ex_369744.htm

Meritage Homes reports second quarter 2022 results including the achievement of its 300 community goal, a 55% increase in diluted EPS and a 430 bps increase in home closing gross margin over prior year

SCOTTSDALE, Ariz., July 27, 2022 - Meritage Homes Corporation (NYSE: MTH), a leading U.S. homebuilder, reported second quarter results for the period ended June 30, 2022.

“We proudly achieved our long-term goal of 300 communities this quarter, ending June 2022 with 303 communities. This milestone reflects the high level of execution and dedication of our Meritage team amidst longstanding supply chain constraints and delays stemming from COVID-19, and we believe, will position us to expand our market share from incremental order and closing volume,” said Steven J. Hilton, executive chairman of Meritage Homes. “Our agile operating model led to strong second quarter 2022 results, including our highest second quarter sales order volume in company history, a 430 bps year-over-year quarterly home closing gross margin expansion to 31.6% and $1.4 billion in quarterly home closing revenue.”

“We believe that the ongoing low supply of housing inventory and favorable demographics continue to reflect positive factors for housing demand. However, we acknowledge the market is softening from unprecedented demand levels of the last two years, as rapidly increasing mortgage rates in a short amount of time are challenging affordability and buyer psychology. In addition to concerns about the general economy, greater difficulty to qualify for a mortgage and the return of regular seasonality, we are seeing a high preference for quick move-in inventory that can close in 90 days or less, which is primarily found in the existing home market today. We believe this desire for readily available product is exacerbating cancellations and the slowing in new home demand, and will continue to do so for another quarter or two, until our newly-started spec inventory is also available for a quick move-in,” said Phillippe Lord, chief executive officer of Meritage Homes.

“In the second quarter of 2022, we lifted sales order metering in most of our communities. Quarterly sales orders of 3,767 homes were 6% higher than prior year due to our 33% year-over-year increase in average community count. Despite some slowing demand, our second quarter 2022 average absorption pace was 4.4 per month, which was down from 5.5 per month in the second quarter of 2021 yet higher than our expected normalized average pace of 3-4 sales orders per month,” Mr. Lord continued.

“Our closings of 3,221 homes this quarter were just 52 shy of our highest second quarter of home closings, which occurred in 2021,” Mr. Lord remarked. “Our second quarter 2022 home closing revenue of $1.4 billion was 11% greater than last year, which combined with our record home closing gross margin and SG&A leverage of 8.3%, led to a 55% year-over-year increase in our diluted EPS from $4.36 to $6.77 this quarter.”

“During the quarter, we spent $422 million on land acquisition and development and at June 30, 2022, lot supply totaled about 71,000,” said Mr. Lord. “With our healthy balance sheet and ample liquidity, we believe we have flexibility for evolving market conditions. Our net debt-to-capital was 20.6% at June 30, 2022.”

Mr. Lord concluded, “Due to the lack of visibility into the market at this time, we are not providing full year 2022 guidance.”

●

The total sales orders of 3,767 for the second quarter of 2022 reflect an increase of 6% year-over-year, driven by a 33% increase in average communities that was offset by a 20% decrease in average absorption pace from 5.5 to 4.4 per month. The lower absorption pace reflects both seasonality and slowing market demand. Entry-level represented 86% of second quarter 2022 orders, compared to 81% in the same quarter in 2021. Average sales price ("ASP") on orders surpassed $480,000 in the second quarter of 2022, which was an increase of 13% over the second quarter of 2021.

●

The 11% year-over-year increase in home closing revenue to $1.4 billion for the second quarter of 2022 was due to a 13% increase in ASPs on closings even as we continued our shift of product mix toward entry-level homes. This was partially offset by 2% lower home closing volume.

●

The 430 bps improvement in second quarter 2022 home closing gross margin to 31.6% from 27.3% a year ago mainly resulted from higher ASPs on closings that were also better leveraging lower cost of land for entry-level homes and other fixed construction costs—all of which more than offset higher commodity costs.

