows from financing activities:
Repayment of loans payable and other borrowings(8,509)(3,086)
Repurchase of shares(60,813)(8,957)
Net cash used in financing activities(69,322)(12,043)
Net increase in cash and cash equivalents290,513 143,346 
Beginning cash and cash equivalents319,466 311,466 
Ending cash and cash equivalents $609,979 $454,812 
 

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Meritage Homes Corporation and Subsidiaries
Operating Data
(Dollars in thousands)
(Unaudited)
 Three Months Ended September 30,
 20202019
 HomesValueHomesValue
Homes Closed:
Arizona429 $143,630 440 $144,920 
California332 202,460 200 135,555 
Colorado183 88,199 169 85,674 
West Region944 434,289 809 366,149 
Texas1,059 349,907 810 278,744 
Central Region1,059 349,907 810 278,744 
Florida339 124,836 302 118,804 
Georgia178 62,921 139 46,984 
North Carolina295 98,322 206 77,696 
South Carolina78 25,502 75 23,768 
Tennessee111 37,444 78 27,040 
East Region1,001 349,025 800 294,292 
Total3,004 $1,133,221 2,419 $939,185 
Homes Ordered:
Arizona709 $240,151 482 $159,778 
California510 319,680 198 124,201 
Colorado188 88,972 156 74,498 
West Region1,407 648,803 836 358,477 
Texas1,183 395,453 649 217,648 
Central Region1,183 395,453 649 217,648 
Florida491 179,607 293 111,471 
Georgia172 62,541 138 47,527 
North Carolina386 132,988 188 69,017 
South Carolina90 28,140 55 17,520 
Tennessee122 40,948 99 36,735 
East Region1,261 444,224 773 282,270 
Total3,851 $1,488,480 2,258 $858,395 

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 Nine Months Ended September 30,
 20202019
 HomesValueHomesValue
Homes Closed:
Arizona1,315 $437,233 1,126 $368,762 
California787 487,605 464 304,846 
Colorado553 268,970 507 264,479 
West Region2,655 1,193,808 2,097 938,087 
Texas2,747 901,791 2,176 760,189 
Central Region2,747 901,791 2,176 760,189 
Florida942 357,233 809 321,364 
Georgia459 163,617 380 132,440 
North Carolina805 276,477 558 204,866 
South Carolina229 73,113 202 66,513 
Tennessee253 89,190 215 77,429 
East Region2,688 959,630 2,164 802,612 
Total8,090 $3,055,229 6,437 $2,500,888 
Homes Ordered:
Arizona2,016 $654,579 1,521 $493,391 
California1,250 769,251 572 368,194 
Colorado540 258,268 580 290,060 
West Region3,806 1,682,098 2,673 1,151,645 
Texas3,457 1,130,943 2,346 799,293 
Central Region3,457 1,130,943 2,346 799,293 
Florida1,198 435,411 925 369,503 
Georgia518 182,958 431 149,731 
North Carolina999 340,626 658 241,573 
South Carolina272 85,316 205 65,540 
Tennessee300 101,518 285 102,084 
East Region3,287 1,145,829 2,504 928,431 
Total10,550 $3,958,870 7,523 $2,879,369 
Order Backlog:
Arizona1,212 $404,044 738 $258,341 
California608 373,949 199 129,880 
Colorado183 87,047 258 129,167 
West Region2,003 865,040 1,195 517,388 
Texas1,758 602,709 1,151 413,229 
Central Region1,758 602,709 1,151 413,229 
Florida627 242,419 488 213,427 
Georgia192 69,204 174 63,730 
North Carolina413 143,741 277 104,162 
South Carolina114 36,723 92 31,474 
Tennessee135 45,145 142 53,623 
East Region1,481 537,232 1,173 466,416 
Total5,242 $2,004,981 3,519 $1,397,033 

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Meritage Homes Corporation and Subsidiaries
Operating Data
(Unaudited)

 
 Three Months Ended September 30,
 20202019
 EndingAverageEndingAverage
Active Communities:
Arizona35 36.5 37 38.5 
California20 24.0 24 22.0 
Colorado11 12.0 20 20.5 
West Region66 72.5 81 81.0 
Texas58 63.0 74 73.5 
Central Region58 63.0 74 73.5 
Florida34 35.0 36 36.0 
Georgia11 14.0 18 19.5 
North Carolina20 20.5 22 22.5 
South Carolina6 5.5 10 9.5 
Tennessee9 10.0 9 10.0 
East Region80 85.0 95 97.5 
Total204 220.5 250 252.0 

 Nine Months Ended September 30,
 20202019
 EndingAverageEndingAverage
Active Communities:
Arizona35 34.3 37 38.5 
California20 25.3 24 20.5 
Colorado11 13.8 20 20.0 
West Region66 73.4 81 79.0 
Texas58 70.3 74 84.5 
Central Region58 70.3 74 84.5 
Florida34 34.4 36 33.5 
Georgia11 15.3 18 20.0 
North Carolina20 21.6 22 23.5 
South Carolina6 6.8 10 11.0 
Tennessee9 10.3 9 9.5 
East Region80 88.4 95 97.5 
Total204 232.1 250 261.0 


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About Meritage Homes Corporation
Meritage Homes is the seventh-largest public homebuilder in the United States, based on homes closed in 2019. Meritage offers a variety of homes that are designed with a focus on first-time and first move-up buyers in Arizona, California, Colorado, Texas, Florida, Georgia, North Carolina, South Carolina and Tennessee.
The Company has designed and built over 135,000 homes in its 35-year history, and has a reputation for its distinctive style, quality construction, and award-winning customer experience. Meritage is the industry leader in energy-efficient homebuilding and a seven-year recipient of the U.S. Environmental Protection Agency’s ENERGY STAR® Partner of the Year for Sustained Excellence Award since 2013 for innovation and industry leadership in energy efficient homebuilding.

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 statements regarding health of the housing market and the potential adverse impacts of the COVID-19 pandemic, and projected full year 2020 home closings, home closing revenue, gross margins and diluted earnings per share.
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: disruptions to our business by COVID-19, fear of a similar event, and measures implemented by federal, state and local governments or health authorities to address it; the availability and cost of finished lots and undeveloped land; shortages in the availability and cost of labor; the ability of our potential buyers to sell their existing homes; changes in interest rates and the availability and pricing of residential mortgages; our exposure to information technology failures and security breaches; legislation related to tariffs; 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
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performance; 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 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; 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, 2019 and our Form 10-Q for the quarter ended June 30, 2020 under the caption "Risk Factors," which can be found on our website at www.investors.meritagehomes.com.
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