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

Rhea-AI Summary

Meritage Homes Corporation (NYSE: MTH) reported strong Q1 2022 results, with net earnings rising 65% to $217 million and diluted EPS increasing 68% to $5.79. Home closing revenue grew 15% year-over-year to $1.245 billion, supported by a 12% rise in home orders to 3,874 units. The company maintained a robust balance sheet with a net debt-to-capital ratio of 16.9% and added over 4,100 lots in Q1. Despite facing labor and supply chain challenges, Meritage anticipates 14,500-15,500 home closings for the full year 2022, projecting revenue of $6.5-6.9 billion.

Positive

• Net earnings increased 65% to $217 million.
• Diluted EPS rose 68% to $5.79.
• Home closing revenue grew 15% year-over-year to $1.245 billion.
• Home orders increased by 12% to 3,874 units.
• Average sales price on home orders exceeded $450,000.
• Ending backlog value rose 46% to $3.038 billion.
• Net debt-to-capital ratio improved to 16.9%.
• Community count grew 32% year-over-year to 268 active communities.

Negative

• Homes closed decreased by 1% year-over-year to 2,858 units.
• Average absorptions per community fell 16% to 4.9 per month.
• Increased interest rates may impact buyer psychology and affordability.

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)

		Three Months Ended March 31,
		2022			2021			% Chg
Homes closed (units)			2,858			2,890		(1)	%
Home closing revenue		$	1,245,456		$	1,079,982		15	%
Average sales price - closings		$	436		$	374		17	%
Home orders (units)			3,874			3,458		12	%
Home order value		$	1,767,710		$	1,349,130		31	%
Average sales price - orders		$	456		$	390		17	%
Ending backlog (units)			6,695			5,240		28	%
Ending backlog value		$	3,038,927		$	2,082,259		46	%
Average sales price - backlog		$	454		$	397		14	%
Earnings before income taxes		$	285,883		$	165,977		72	%
Net earnings		$	217,254		$	131,843		65	%
Diluted EPS		$	5.79		$	3.44		68	%

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
Consolidated Income Statements
(In thousands, except per share data)
(Unaudited)

	Three Months Ended March 31,
		2022				2021			Change $				Change %
Homebuilding:
Home closing revenue	$	1,245,456			$	1,079,982			$	165,474			15	%
Land closing revenue		41,478				3,799				37,679			992	%
Total closing revenue		1,286,934				1,083,781				203,153			19	%
Cost of home closings		(867,807	)			(813,327	)			54,480			7	%
Cost of land closings		(30,685	)			(3,252	)			27,433			844	%
Total cost of closings		(898,492	)			(816,579	)			81,913			10	%
Home closing gross profit		377,649				266,655				110,994			42	%
Land closing gross profit		10,793				547				10,246			1,873	%
Total closing gross profit		388,442				267,202				121,240			45	%
Financial Services:
Revenue		4,672				4,751				(79	)		(2)	%
Expense		(2,512	)			(2,171	)			341			16	%
Earnings from financial services unconsolidated entities and other, net		1,174				1,180				(6	)		(1)	%
Financial services profit		3,334				3,760				(426	)		(11)	%
Commissions and other sales costs		(65,540	)			(67,744	)			(2,204	)		(3)	%
General and administrative expenses		(39,995	)			(37,949	)			2,046			5	%
Interest expense		(41	)			(90	)			(49	)		(54)	%
Other (expense)/income, net		(317	)			798				(1,115	)		(140)	%
Earnings before income taxes		285,883				165,977				119,906			72	%
Provision for income taxes		(68,629	)			(34,134	)			34,495			101	%
Net earnings	$	217,254			$	131,843			$	85,411			65	%
Earnings per common share:
Basic									Change $ or shares				Change %
Earnings per common share	$	5.87			$	3.50			$	2.37			68	%
Weighted average shares outstanding		36,996				37,644				(648	)		(2)	%
Diluted
Earnings per common share	$	5.79			$	3.44			$	2.35			68	%
Weighted average shares outstanding		37,527				38,339				(812	)		(2)	%

