MTH - Meritage Homes reports third quarter 2023 results with a 50% year-over-year increase in sales orders driven by accelerated cycle times and move-in ready inventory | Benzinga

SCOTTSDALE, Ariz., Oct. 31, 2023 (GLOBE NEWSWIRE) -- Meritage Homes Corporation (NYSE:MTH), the fifth-largest U.S. homebuilder, reported third quarter results for the period ended September 30, 2023.

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

MANAGEMENT COMMENTS

"Homebuying demand held steady in the third quarter of 2023 despite the elevated interest rate environment, as we continued to offer a full range of incentives to help buyers solve for a monthly payment. With the backdrop of life events creating a housing need for millennials and baby boomers and the ongoing shortage of existing home inventory for sale, Meritage's average absorption pace reached 4.1 net orders per month this quarter," said Steven J. Hilton, executive chairman of Meritage Homes. "In the third quarter of 2023, cycle time improvement and the commitment to our spec building strategy led to a record 96% backlog conversion and our highest third quarter of home closings and home closing revenue."

"Home closings were 3,638 this quarter, 4% greater than prior year, of which about a third of the homes were sold and closed intra-quarter from our available move-in ready inventory," added Phillippe Lord, chief executive officer of Meritage Homes. "Our third quarter 2023 home closing revenue of $1.6 billion combined with a strong home closing gross margin of 26.7% and SG&A leverage of 10.1% led to diluted EPS of $5.98 this quarter."

"Buoyed by our financing incentives including rate locks and buy-downs, our sales orders of 3,474 homes this quarter increased 50% year-over-year," Mr. Lord continued. "The third quarter 2023 average absorption pace of 4.1 per month improved from 2.7 per month in the prior year."

"In addition to generating positive cash flow, we returned capital to our shareholders during the third quarter of 2023 by repurchasing $45.0 million of common stock and maintaining our quarterly cash dividends. We also completed a redemption of $150.0 million of our 6.00% senior notes due 2025," remarked Mr. Lord. "We achieved this balance of internal and investor capital distributions while ending the quarter with nothing drawn under our credit facility, $1.0 billion of cash and negative net debt-to-capital of (1.0)% at September 30, 2023."

"Third quarter 2023 average community count of 282 was 3% below prior year and down 1% sequentially compared to the second quarter of 2023, as our accelerated orders pace resulted in some early community close outs. During the quarter, we spent $537 million on land acquisition and development. Approximately 5,000 net new lots were secured, bringing our total lot supply to nearly 60,700 at September 30, 2023, a bit higher than where we started this quarter and representing 4.2 years supply of lots," said Mr. Lord.

Mr. Lord concluded, "We believe housing market demand will remain steady in the near future and we expect to continue to invest in land inventory and steadily increase our community count over the next year or two. We are projecting 3,500-3,700 home closings for the fourth quarter of 2023, which we anticipate will generate quarterly home closing revenue of $1.45-1.53 billion. Home closing gross margin is projected to be 25-26%. With an estimated effective tax rate of about 23%, we expect diluted EPS to be in the range of $4.84-5.43 for the fourth quarter of 2023."

THIRD QUARTER RESULTS

• Orders of 3,474 homes for the third quarter of 2023 increased 50% year-over-year, reflecting a 52% increase in average absorption pace to 4.1 per month from 2.7 per month in the third quarter of 2022 and a 3% decrease in average communities. Entry-level represented 88% of sales in both third quarter periods. Average sales price ("ASP") on orders in the third quarter of 2023 of $430,000 was up 2% from the third quarter of 2022 due to geographic mix.
  
  
• The 3% year-over-year increase in home closing revenue to $1.6 billion resulted from 4% higher home closing volume partially offset by a 2% decrease in ASP on closings due to more costly financing incentives in 2023.
  
  
• Home closing gross margin of 26.7% in the third quarter 2023 was down 200 bps from 28.7% in the prior year mainly due to higher financing incentives, partially offset by savings from shortening cycle times as costs held relatively steady year-over-year. In the third quarter of 2022, there were $8.8 million in write-offs related to the lot option deposits and diligence costs from terminated land deals. There were nominal inventory-related write-offs in 2023.
  
  
• Selling, general and administrative expenses ("SG&A") as a percentage of third quarter 2023 home closing revenue were 10.1%, 200 bps higher than 8.1% in the third quarter of 2022, primarily as a result of higher commissions, reflecting the current sales environment, and increased compensation costs.
  
  
• Third quarter 2023 other income, net of $13.3 million increased from an expense of $0.1 million in 2022, and consists mainly of higher interest income earned on a larger cash balance.
  
