Contacts:			Emily Tadano, VP Investor Relations and ESG
									(480) 515-8979 (office)
									investors@meritagehomes.com

SCOTTSDALE, Ariz., October 26, 2022 - Meritage Homes Corporation (NYSE: MTH), a leading U.S. homebuilder, reported third quarter results for the period ended September 30, 2022.

“Despite a rapidly evolving housing market challenged by interest rate hikes, supply chain issues, Hurricane Ian and market uncertainty, in the third quarter of 2022, Meritage achieved its highest quarterly home closing revenue and record quarterly diluted earnings per share,” said Steven J. Hilton, executive chairman of Meritage Homes.

“Our closings of 3,487 homes this quarter were 12% greater than prior year,” added Phillippe Lord, chief executive officer of Meritage Homes. “Our third quarter 2022 home closing revenue of $1.6 billion combined with our home closing gross margin of 28.7%, our lowest SG&A leverage of 8.1% and an energy tax credit catch-up of $13.1 million, led to a 35% year-over-year increase in our diluted EPS from $5.25 to $7.10 this quarter.”

“However, sales orders fell sharply during the quarter. The third quarter 2022 sales orders of 2,310 homes were 33% lower than prior year primarily due to elevated cancellations. The cancellation rate was 30% this quarter. Gross sales orders declined 14% year-over-year, confirming that underlying home demand is stronger than the net numbers convey. Our third quarter 2022 average absorption pace was 2.7 per month, which was down from 5.0 per month in the third quarter of 2021. We expect sales orders will remain weaker until mortgage interest rates stabilize, we complete more move-in ready inventory and close out of our mature backlog. In each market, we are working to find the right combination of price adjustments and incentives to get back to our target absorption pace of 3-4 net sales per month,” Mr. Lord continued.

“We believe the continuation of the rapidly increasing mortgage interest rates, expectations of further significant increases to come, inflation and uncertainty in the economy are temporarily outweighing the positive impact of favorable demographics and the low supply of new and resale housing inventory on demand,” said Mr. Lord. "The market deterioration we experienced at the end of the second quarter deepened throughout the third quarter. Our various discounting and incentive initiatives are helping to attract and retain customers, but we are seeing some homebuyers hold off on their purchase decisions due to uncertain market conditions."

“Building materials and labor shortages are still delaying a return to normal cycle times, but we are confident that our pre-started inventory strategy executed by our exceptional team will ensure that we close timely on our current backlog while offering move-in ready homes for our future homebuyers," remarked Mr. Lord. "We remain committed to growing Meritage's market share and maximizing shareholder return in this evolving market.”

“Although Meritage's community count grew 17% year-over-year, the 275 active communities at September 30, 2022 were 9% lower sequentially compared to June 30, 2022. In response to weakening demand, we added only approximately 1,800 new lots under control, while we reassessed our land positions and successfully reduced our lot supply since the beginning of this year. We terminated options on our lowest performing land deals, which totaled roughly 5,200 lots with a corresponding $8.8 million walk-away charge this quarter. We spent $380 million on land acquisition and development this quarter and at September 30, 2022, lot supply totaled approximately 66,000,” said Mr. Lord. “We feel confident we have ample liquidity and a healthy balance sheet to manage through this changing environment. We had nothing drawn under our credit facility and our net debt-to-capital was 18.9% at September 30, 2022.”

Mr. Lord concluded, “We continue to monitor and evaluate shifting market conditions. We are projecting 4,300-4,700 home closings for the fourth quarter of 2022, which we anticipate will generate quarterly home closing revenue of $1.85-2.10 billion. Home closing gross margin is projected to be around 25%, reflecting the increased incentives we have been offering the last couple of quarters. With a projected effective tax rate of 23.5%, we expect diluted EPS to be in the range of $6.50-7.40 for the fourth quarter of 2022.”

•Total sales orders of 2,310 homes for the third quarter of 2022 were 33% lower than prior year despite a 25% year-over-year increase in average community count. The average absorption pace decreased 46% to 2.7 per month from 5.0 in the prior year primarily due to our elevated cancellation rate of 30% this quarter. Gross sales orders of 3,291 homes declined 14% compared to the third quarter of 2021. Entry-level represented 88% of third quarter 2022 orders, compared to 84% in the prior year. Average sales price ("ASP") on orders decreased 3% year-over-year to $422,000 in the third quarter of 2022 and decreased 12% sequentially from $480,000 in the second quarter of 2022.

•The 25% year-over-year increase in home closing revenue to $1.6 billion for the third quarter of 2022 was due to 12% greater home closing volume and 12% higher ASPs on closings compared to prior year.

•The 100 bps deterioration in third quarter 2022 home closing gross margin to 28.7% from 29.7% a year ago mainly resulted from greater incentives, $8.8 million in write-offs related to the lot option deposits and diligence costs from terminated land deals and higher direct costs. In the third quarter of 2021, the write-offs for terminated land deals totaled $0.9 million.