Meritage Homes Corporation and Subsidiaries
Consolidated Balance Sheets
(In thousands)
(Unaudited)

		March 31, 2022			December 31, 2021
Assets:
Cash and cash equivalents		$	520,395		$	618,335
Other receivables			155,380			147,548
Real estate(1)			4,027,950			3,734,408
Real estate not owned			8,011			8,011
Deposits on real estate under option or contract			93,432			90,679
Investments in unconsolidated entities			5,631			5,764
Property and equipment, net			38,299			37,340
Deferred tax asset, net			40,515			40,672
Prepaids, other assets and goodwill			168,548			124,776
Total assets		$	5,058,161		$	4,807,533
Liabilities:
Accounts payable		$	280,114		$	216,009
Accrued liabilities			388,921			337,277
Home sale deposits			48,278			42,610
Liabilities related to real estate not owned			7,210			7,210
Loans payable and other borrowings			22,561			17,552
Senior notes, net			1,142,762			1,142,486
Total liabilities			1,889,846			1,763,144
Stockholders' Equity:
Preferred stock			—			—
Common stock			367			373
Additional paid-in capital			321,519			414,841
Retained earnings			2,846,429			2,629,175
Total stockholders’ equity			3,168,315			3,044,389
Total liabilities and stockholders’ equity		$	5,058,161		$	4,807,533
(1)Real estate – Allocated costs:
Homes under contract under construction		$	1,294,680		$	1,039,822
Unsold homes, completed and under construction			496,058			484,999
Model homes			81,770			81,049
Finished home sites and home sites under development			2,155,442			2,128,538
Total real estate		$	4,027,950		$	3,734,408

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

	Three Months Ended March 31,
		2022				2021
Depreciation and amortization	$	5,759			$	6,535
Summary of Capitalized Interest:
Capitalized interest, beginning of period	$	56,253			$	58,940
Interest incurred		15,213				16,092
Interest expensed		(41	)			(90	)
Interest amortized to cost of home and land closings		(12,343	)			(17,402	)
Capitalized interest, end of period	$	59,082			$	57,540
	March 31, 2022				December 31, 2021
Senior notes, net, loans payable and other borrowings	$	1,165,323			$	1,160,038
Stockholders' equity		3,168,315				3,044,389
Total capital	$	4,333,638			$	4,204,427
Debt-to-capital		26.9	%			27.6	%
Senior notes, net, loans payable and other borrowings	$	1,165,323			$	1,160,038
Less: cash and cash equivalents		(520,395	)			(618,335	)
Net debt	$	644,928			$	541,703
Stockholders’ equity		3,168,315				3,044,389
Total net capital	$	3,813,243			$	3,586,092
Net debt-to-capital		16.9	%			15.1	%

Meritage Homes Corporation and Subsidiaries
Consolidated Statements of Cash Flows 
(In thousands)
(Unaudited)

		Three Months Ended March 31,
			2022				2021
Cash flows from operating activities:
Net earnings		$	217,254			$	131,843
Adjustments to reconcile net earnings to net cash provided by/(used in) operating activities:
Depreciation and amortization			5,759				6,535
Stock-based compensation			5,975				5,367
Equity in earnings from unconsolidated entities			(936	)			(750	)
Distribution of earnings from unconsolidated entities			1,069				1,100
Other			208				2,651
Changes in assets and liabilities:
Increase in real estate			(283,885	)			(193,395	)
Increase in deposits on real estate under option or contract			(2,753	)			(4,821	)
Increase in other receivables, prepaids and other assets			(52,098	)			(7,118	)
Increase in accounts payable and accrued liabilities			115,927				38,743
Increase in home sale deposits			5,668				5,899
Net cash provided by/(used in) operating activities			12,188				(13,946	)
Cash flows from investing activities:
Investments in unconsolidated entities			—				(1	)
Purchases of property and equipment			(6,423	)			(4,993	)
Proceeds from sales of property and equipment			178				84
Maturities/sales of investments and securities			2,213				2,566
Payments to purchase investments and securities			(2,213	)			(2,566	)
Net cash used in investing activities			(6,245	)			(4,910	)
Cash flows from financing activities:
Repayment of loans payable and other borrowings			(4,580	)			(1,947	)
Repurchase of shares			(99,303	)			(8,385	)
Net cash used in financing activities			(103,883	)			(10,332	)
Net decrease in cash and cash equivalents			(97,940	)			(29,188	)
Cash and cash equivalents, beginning of period			618,335				745,621
Cash and cash equivalents, end of period		$	520,395			$	716,433