  
• In the third quarter of 2023, we recognized a loss on early extinguishment of debt of $0.9 million in connection with the $150.0 million partial redemption of our 6.00% senior notes due 2025 (the "2025 Notes"). There were no such redemptions in 2022.
  
  
• The third quarter effective income tax rate was 22.4% in 2023 compared to 20.3% in 2022. The 2023 rate benefited from earned eligible energy tax credits on qualifying homes under the Internal Revenue Code's Inflation Reduction Act ("IRA"). The third quarter 2022 rate reflected the cumulative earned eligible energy tax credits on qualifying homes delivered in the first nine months of 2022, as the IRA enacted in August 2022 retroactively extended the Internal Revenue Code's §45L new energy-efficient homes credit.
  
  
• Net earnings were $221.8 million ($5.98 per diluted share) for the third quarter of 2023, a 16% decrease from $262.5 million ($7.10 per diluted share) for the third quarter of 2022. Lower gross margin, greater overhead costs and a higher tax rate were partially offset by increased home closing revenue, which resulted in a 16% year-over-year decrease in diluted EPS.
  

YEAR TO DATE RESULTS

• Total sales orders for the first nine months of 2023 increased 4% over the prior year, driven by a 3% increase in average absorption pace and a 1% increase in average communities compared to the first nine months of 2022.
  
  
• Home closing revenue increased 5% in the first nine months of 2023 to $4.4 billion due to a 5% increase in home closing volume. ASP on closings remained essentially flat year-over-year.
  
  
• Home closing gross margin declined 540 bps to 24.7% in the first nine months of 2023 from 30.1% in the prior year, primarily from greater financing incentives. The year to date 2023 home closing gross margin included $2.1 million of write-offs from terminated land deals related to lot option deposits and diligence costs compared to $11.6 million in the prior year.
  
  
• SG&A expenses as a percentage of home closing revenue of 10.0% increased from 8.3% in the prior year as a result of higher commissions and marketing costs, reflecting the current sales environment, and increased compensation and technology spend.
  
  
• Other income, net of $35.0 million in the first nine months of 2023 increased from an expense of $0.8 million in 2022, due to higher interest income earned on a larger cash balance.
  
  
• In the first nine months of 2023, we recognized a loss on early extinguishment of debt of $0.9 million in connection with the $150.0 million partial redemption of our 2025 Notes. There were no such redemptions in 2022.
  
  
• The effective tax rate for the first nine months of 2023 was 21.8%, compared to 22.9% for the first nine months of 2022. The rate in both periods benefited from earned eligible energy tax credits on qualifying homes under the IRA. The lower rate for 2023 reflected the increased per-home energy efficiency credit amount starting in 2023.
  
  
• Net earnings were $539.9 million ($14.55 per diluted share) for the first nine months of 2023, a 26% decrease from $729.8 million ($19.65 per diluted share) for the first nine months of 2022, mainly reflecting lower gross margin and greater overhead costs.
  

BALANCE SHEET

• Cash and cash equivalents at September 30, 2023 totaled $1.0 billion, compared to $861.6 million at December 31, 2022, primarily as a result of retained cash from earnings over the past year.
• About 60,700 total lots were owned or controlled as of September 30, 2023, compared to approximately 66,000 total lots as of September 30, 2022. We added nearly 5,000 net new lots in the third quarter of 2023, representing an estimated 37 future communities, all of which are for entry-level product.
• Debt-to-capital and net debt-to-capital ratios were 18.5% and (1.0)%, respectively, at September 30, 2023, which compared to 22.6% and 6.8%, respectively, at December 31, 2022.
• The Company repurchased 319,716 shares of stock, or 0.9% of shares outstanding at the beginning of the quarter, for $45.0 million in the third quarter of 2023. For the first nine months of 2023, 413,013 shares of stock, or 1.1% of shares outstanding at the beginning of the year, were repurchased, totaling $55.0 million. As of September 30, 2023, $189.1 million remained available to repurchase under the authorized share repurchase program.
• The Company declared and paid cash dividends of $0.27 per share in the third quarter of 2023, totaling $9.8 million. Year to date, cash dividend payments totaled $29.7 million.
• During the third quarter of 2023, the Company redeemed $150.0 million of its 2025 Notes, of which $250.0 million remains outstanding as of September 30, 2023.

CONFERENCE CALL

Management will host a conference call to discuss its third quarter 2023 results at 8:00 a.m. Pacific Daylight Time (11:00 a.m. Eastern Daylight Time) on Wednesday, November 1, 2023. 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 U.S. 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 November 1, 2023 and extending through November 14, 2023, at https://investors.meritagehomes.com.

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

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