•Selling, general and administrative expenses ("SG&A") were 8.1% of third quarter 2022 home closing revenue, a 120 bps improvement over 9.3% in the prior year resulting from greater leverage of fixed expenses on higher home closing revenue as well as lower commissions expense as a percentage of home closing revenue.

•The third quarter effective income tax rate was 20.3% in 2022 compared to 23.3% in 2021. The 2022 rate reflected earned eligible energy tax credits on qualifying homes we delivered in the first nine months of 2022, as the Inflation Reduction Act ("IRA") enacted in August 2022 retroactively extended the Internal Revenue Code §45L new energy-efficient homes credit. The 2021 rate similarly benefited from the Taxpayer Certainty and Disaster Tax Relief Act passed in December 2019 ("2019 Act").

•Net earnings were $262.5 million ($7.10 per diluted share) for the third quarter of 2022, a 31% increase over $200.8 million ($5.25 per diluted share) for the third quarter of 2021. Strong earnings growth reflected pricing power, improved overhead leverage and a catch-up of tax credits, which combined with a lower outstanding share count in the current quarter, led to a 35% year-over-year improvement in earnings per diluted share.

•Total sales orders of 9,951 homes for the first nine months of 2022 decreased 5% over prior year despite a 29% year-over-year increase in average community count. The year to date September 2022 average absorption pace declined 26% due to elevated cancellations.

•Home closing revenue increased 17% for the first nine months of 2022 to $4.2 billion due to 14% higher ASPs on closings given the favorable pricing environment and 3% greater home closing volume.

•The 270 bps improvement for home closing gross margin in the first nine months of 2022 to 30.1% from 27.4% was primarily due to higher ASPs on closings resulting from favorable pricing and better leveraging of fixed costs on greater home closing revenue. The year to date 2022 home closing gross margin included $11.6 million of write-offs from terminated land deals related to lot option deposits and diligence costs, which compared to $2.1 million in the prior year.

•SG&A as a percentage of home closing revenue improved 110 bps year-over-year to 8.3% from 9.4% in the first nine months of 2021, due to greater leverage of overhead expenses on higher home closing revenue and lower commissions expense as a percentage of home closing revenue.

•In the first nine months 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. There were no such transactions in the first nine months of 2022.

•The effective tax rate for the first nine months of 2022 was 22.9%, compared to 22.3% for the first nine months of 2021. Tax credits earned on qualifying energy-efficient homes we delivered in the first nine months of 2022 resulted from the passage of the IRA while those related to the prior year were under the 2019 Act.

•Net earnings were $729.8 million ($19.65 per diluted share) for the first nine months of 2022, a 46% increase over $500.0 million ($13.06 per diluted share) for the first nine months 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 nine months of 2022.

•Cash and cash equivalents at September 30, 2022 totaled $299.4 million, compared to $618.3 million at December 31, 2021, primarily as a result of investments in real estate. Real estate assets increased from $3.7 billion at December 31, 2021 to $4.7 billion at September 30, 2022.

•A total of approximately 66,000 lots were owned or controlled as of September 30, 2022 compared to approximately 70,000 total lots at September 30, 2021.

•Debt-to-capital and net debt-to-capital ratios were 23.9% and 18.9%, respectively, at September 30, 2022, which compared to 27.6% and 15.1%, respectively, at December 31, 2021.

•The Company repurchased 1,166,040 shares of stock for a total of $109.3 million during the first nine months of 2022. There were no share repurchases during the current quarter. As of September 30, 2022, $244.1 million remained available to repurchase under our authorized share repurchase program.

Management will host a conference call to discuss its third quarter results at 8:00 a.m. Pacific Daylight Time (11:00 a.m. Eastern Daylight Time) on Thursday, October 27, 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 October 27, 2022 and extending through November 10, 2022, at
https://investors.meritagehomes.com.

 

						Three Months Ended September 30,
						2022						2021						Change $						Change %
Homebuilding:
			Home closing revenue			$	1,569,032					$	1,251,435					$	317,597					25		%
			Land closing revenue			8,989						8,470						519						6		%
			Total closing revenue			1,578,021						1,259,905						318,116						25		%
			Cost of home closings			(1,118,394)						(879,759)						238,635						27		%
			Cost of land closings			(8,577)						(7,706)						871						11		%
			Total cost of closings			(1,126,971)						(887,465)						239,506						27		%
			Home closing gross profit			450,638						371,676						78,962						21		%
			Land closing gross profit			412						764						(352)						(46)		%
			Total closing gross profit			451,050						372,440						78,610						21		%
Financial Services:
			Revenue			6,308						5,208						1,100						21		%
			Expense			(2,804)						(2,308)						496						21		%
			Earnings from financial services unconsolidated entities and other, net			1,338						1,324						14						1		%
			Financial services profit			4,842						4,224						618						15		%
Commissions and other sales costs						(77,884)						(68,952)						8,932						13		%
General and administrative expenses						(48,443)						(47,192)						1,251						3		%
Interest expense						—						(79)						(79)						(100)		%
Other (expense)/income, net						(74)						1,268						(1,342)						(106)		%
Earnings before income taxes						329,491						261,709						67,782						26		%
Provision for income taxes						(67,002)						(60,957)						6,045						10		%
Net earnings						$	262,489					$	200,752					$	61,737					31		%
Earnings per common share:
			Basic															Change $ or shares						Change %
			Earnings per common share			$	7.18					$	5.33					$	1.85					35		%
			Weighted average shares outstanding			36,569						37,647						(1,078)						(3)		%
			Diluted
			Earnings per common share			$	7.10					$	5.25					$	1.85					35		%
			Weighted average shares outstanding			36,946						38,229						(1,283)						(3)		%

