MTH - Meritage Homes closes out 2022 with record fourth quarter results including a 29% increase in home closings a 32% increase in home closing revenue and $7.09 of diluted EPS

SCOTTSDALE, Ariz., Feb. 01, 2023 (GLOBE NEWSWIRE) -- Meritage Homes Corporation (NYSE: MTH), a leading U.S. homebuilder, today announced fourth quarter and full year results for the periods ended December 31, 2022.

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

MANAGEMENT COMMENTS
"As a result of the Meritage team's dedication and exceptional execution, we finished the year strong, delivering 29% more homes and 32% higher home closing revenue in the fourth quarter of 2022 compared to prior year. However, ongoing economic uncertainty continued to impact buyer psychology and undermine housing demand this quarter, generating a 46% decrease in fourth quarter orders," said Steven J. Hilton, executive chairman of Meritage Homes.

"Our closings of 4,540 homes this quarter drove our $2.0 billion fourth quarter 2022 home closing revenue," added Phillippe Lord, chief executive officer of Meritage Homes. "Combined with our home closing gross margin of 25.2% and our SG&A leverage of 8.4%, we generated a 13% year-over-year increase in our diluted EPS from $6.25 to $7.09 this quarter. Excluding nonrecurring items, adjusted fourth quarter 2022 home closing gross margin was 25.7% compared to 29.2% in 2021."

"The fourth quarter 2022 sales orders of 1,808 homes were 46% lower than prior year primarily due to elevated cancellations. The cancellation rate was 39% this quarter as we proactively and aggressively validated every home in our backlog to ensure we are entering 2023 only with buyers committed to close and re-deploying available homes back to the sales team. Quarterly gross sales orders declined a more moderate 22% year-over-year. Our fourth quarter 2022 average absorption pace was 2.2 per month, which was down from 4.5 per month in the fourth quarter of 2021, but gross sales pace was 3.6 per month—at our 3-4 monthly target, affirming that buyer demand is present at the right price in today's market," Mr. Lord continued. "While we are focused on prioritizing pace over price, we let our spec inventory in production reach near-completion before we reset pricing for our supply of available inventory, which coincided with us closing a large portion of our backlog."

"Although favorable demographics and the low supply of new and resale housing inventory should drive long-term demand, we believe they were overshadowed by the macroeconomic factors that drove the slower orders this quarter," said Mr. Lord. "Looking into 2023, we are starting the new year on the right foot. We believe we have the right level of completed and near-completed homes to sell in nearly all of our stores and we are working to find the market clearing price to get back to our target absorption pace of 3-4 net sales per month. As our strategy is centered on affordable, move-in ready product, we believe we can continue to capture market share over the coming year."

"We remain focused on balance sheet discipline, ending the year with over $860 million in cash. While increasing our liquidity, we grew our community count 5% year-over-year to 271 active communities at December 31, 2022, and we expect to continue to open new stores throughout the year and return to our 300 community target over the next several quarters. In the fourth quarter, we continued rightsizing our land positions and did not add any new lots under control while terminating underperforming land deals totaling roughly 3,700 lots with a corresponding $4.2 million in walk-away charges. We spent $351 million on land acquisition and development this quarter, bringing our full year total spend to $1.5 billion," said Mr. Lord. "We had nothing drawn under our credit facility and our net debt-to-capital was just 6.8% at December 31, 2022."

FOURTH QUARTER RESULTS

• Total sales orders of 1,808 homes for the fourth quarter of 2022 were 46% lower than prior year despite a 10% year-over-year increase in average community count. The average absorption pace decreased 51% to 2.2 per month from 4.5 in the prior year primarily due to an elevated cancellation rate of 39% this quarter. Gross sales orders of 2,979 homes declined 22% compared to the fourth quarter of 2021. Entry-level represented 89% of fourth quarter 2022 orders, compared to 82% in the prior year. Average sales price ("ASP") on orders decreased 10% year-over-year to $389,000 in the fourth quarter of 2022 and decreased 8% sequentially from $422,000 in the third quarter of 2022.
• The 32% year-over-year increase in home closing revenue to $2.0 billion for the fourth quarter of 2022 was due to 29% greater home closing volume and 3% higher ASPs on closings compared to prior year.
• The 380 bps deterioration in fourth quarter 2022 home closing gross margin to 25.2% from 29.0% a year ago was the result of greater incentives and higher direct costs as well as several nonrecurring items, including $10.9 million in warranty adjustments related to two specific cases and $4.2 million in terminated land deal walk-away charges, which were partially offset by $5.4 million in retroactive vendor rebates. The fourth quarter of 2021 included $2.5 million in terminated land deal walk-away charges. Excluding these nonrecurring items, adjusted fourth quarter 2022 home closing gross margin of 25.7% compared to adjusted fourth quarter 2021 home closing gross margin of 29.2%.
• Selling, general and administrative expenses ("SG&A") were 8.4% of fourth quarter 2022 home closing revenue, a slight improvement over 8.5% in the prior year resulting from greater leverage of fixed expenses on higher home closing revenue, which was partially offset by higher commissions and advertising costs that reflect our response to the current sales environment. In addition, the fourth quarter of 2021 included a one-time exit payment of $3.6 million to an executive and $1.4 million of equity expense related to a change in the Company's retirement plan.
• The fourth quarter effective income tax rate was 23.3% in 2022 compared to 23.8% in 2021. The 2022 rate benefited from earned eligible energy tax credits on qualifying homes under the Internal Revenue Code new energy-efficient homes credit from the Inflation Reduction Act ("IRA") enacted in August 2022. The 2021 rate similarly benefited from the Taxpayer Certainty and Disaster Tax Relief Act passed in December 2019 ("2019 Act").
• Net earnings were $262.4 million ($7.09 per diluted share) for the fourth quarter of 2022, a 10% increase over $237.5 million ($6.25 per diluted share) for the fourth quarter of 2021. Strong earnings growth primarily reflected higher home closing volume, which combined with a lower outstanding share count in the current quarter, led to a 13% year-over-year improvement in earnings per diluted share.

