MTH - Meritage Homes Reports First Quarter 2022 Results Including a 68% Increase in Diluted EPS 560 bps Increase in Home Closing Gross Margin and 12% Increase in Orders over Prior Year

SCOTTSDALE, Ariz., April 27, 2022 (GLOBE NEWSWIRE) -- Meritage Homes Corporation (NYSE: MTH), a leading U.S. homebuilder, reported first quarter results for the period ended March 31, 2022.

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

MANAGEMENT COMMENTS

“Meritage had a robust start to the 2022 spring selling season even as we continued to navigate labor and supply chain constraints. We achieved our highest quarterly sales order volume in the first quarter of 2022 and our second highest first quarter of home closings. We also set new financial records including our highest quarterly home closing gross margin, our highest first quarter of home closing revenue and the best quarterly SG&A leverage in our company’s history,” said Steven J. Hilton, executive chairman of Meritage Homes. “We believe the sustained demand reflects low supply of new and resale housing inventory and favorable demographics.”

“We recognize that recent interest rate increases and six quarters of strong pricing power will eventually impact both buyer psychology and affordability. To alleviate some uncertainties for our customers, in March, Meritage purchased retroactive interest rate locks on all eligible floating-rate loans for homes in our backlog that are scheduled to close in the second half of 2022. We want to help our buyers remain confident and comfortable with their decision to purchase a Meritage home, and relieve concerns around the higher cost of homeownership since their home purchase decision,” said Phillippe Lord, chief executive officer of Meritage Homes. “While demand is still strong, we acknowledge that current dynamics are not sustainable indefinitely and eventually, homebuilding demand will stabilize. To us, that market stability is welcomed. We believe that our community count growth, focus on entry-level and first move-up product and a strategy of driving lower costs through pre-started inventory give us a competitive advantage to capture incremental volume and market share in a rising rate environment while adding meaningful shareholder value.”

“Meritage’s community count grew 32% year-over-year and 3% sequentially from December 31, 2021 to 268 active communities at March 31, 2022. As we brought more communities online, we started over 4,000 homes in the first quarter of 2022, which led to 12% year-over-year growth in sales orders to 3,874 homes,” Mr. Lord continued. “Despite metering our absorption pace in many of our communities to align our starts with production as well as ensure a continued best-in-class customer experience, our average absorption pace was 4.9 per month, which was a 9% increase sequentially from the fourth quarter of 2021.”

“Our closings of 2,858 homes this quarter were just 32 units shy of our highest first quarter of home closings, which occurred in 2021. As a result of favorable pricing power, home closing revenue increased 15% year-over-year to $1.2 billion for the first quarter of 2022, which combined with a 30.3% home closing gross margin and SG&A leverage of 8.5%, led to a 68% year-over-year increase in diluted EPS to $5.79," Mr. Lord remarked.

“During the quarter, we spent $371.4 million on land acquisition and development and at March 31, 2022, lot supply totaled about 75,100,” said Mr. Lord. “To provide flexibility, we maintained a strong balance sheet, ample liquidity and a net debt-to-capital ratio of 16.9% at March 31, 2022.”

Mr. Lord concluded, "With interest rates increasing, we believe that our affordable entry-level and first move-up homes that offer “surprisingly more” allow us to expand our customer base to include those that are being priced out of move-up communities and consider our homes an attractive alternative. Our mid-year goal of a 300 community count is within reach. We continue to carefully navigate the still-constrained operating environment by expanding our trade base and strengthening critical relationships. We are projecting 14,500-15,500 home closings for the full year 2022, which we anticipate will generate $6.5-6.9 billion in home closing revenue. Home closing gross margin is projected to be in the low 28% range. With a projected effective tax rate of 25%, we expect diluted EPS to be in the range of $26.30-27.90 for 2022.”

FIRST QUARTER RESULTS

• Orders of 3,874 homes for the first quarter of 2022 increased 12% year-over-year, driven by a 32% growth in average active communities that was partially offset by a 16% decrease in average absorptions per store to 4.9 per month from 5.8 per month in the first quarter of 2021. Entry-level represented 83% of first quarter 2022 sales orders, compared to 76% in the same quarter of 2021. Average sales price ("ASP") on orders in the first quarter of 2022 exceeded $450,000.

• The 15% year-over-year increase in home closing revenue to $1.2 billion for the quarter reflected a 17% increase in ASP on closings due to sustained homebuying demand even as we shifted our product mix toward entry-level homes. This was partially offset by a 1% decline in home closing volume year-over-year.

• Home closing gross margin improved 560 bps to 30.3% in the first quarter 2022 from 24.7% in the prior year with higher ASPs more than offsetting high commodity costs as well as the benefit of the lower interest costs stemming from lower interest rates on our refinanced debt.

• Selling, general and administrative expenses ("SG&A") as a percentage of first quarter 2022 home closing revenue of 8.5% improved 130 bps from 9.8% in the first quarter of 2021 due to lower commissions, greater leverage of fixed costs on higher home closing revenue as well as the benefits of technology for our sales and marketing functions.

• The first quarter effective income tax rate was 24.0% in 2022 compared to 20.6% 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.

• First quarter 2022 pre-tax margin increased 690 bps to 22.1%, compared to 15.2% in the first quarter of 2021. Net earnings were $217.3 million ($5.79 per diluted share) for the first quarter of 2022, a 65% increase over $131.8 million ($3.44 per diluted share) for the first 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 68% year-over-year improvement in diluted EPS.

BALANCE SHEET

• Cash and cash equivalents at March 31, 2022 totaled $520.4 million, compared to $618.3 million at December 31, 2021, primarily as a result of net cash used for investments in real estate and share repurchases. Real estate assets increased from $3.7 billion at December 31, 2021 to $4.0 billion at March 31, 2022.

• A total of about 75,100 lots were owned or controlled as of March 31, 2022, compared to approximately 58,000 total lots at March 31, 2021. We added over 4,100 net new lots in the first quarter of 2022, representing an estimated 27 future communities, of which 93% are for entry-level communities.

• Debt-to-capital and net debt-to-capital ratios were 26.9% and 16.9%, respectively, at March 31, 2022, which compared to 27.6% and 15.1%, respectively, at December 31, 2021.

• The Company repurchased 1,037,967 shares of stock for a total of $99.3 million during the first quarter of 2022. $54.1 million remained available to repurchase under our authorized share repurchase program as of March 31, 2022.

CONFERENCE CALL

Management will host a conference call to discuss its first quarter results at 8:00 a.m. Mountain Standard Time (11:00 a.m. Eastern Daylight Time) on Thursday, April 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. Mountain Standard Time (2:00 p.m. Eastern Daylight Time) on April 28, 2022 and extending through May 12, 2022, at https://investors.meritagehomes.com.

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

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Consolidated Statements of Cash Flows
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Meritage Homes Corporation and Subsidiaries
Operating Data
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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 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 150,000 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 an eight-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.

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; projected 2022 home closings, home closing revenue, home closing gross margins, effective tax rate and diluted earnings per share; future community counts; trends in construction costs; and expectations about our future results.

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 under the caption "Risk Factors," which can be found on our website at www.investors.meritagehomes.com.