●

Selling, general and administrative expenses ("SG&A") were 8.3% of second quarter 2022 home closing revenue, a 100 bps improvement over 9.3% in the prior year. This improvement was due to greater leverage of fixed expenses on higher home closing revenue as well as lower commissions expense and the benefits of technology in our sales and marketing efforts.

●

In the second quarter of 2021, we recognized a loss on early extinguishment of debt of $18.2 million in connection with the early redemption in April 2021 of our 7.00% senior notes due 2022 ("2022 Notes"). There were no such transactions in the second quarter of 2022.

●

The second quarter effective income tax rate was 24.6% in 2022 compared to 22.4% 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.

●

Second quarter 2022 pre-tax margin increased 660 bps to 23.4%, compared to 16.8% in the second quarter of 2021. Net earnings were $250.1 million ($6.77 per diluted share) for the second quarter of 2022, a 49% increase over $167.4 million ($4.36 per diluted share) for the second 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 55% year-over-year improvement in earnings per diluted share.

YEAR TO DATE RESULTS

●

Total sales orders for the first half of 2022 increased 9% over the prior year, driven by a 33% increase in average community count, partially offset by an 18% decrease in average absorption pace compared to the first half of 2021.

●

Home closing revenue increased 13% in the first half of 2022 to $2.7 billion due to a 15% increase in ASPs on closings given the favorable pricing environment on relatively flat home closing volume.

●

The 490 bps improvement for home closing gross margin in the first half of 2022 to 31.0% from 26.1% primarily resulted from higher ASPs on closings resulting from favorable pricing and better leveraging of fixed costs on higher home closing revenue.

●

SG&A expenses improved 110 bps year-over-year to 8.4% of home closing revenue, compared to 9.5% in the first half of 2021, due to improved leverage of overhead expenses on higher home closing revenue as well as sales and marketing efficiencies gained from digital innovations.

●

In the first half of 2021, we recognized a loss on early extinguishment of debt of $18.2 million in connection with the early redemption in April 2021 of the 2022 Notes. There were no such transactions in the first half of 2022.

●

The effective tax rate for the first half of 2022 was 24.3%, compared to 21.6% for the first half of 2021. The higher rate in 2022 reflects the expiration of the tax credits available under the 2019 Taxpayer Certainty and Disaster Tax Relief Act.

●

Net earnings were $467.3 million ($12.55 per diluted share) for the first half of 2022, a 56% increase over $299.2 million ($7.80 per diluted share) for the first half of 2021, primarily reflecting pricing power, expanded gross margin and greater overhead leverage in 2022, as well as a lower outstanding share count in the first half of 2022.

BALANCE SHEET

Management will host a conference call to discuss its second quarter results at 8:00 a.m. Pacific Daylight Time (11:00 a.m. Eastern Daylight Time) on Thursday, July 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. Pacific Daylight Time (2:00 p.m. Eastern Daylight Time) on July 28, 2022 and extending through August 11, 2022, at https://investors.meritagehomes.com.

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

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 155,000 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 a nine-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.

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; future community counts; and expectations about our future results, including our liquidity and market 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, 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 and our Form 10-Q for the quarter ended March 31, 2022 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

	Three Months Ended June 30,							Six Months Ended June 30,
	2022		2021		% Chg			2022		2021		% Chg
Homes closed (units)		3,221		3,273		(2	)%		6,079		6,163		(1	)%
Home closing revenue	$	1,408,947	$	1,264,643		11	%	$	2,654,403	$	2,344,625		13	%
Average sales price - closings	$	437	$	386		13	%	$	437	$	380		15	%
Home orders (units)		3,767		3,542		6	%		7,641		7,000		9	%
Home order value	$	1,809,870	$	1,499,672		21	%	$	3,577,580	$	2,848,802		26	%
Average sales price - orders	$	480	$	423		13	%	$	468	$	407		15	%
Ending backlog (units)									7,241		5,509		31	%
Ending backlog value								$	3,438,853	$	2,317,534		48	%
Average sales price - backlog								$	475	$	421		13	%
Earnings before income taxes	$	331,695	$	215,651		54	%	$	617,578	$	381,628		62	%
Net earnings	$	250,084	$	167,389		49	%	$	467,338	$	299,232		56	%
Diluted EPS	$	6.77	$	4.36		55	%	$	12.55	$	7.80		61	%