YEAR TO DATE RESULTS

• Total sales orders of 11,759 homes for the full year 2022 decreased 15% over prior year despite a 23% year-over-year increase in average community count. The full year 2022 average absorption pace declined 29%, primarily due to elevated cancellations in the second half of the year.
• Home closing revenue increased 22% for the full year 2022 to $6.2 billion due to 11% higher ASPs on closings and 10% greater home closing volume.
• The 80 bps improvement for home closing gross margin for the full year 2022 to 28.6% from 27.8% was primarily due to higher margins in the first half of the year and better leveraging of fixed costs on greater home closing revenue, which more than offset rising material and labor costs as well as higher incentives in the second half of the year. The full year 2022 home closing gross margin included nonrecurring items related to $15.8 million in terminated land deal walk-away charges and $10.9 million in warranty adjustments, which were partially offset by $5.4 million of retroactive vendor rebates. The full year 2021 home closing gross margin included $4.5 million in terminated land deal walk-away charges; there were no warranty adjustments or retroactive vendor rebates in the prior year.
• SG&A as a percentage of home closing revenue improved 90 bps year-over-year to 8.3% from 9.2% in 2021, due to greater leverage of overhead expenses on higher home closing revenue and lower full year commissions and advertising costs as a percentage of home closing revenue. In addition, full year 2021 included a one-time exit payment of $3.6 million to an executive and $1.4 million of equity expense related to a change in the Company's retirement plan.
• In 2021, we recognized a loss on the 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. There were no such transactions in 2022.
• The effective tax rate for the full year 2022 was 23.0%, compared to 22.8% for the full year 2021. Tax credits were earned on qualifying energy-efficient homes in the current year under the 2022 IRA and in the prior year under the 2019 Act.
• Net earnings were $992.2 million ($26.74 per diluted share) for the full year 2022, a 35% increase over $737.4 million ($19.29 per diluted share) for the full year 2021, primarily reflecting pricing power, expanded gross margin and greater overhead leverage in 2022, as well as a lower outstanding share count in 2022.

BALANCE SHEET

• Cash and cash equivalents at December 31, 2022 totaled $861.6 million, compared to $618.3 million at December 31, 2021, primarily as a result of reduced spend on land, development and home inventory. Real estate assets increased from $3.7 billion at December 31, 2021 to $4.4 billion at December 31, 2022.
• A total of approximately 63,000 lots were owned or controlled as of December 31, 2022 compared to approximately 75,000 total lots at December 31, 2021.
• Debt-to-capital and net debt-to-capital ratios were 22.6% and 6.8%, respectively, at December 31, 2022, which compared to 27.6% and 15.1%, respectively, at December 31, 2021.
• The Company repurchased 1,166,040 shares of stock, or 3.1% of the outstanding balance as of the beginning of the year, for a total of $109.3 million during the full year 2022. There were no share repurchases during the fourth quarter. As of December 31, 2022, $244.1 million remained available to repurchase under our authorized share repurchase program.

CONFERENCE CALL
Management will host a conference call to discuss its fourth quarter 2022 results at 8:00 a.m. Mountain Standard Time (10:00 a.m. Eastern Standard Time) on Thursday, February 2, 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 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 (1:00 p.m. Eastern Standard Time) on February 2, 2023 and extending through February 16, 2023, at https://investors.meritagehomes.com.

Meritage Homes Corporation and Subsidiaries
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Meritage Homes Corporation and Subsidiaries
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Meritage Homes Corporation and Subsidiaries
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Meritage Homes Corporation and Subsidiaries
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Reconciliation of Non-GAAP Information (Dollars in thousands – unaudited):

This press release and management’s comments and discussion about our operating results included in this press release reflect certain adjustments, including home closing gross profit, home closing gross margin, and debt-to-capital ratios. These are considered non-GAAP financial measures and should be considered in addition to, rather than as a substitute for, the comparable GAAP financial measures. We believe these non-GAAP financial measures are relevant and useful to investors in understanding our operating results and may be helpful in comparing the Company with other companies in the homebuilding industry to the extent they provide similar information. We encourage investors to understand the methods used by other companies in the homebuilding industry to calculate these non-GAAP financial measures and any adjustments thereto before comparing to our non-GAAP financial measures.

Reconciliation of Non-GAAP Information, continued (Dollars in thousands – unaudited):

Meritage Homes Corporation and Subsidiaries
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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 2021. The Company offers affordable, energy-efficient entry-level and first move-up homes. Operations span across Arizona, California, Colorado, Texas, Florida, Georgia, North Carolina, South Carolina and Tennessee.

Meritage Homes has delivered over 165,000 homes in its 37-year history, and has a reputation for its distinctive style, quality construction, and award-winning customer experience. The Company is an industry leader in energy-efficient homebuilding, 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's 2022 Market Leader Award for Certified Homes as well as the EPA's 2022 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; expectations about our future results; the level of our near-completed inventory; our ability to capture market share; our future community count; and projected 2023 home closings.

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: increases in mortgage interest rates, the availability and pricing of residential mortgages and 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 September 30, 2022 under the caption "Risk Factors," which can be found on our website at https://investors.meritagehomes.com.