 

						September 30, 2022						December 31, 2021
Assets:
Cash and cash equivalents						$	299,387					$	618,335
Other receivables						193,307						147,548
Real estate (1)						4,726,262						3,734,408
Real estate not owned						—						8,011
Deposits on real estate under option or contract						88,428						90,679
Investments in unconsolidated entities						11,356						5,764
Property and equipment, net						39,437						37,340
Deferred tax asset, net						41,060						40,672
Prepaids, other assets and goodwill						171,853						124,776
Total assets						$	5,571,090					$	4,807,533
Liabilities:
Accounts payable						$	322,227					$	216,009
Accrued liabilities						353,512						337,277
Home sale deposits						57,767						42,610
Liabilities related to real estate not owned						—						7,210
Loans payable and other borrowings						12,460						17,552
Senior notes, net						1,143,314						1,142,486
Total liabilities						1,889,280						1,763,144
Stockholders' Equity:
Preferred stock						—						—
Common stock						366						373
Additional paid-in capital						322,442						414,841
Retained earnings						3,359,002						2,629,175
Total stockholders’ equity						3,681,810						3,044,389
Total liabilities and stockholders’ equity						$	5,571,090					$	4,807,533
(1) Real estate – Allocated costs:
Homes under contract under construction						$	1,452,691					$	1,039,822
Unsold homes, completed and under construction						986,862						484,999
Model homes						87,550						81,049
Finished home sites and home sites under development						2,199,159						2,128,538
Total real estate						$	4,726,262					$	3,734,408

 

			Three Months Ended September 30,												Nine Months Ended September 30,
			2022						2021						2022						2021
Depreciation and amortization			$	5,822					$	6,478					$	17,545					$	19,892
Non-cash charges			$	8,791					$	877					$	11,608					$	2,092
Summary of Capitalized Interest:
Capitalized interest, beginning of period			$	61,459					$	56,710					$	56,253					$	58,940
Interest incurred			15,179						15,212						45,563						47,625
Interest expensed			—						(79)						(41)						(246)
Interest amortized to cost of home and land closings			(14,548)						(14,550)						(39,685)						(49,026)
Capitalized interest, end of period			$	62,090					$	57,293					$	62,090					$	57,293
			September 30, 2022						December 31, 2021
Senior notes, net, loans payable and other borrowings			$	1,155,774					$	1,160,038
Stockholders' equity			3,681,810						3,044,389
Total capital			$	4,837,584					$	4,204,427
Debt-to-capital			23.9%						27.6%
Senior notes, net, loans payable and other borrowings			$	1,155,774					$	1,160,038
Less: cash and cash equivalents			(299,387)						(618,335)
Net debt			$	856,387					$	541,703
Stockholders’ equity			3,681,810						3,044,389
Total net capital			$	4,538,197					$	3,586,092
Net debt-to-capital			18.9%						15.1%

 

 

 

						Three Months Ended September 30,
						2022												2021
						Ending						Average						Ending						Average
Active Communities:
Arizona						52						54.0						38						38.0
California						32						32.0						18						19.0
Colorado						18						18.5						16						16.5
West Region						102						104.5						72						73.5
Texas						74						77.0						68						66.0
Central Region						74						77.0						68						66.0
Florida						30						35.5						38						36.0
Georgia						18						16.0						12						11.0
North Carolina						27						29.5						26						26.0
South Carolina						12						14.5						11						9.0
Tennessee						12						12.0						9						9.5
East Region						99						107.5						96						91.5
Total						275						289.0						236						231.0

Meritage Homes is the seventh-largest public homebuilder in the United States, based on homes closed in 2021. The Company offers a variety of entry-level and first move-up homes. Operations span across Arizona, California, Colorado, Texas, Florida, Georgia, North Carolina, South Carolina, Tennessee and Utah.

Meritage Homes has delivered over 160,000 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.

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; and projected fourth quarter 2022 home closings, home closing revenue, home closing gross margin, effective tax rate 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, 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, 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 June 30, 2022 under the caption "Risk Factors," which can be found on our website at

https://investors.meritagehomes.com.