Meritage Homes Corporation and Subsidiaries
Operating Data
(Dollars in thousands)
(Unaudited)

		Three Months Ended March 31,
		2022					2021
		Homes		Value			Homes		Value
Homes Closed:
Arizona		458		$	198,095		410		$	137,268
California		275			187,410		277			171,899
Colorado		131			77,919		175			84,263
West Region		864			463,424		862			393,430
Texas		873			347,828		963			318,385
Central Region		873			347,828		963			318,385
Florida		438			168,075		417			140,828
Georgia		127			56,434		146			55,139
North Carolina		297			119,004		299			107,013
South Carolina		121			39,713		85			27,846
Tennessee		138			50,978		118			37,341
East Region		1,121			434,204		1,065			368,167
Total		2,858		$	1,245,456		2,890		$	1,079,982
Homes Ordered:
Arizona		550		$	240,007		602		$	222,435
California		346			247,343		286			173,391
Colorado		209			125,999		169			89,779
West Region		1,105			613,349		1,057			485,605
Texas		1,296			548,567		1,115			391,968
Central Region		1,296			548,567		1,115			391,968
Florida		572			226,914		479			179,109
Georgia		220			100,891		164			61,557
North Carolina		373			163,008		419			157,687
South Carolina		154			52,656		76			26,402
Tennessee		154			62,325		148			46,802
East Region		1,473			605,794		1,286			471,557
Total		3,874		$	1,767,710		3,458		$	1,349,130
Order Backlog:
Arizona		1,237		$	535,586		1,185		$	429,171
California		464			331,321		453			276,202
Colorado		406			246,932		202			110,279
West Region		2,107			1,113,839		1,840			815,652
Texas		2,301			973,828		1,782			645,959
Central Region		2,301			973,828		1,782			645,959
Florida		1,002			411,478		612			253,188
Georgia		296			136,266		174			64,355
North Carolina		641			269,898		574			214,079
South Carolina		166			57,643		111			39,785
Tennessee		182			75,975		147			49,241
East Region		2,287			951,260		1,618			620,648
Total		6,695		$	3,038,927		5,240		$	2,082,259

Meritage Homes Corporation and Subsidiaries
Operating Data
(Unaudited)

		Three Months Ended March 31,
		2022				2021
		Ending		Average		Ending		Average
Active Communities:
Arizona		40		39.5		33		33.0
California		23		22.5		19		17.5
Colorado		18		17.5		12		11.5
West Region		81		79.5		64		62.0
Texas		75		74.0		59		61.0
Central Region		75		74.0		59		61.0
Florida		41		41.0		30		30.5
Georgia		15		15.0		12		9.5
North Carolina		29		27.5		24		22.5
South Carolina		13		13.5		6		6.0
Tennessee		14		13.0		8		7.5
East Region		112		110.0		80		76.0
Total		268		263.5		203		199.0

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.

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

FAQ

What were Meritage Homes' earnings for Q1 2022?

Meritage Homes reported net earnings of $217 million for Q1 2022.

What was Meritage Homes' diluted EPS in Q1 2022?

The diluted EPS for Meritage Homes in Q1 2022 was $5.79.

How much did home closing revenue increase for Meritage Homes in Q1 2022?

Home closing revenue increased by 15% to $1.245 billion in Q1 2022.

How many home orders did Meritage Homes receive in Q1 2022?

Meritage Homes received 3,874 home orders in Q1 2022.

What challenges did Meritage Homes face in Q1 2022?

Meritage Homes faced labor and supply chain constraints in Q1 2022.

What is the projected home closings for Meritage Homes in 2022?

Meritage Homes projects 14,500 to 15,500 home closings for the full year 2022.