Meritage Homes reports first quarter 2021 results including an 88% increase in diluted EPS, 470 bps increase in home closing gross margin and 25% increase in closings over prior year

Dallas, Texas, UNITED STATES


SCOTTSDALE, Ariz., April 28, 2021 (GLOBE NEWSWIRE) -- Meritage Homes Corporation (NYSE: MTH), a leading U.S. homebuilder, reported first quarter results for the period ended March 31, 2021.

 
Summary Operating Results (unaudited)
(Dollars in thousands, except per share amounts)
   
  Three Months Ended March 31,
  2021 2020 % Chg
Homes closed (units) 2,890  2,316  25%
Home closing revenue $1,079,982  $890,417  21%
Average sales price - closings $374  $384  (3)%
Home orders (units) 3,458  3,102  11%
Home order value $1,349,130  $1,179,938  14%
Average sales price - orders $390  $380  3%
Ending backlog (units) 5,240  3,568  47%
Ending backlog value $2,082,259  $1,388,517  50%
Average sales price - backlog $397  $389  2%
Earnings before income taxes $165,977  $86,833  91%
Net earnings $131,843  $71,152  85%
Diluted EPS $3.44  $1.83  88%
            

MANAGEMENT COMMENTS

"2021 is off to a solid start with robust demand that never really slowed down from an exceptional 2020," Steven J. Hilton, executive chairman of Meritage Homes, stated. "Our average absorption pace for the first quarter of 2021 of 5.8 per month was 35% higher than prior year, resulting from the strength in the housing market, even as we managed our spec starts and the corresponding orders pace in most communities to align with constraints in the supply chain today. The current environment, coupled with our strategy centered on affordable entry-level and first move-up homes, enabled Meritage Homes to produce the highest first quarter of orders and closings in the company's history as well as the highest quarterly home closing gross margin since 2006.

"Absent large interest rate increases, we believe the current market demand will continue through 2021 at a minimum, and provide the homebuilding industry ongoing pricing power to offset commodity and other cost increases. Mortgage interest rates remain very affordable despite recent upticks, strong demographic homebuying trends persist for millennials and baby boomers, and the supply of new and resale homes is still constrained."

“Our closings of 2,890 homes this quarter were 25% higher than the first quarter of 2020," Phillippe Lord, chief executive officer of Meritage Homes, commented. "Quarterly sales orders of 3,458 homes were up 11% compared to the same period of 2020, despite an 18% decline in average community count. For the first quarter of 2021, home closing revenue of $1.1 billion was 21% greater than prior year, which combined with a 24.7% home closing gross margin, produced an 88% year-over-year increase in our diluted earnings per share to $3.44."

"At March 31, 2021, we had 203 active communities, in line with our guidance and slightly up from 195 at December 31, 2020. Despite weather and some delays in the building materials supply channel, we were able to open our expected communities on time. We remain on track to reach our goal of 300 communities by mid-2022. Given our strong pipeline of community openings, we expect to see an increase of approximately 20% in our community count by December 31, 2021 from the current level," Mr. Lord remarked. "During the quarter, we invested significantly for additional growth by spending nearly $370 million on land acquisition and development. 5,900 net new lots were secured, a 106% increase year-over-year, which brings our total lot supply to over 58,000 lots.

"In addition to all of the progress we made within our existing geographies, we are excited to announce our first new market entry since 2016. With five communities already under contract in Myrtle Beach, our new Coastal Carolinas division will encompass Myrtle Beach, Charleston and the surrounding areas, and will further expand our East region operations," Mr. Lord added. "We will start gathering interest lists for these communities in the next few quarters ahead of the community openings in 2022."

Mr. Lord concluded, "Based on robust selling conditions and confidence in our ability to deliver our backlog, we are projecting 11,700-12,700 annual home closings and approximately $4.55-4.85 billion in total home closing revenue for 2021. In addition, we anticipate home closing gross margin of approximately 25.0% and an effective tax rate of about 23.0%, and expect to realize diluted EPS in the range of $13.75-14.75."

FIRST QUARTER RESULTS

  • The total orders of 3,458 for the first quarter of 2021 reflected an increase of 11% year-over-year, driven by a 35% increase in absorption pace from 4.3 to 5.8 per month. Entry-level represented 76% of first quarter 2021 orders, compared to 61% in the same quarter in 2020. Strong housing demand enabled Meritage to achieve higher absorptions across all its markets, although first quarter 2021 average community count declined 18% from the first quarter of the prior year. Absorptions were up 67% in the East region, 34% in the Central region and 13% in the West region. The favorable market conditions also drove the year-over-year increase in average sales price ("ASP") for both orders and backlog, despite the company's shift in product mix toward entry-level homes.

  • The 21% year-over-year increase in home closing revenue to $1.1 billion for the quarter ended March 31, 2021 was due to 25% higher home closing volume partially offset by a 3% reduction in closing ASP, which was primarily attributable to the shift to entry-level homes. ASPs also reflected pricing increases as a result of the sustained housing demand.

  • The 470 bps improvement in first quarter 2021 home closing gross margin to 24.7% from 20.0% a year ago mainly resulted from higher ASPs, as well as the additional closing volume and efficiencies gained from streamlined operations. These factors mitigated record high lumber prices and increases in other commodity costs.

  • Selling, general and administrative expenses ("SG&A") were 9.8% of first quarter 2021 home closing revenue, a 90 bps improvement over 10.7% in the first quarter of 2020. This improvement was due to greater leverage of fixed expenses on higher home closing revenue, in addition to cost savings from technology enhancements, particularly as related to the company's sales and marketing efforts.