	Three Months Ended June 30,
	2022			2021			Change $			Change %
Homebuilding:
Home closing revenue	$	1,408,947		$	1,264,643		$	144,304			11	%
Land closing revenue		3,434			12,956			(9,522	)		(73	)%
Total closing revenue		1,412,381			1,277,599			134,782			11	%
Cost of home closings		(964,208	)		(919,342	)		(44,866	)		5	%
Cost of land closings		(2,784	)		(13,288	)		10,504			(79	)%
Total cost of closings		(966,992	)		(932,630	)		(34,362	)		4	%
Home closing gross profit		444,739			345,301			99,438			29	%
Land closing gross profit/(loss)		650			(332	)		982			(296	)%
Total closing gross profit		445,389			344,969			100,420			29	%
Financial Services:
Revenue		5,139			5,665			(526	)		(9	)%
Expense		(2,581	)		(2,367	)		(214	)		9	%
Earnings from financial services unconsolidated entities and other, net		1,521			1,317			204			15	%
Financial services profit		4,079			4,615			(536	)		(12	)%
Commissions and other sales costs		(69,383	)		(73,889	)		4,506			(6	)%
General and administrative expenses		(47,932	)		(43,156	)		(4,776	)		11	%
Interest expense		—			(77	)		77			(100	)%
Other (expense)/income, net		(458	)		1,377			(1,835	)		(133	)%
Loss on early extinguishment of debt		—			(18,188	)		18,188			(100	)%
Earnings before income taxes		331,695			215,651			116,044			54	%
Provision for income taxes		(81,611	)		(48,262	)		(33,349	)		69	%
Net earnings	$	250,084		$	167,389		$	82,695			49	%

Earnings per common share:
Basic							Change $ or shares			Change %
Earnings per common share	$	6.82		$	4.43		$	2.39			54	%
Weighted average shares outstanding		36,647			37,818			(1,171	)		(3	)%
Diluted
Earnings per common share	$	6.77		$	4.36		$	2.41			55	%
Weighted average shares outstanding		36,962			38,377			(1,415	)		(4	)%

	Six Months Ended June 30,
	2022			2021			Change $			Change %
Homebuilding:
Home closing revenue	$	2,654,403		$	2,344,625		$	309,778			13	%
Land closing revenue		44,912			16,755			28,157			168	%
Total closing revenue		2,699,315			2,361,380			337,935			14	%
Cost of home closings		(1,832,015	)		(1,732,669	)		(99,346	)		6	%
Cost of land closings		(33,469	)		(16,540	)		(16,929	)		102	%
Total cost of closings		(1,865,484	)		(1,749,209	)		(116,275	)		7	%
Home closing gross profit		822,388			611,956			210,432			34	%
Land closing gross profit		11,443			215			11,228			5222	%
Total closing gross profit		833,831			612,171			221,660			36	%
Financial Services:
Revenue		9,811			10,416			(605	)		(6	)%
Expense		(5,093	)		(4,538	)		(555	)		12	%
Earnings from financial services unconsolidated entities and other, net		2,695			2,497			198			8	%
Financial services profit		7,413			8,375			(962	)		(11	)%
Commissions and other sales costs		(134,923	)		(141,633	)		6,710			(5	)%
General and administrative expenses		(87,927	)		(81,105	)		(6,822	)		8	%
Interest expense		(41	)		(167	)		126			(75	)%
Other (expense)/income, net		(775	)		2,175			(2,950	)		(136	)%
Loss on early extinguishment of debt		—			(18,188	)		18,188			(100	)%
Earnings before income taxes		617,578			381,628			235,950			62	%
Provision for income taxes		(150,240	)		(82,396	)		(67,844	)		82	%
Net earnings	$	467,338		$	299,232		$	168,106			56	%

Earnings per common share:
Basic							Change $ or shares			Change %
Earnings per common share	$	12.69		$	7.93		$	4.76			60	%
Weighted average shares outstanding		36,820			37,731			(911	)		(2	)%
Diluted
Earnings per common share	$	12.55		$	7.80		$	4.75			61	%
Weighted average shares outstanding		37,239			38,357			(1,118	)		(3	)%

	June 30, 2022		December 31, 2021
Assets:
Cash and cash equivalents	$	272,147	$	618,335
Other receivables		171,408		147,548
Real estate ⁽¹⁾		4,474,062		3,734,408
Real estate not owned		8,011		8,011
Deposits on real estate under option or contract		97,967		90,679
Investments in unconsolidated entities		11,223		5,764
Property and equipment, net		39,030		37,340
Deferred tax asset, net		41,271		40,672
Prepaids, other assets and goodwill		192,604		124,776
Total assets	$	5,307,723	$	4,807,533
Liabilities:
Accounts payable	$	341,717	$	216,009
Accrued liabilities		326,856		337,277
Home sale deposits		60,820		42,610
Liabilities related to real estate not owned		7,210		7,210
Loans payable and other borrowings		15,613		17,552
Senior notes, net		1,143,038		1,142,486
Total liabilities		1,895,254		1,763,144
Stockholders' Equity:
Preferred stock		—		—
Common stock		366		373
Additional paid-in capital		315,590		414,841
Retained earnings		3,096,513		2,629,175
Total stockholders’ equity		3,412,469		3,044,389
Total liabilities and stockholders’ equity	$	5,307,723	$	4,807,533
(1) Real estate – Allocated costs:
Homes under contract under construction	$	1,527,013	$	1,039,822
Unsold homes, completed and under construction	$	748,845		484,999
Model homes	$	89,539		81,049
Finished home sites and home sites under development	$	2,108,665		2,128,538
Total real estate	$	4,474,062	$	3,734,408

	June 30, 2022			December 31, 2021
Senior notes, net, loans payable and other borrowings	$	1,158,651		$	1,160,038
Stockholders' equity		3,412,469			3,044,389
Total capital	$	4,571,120		$	4,204,427
Debt-to-capital		25.3	%		27.6	%

Senior notes, net, loans payable and other borrowings	$	1,158,651		$	1,160,038
Less: cash and cash equivalents		(272,147	)		(618,335	)
Net debt	$	886,504		$	541,703
Stockholders’ equity		3,412,469			3,044,389
Total net capital	$	4,298,973		$	3,586,092
Net debt-to-capital		20.6	%		15.1	%

	Three Months Ended June 30,						Six Months Ended June 30,
	2022			2021			2022			2021
Depreciation and amortization	$	5,964		$	6,879		$	11,723		$	13,414

Summary of Capitalized Interest:
Capitalized interest, beginning of period	$	59,082		$	57,540		$	56,253		$	58,940
Interest incurred		15,171			16,321			30,384			32,413
Interest expensed		—			(77	)		(41	)		(167	)
Interest amortized to cost of home and land closings		(12,794	)		(17,074	)		(25,137	)		(34,476	)
Capitalized interest, end of period	$	61,459		$	56,710		$	61,459		$	56,710

	Six Months Ended June 30,
	2022			2021
Cash flows from operating activities:
Net earnings	$	467,338		$	299,232
Adjustments to reconcile net earnings to net cash used in operating activities:
Depreciation and amortization		11,723			13,414
Stock-based compensation		10,045			8,590
Loss on early extinguishment of debt		—			18,188
Equity in earnings from unconsolidated entities		(2,145	)		(1,807	)
Distribution of earnings from unconsolidated entities		2,339			2,215
Other		(601	)		2,266
Changes in assets and liabilities:
Increase in real estate		(729,450	)		(469,733	)
Increase in deposits on real estate under option or contract		(7,288	)		(14,863	)
Increase in other receivables, prepaids and other assets		(90,419	)		(36,390	)
Increase in accounts payable and accrued liabilities		113,421			26,532
Increase in home sale deposits		18,210			8,884
Net cash used in operating activities		(206,827	)		(143,472	)
Cash flows from investing activities:
Investments in unconsolidated entities		(5,653	)		(1	)
Purchases of property and equipment		(12,852	)		(10,970	)
Proceeds from sales of property and equipment		247			292
Maturities/sales of investments and securities		1,032			2,697
Payments to purchase investments and securities		(1,032	)		(2,697	)
Net cash used in investing activities		(18,258	)		(10,679	)
Cash flows from financing activities:
Repayment of loans payable and other borrowings		(11,800	)		(5,758	)
Repayment of senior notes		—			(317,690	)
Proceeds from issuance of senior notes		—			450,000
Payment of debt issuance costs		—			(6,102	)
Repurchase of shares		(109,303	)		(27,546	)
Net cash (used in)/provided by financing activities		(121,103	)		92,904
Net decrease in cash and cash equivalents		(346,188	)		(61,247	)
Cash and cash equivalents, beginning of period		618,335			745,621
Cash and cash equivalents, end of period	$	272,147		$	684,374

	Three Months Ended June 30,
	2022				2021
	Homes		Value		Homes		Value
Homes Closed:
Arizona		542	$	234,902		481	$	165,990
California		256		173,631		318		198,232
Colorado		127		77,545		145		74,987
West Region		925		486,078		944		439,209
Texas		1,048		422,327		1,154		403,838
Central Region		1,048		422,327		1,154		403,838
Florida		437		169,607		443		160,377
Georgia		179		81,227		171		62,477
North Carolina		359		148,860		330		119,838
South Carolina		132		44,365		81		28,209
Tennessee		141		56,483		150		50,695
East Region		1,248		500,542		1,175		421,596
Total		3,221	$	1,408,947		3,273	$	1,264,643
Homes Ordered:
Arizona		560	$	257,162		624	$	256,804
California		355		272,601		344		217,228
Colorado		160		102,464		181		104,134
West Region		1,075		632,227		1,149		578,166
Texas		1,096		491,394		1,101		428,375
Central Region		1,096		491,394		1,101		428,375
Florida		685		283,291		468		176,118
Georgia		225		107,388		193		77,309
North Carolina		391		178,463		390		153,032
South Carolina		144		50,716		88		32,595
Tennessee		151		66,391		153		54,077
East Regions		1,596		686,249		1,292		493,131
Total		3,767	$	1,809,870		3,542	$	1,499,672

	Six Months Ended June 30,
	2022				2021
	Homes		Value		Homes		Value
Homes Closed:
Arizona		1,000	$	432,997		891	$	303,258
California		531		361,041		595		370,131
Colorado		258		155,464		320		159,250
West Region		1,789		949,502		1,806		832,639
Texas		1,921		770,155		2,117		722,223
Central Region		1,921		770,155		2,117		722,223
Florida		875		337,682		860		301,205
Georgia		306		137,661		317		117,616
North Carolina		656		267,864		629		226,851
South Carolina		253		84,078		166		56,055
Tennessee		279		107,461		268		88,036
East Region		2,369		934,746		2,240		789,763
Total		6,079	$	2,654,403		6,163	$	2,344,625
Homes Ordered:
Arizona		1,110	$	497,169		1,226	$	479,239
California		701		519,944		630		390,619
Colorado		369		228,463		350		193,913
West Region		2,180		1,245,576		2,206		1,063,771
Texas		2,392		1,039,961		2,216		820,343
Central Region		2,392		1,039,961		2,216		820,343
Florida		1,257		510,205		947		355,227
Georgia		445		208,279		357		138,866
North Carolina		764		341,471		809		310,719
South Carolina		298		103,372		164		58,997
Tennessee		305		128,716		301		100,879
East Region		3,069		1,292,043		2,578		964,688
Total		7,641	$	3,577,580		7,000	$	2,848,802
Order Backlog:
Arizona		1,255	$	557,742		1,328	$	520,034
California		563		430,202		479		295,198
Colorado		439		271,827		238		139,437
West Region		2,257		1,259,771		2,045		954,669
Texas		2,349		1,042,689		1,729		670,583
Central Region		2,349		1,042,689		1,729		670,583
Florida		1,250		524,940		637		268,971
Georgia		342		162,204		196		79,207