  • The first quarter effective income tax rate was 20.6% in 2021 compared to 18.1% in 2020. The reduced rate in both years primarily stems from eligible energy tax credits on qualifying energy-efficient homes closed under the Taxpayer Certainty and Disaster Tax Relief Act enacted in December 2019.

  • First quarter 2021 pre-tax margin increased 560 bps to 15.2%, compared to 9.6% in the first quarter of 2020. Net earnings were $131.8 million ($3.44 per diluted share) for the first quarter of 2021, an 85% increase over $71.2 million ($1.83 per diluted share) for the first quarter of 2020. Strong earnings growth reflected higher closing volume, pricing power, expanded gross margin and improved overhead leverage, which combined with a lower outstanding share count, led to an 88% year-over-year improvement in earnings per diluted share.

BALANCE SHEET

  • Cash and cash equivalents at March 31, 2021 totaled $716.4 million, compared to $745.6 million at December 31, 2020, primarily as a result of net cash used for investments in real estate and share repurchases. Real estate assets increased from $2.8 billion at December 31, 2020 to $3.0 billion at March 31, 2021, reflecting an increase in sold inventory and greater spend on land acquisition and development which was partially offset by a decrease in spec inventory.

  • A total of over 58,000 lots were owned or controlled as of March 31, 2021, compared to approximately 41,500 total lots at March 31, 2020. 5,900 net new lots were added in the first quarter of 2021, representing 43 future communities, of which 95% are for entry-level communities.

  • Debt-to-capital and net debt-to-capital ratios were 29.2% and 10.9%, respectively, at March 31, 2021, which were in line with 30.3% and 10.5%, respectively, at December 31, 2020.

  • The company repurchased 100,000 shares of stock for a total of $8.4 million during the first quarter of 2021.

  • On April 15, 2021, the company closed the offering of $450 million 3.875% senior notes due 2029 and received approximately $444.0 million in net proceeds. On March 31, 2021, the company issued a notice of redemption for April 30, 2021 for all of its $300 million aggregate principal amount of 7.00% senior notes due 2022 ("2022 Notes"). The early redemption of the 2022 Notes is expected to result in approximately $18.2 million of early extinguishment of debt charges in the second quarter of 2021.

CONFERENCE CALL

Management will host a conference call to discuss its first quarter results at 8:00 a.m. Pacific Time (11:00 a.m. Eastern Time) on Thursday, April 29, 2021. 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 12:00 p.m. Pacific Time (3:00 p.m. Eastern Time) on April 29, 2021 and extending through May 13, 2021, 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,
  2021 2020 Change $ Change %
Homebuilding:       
 Home closing revenue$1,079,982  $890,417  $189,565  21%
 Land closing revenue3,799  10,596  (6,797) (64)%
 Total closing revenue1,083,781  901,013  182,768  20%
 Cost of home closings(813,327) (712,057) 101,270  14%
 Cost of land closings(3,252) (10,213) (6,961) (68)%
 Total cost of closings(816,579) (722,270) 94,309  13%
 Home closing gross profit266,655  178,360  88,295  50%
 Land closing gross profit547  383  164  43%
 Total closing gross profit267,202  178,743  88,459  49%
Financial Services:       
 Revenue4,751  3,912  839  21%
 Expense(2,171) (1,735) 436  25%
 Earnings from financial services unconsolidated entities and other, net1,180  661  519  79%
 Financial services profit3,760  2,838  922  32%
Commissions and other sales costs(67,744) (61,173) 6,571  11%
General and administrative expenses(37,949) (34,170) 3,779  11%
Interest expense(90) (16) 74  463%
Other income, net798  611  187  31%
Earnings before income taxes165,977  86,833  79,144  91%
Provision for income taxes(34,134) (15,681) 18,453  118%
Net earnings$131,843  $71,152  $60,691  85%
        
Earnings per common share:       
 Basic    Change $ or
shares
 Change %
 Earnings per common share$3.50  $1.87  $1.63  87%
 Weighted average shares outstanding37,644  38,085  (441) (1)%
 Diluted       
 Earnings per common share$3.44  $1.83  $1.61  88%
 Weighted average shares outstanding38,339  38,817  (478) (1)%
             


 
Meritage Homes Corporation and Subsidiaries
Consolidated Balance Sheets
(In thousands)
(Unaudited)
     
  March 31, 2021 December 31, 2020
Assets:    
Cash and cash equivalents $716,433  $745,621 
Other receivables 102,860  98,573 
Real estate (1) 2,975,121  2,778,039 
Deposits on real estate under option or contract 64,355  59,534 
Investments in unconsolidated entities 4,001  4,350 
Property and equipment, net 37,308  38,933 
Deferred tax asset 33,329  36,040 
Prepaids, other assets and goodwill 105,009  103,308 
Total assets $4,038,416  $3,864,398 
Liabilities:    
Accounts payable $199,667  $175,250 
Accrued liabilities 310,527  296,121 
Home sale deposits 30,973  25,074 
Loans payable and other borrowings 23,344  23,094 
Senior notes, net 997,212  996,991 
Total liabilities 1,561,723  1,516,530 
Stockholders' Equity:    
Preferred stock    
Common stock 378  375 
Additional paid-in capital 452,741  455,762 
Retained earnings 2,023,574  1,891,731 
Total stockholders’ equity 2,476,693  2,347,868 
Total liabilities and stockholders’ equity $4,038,416  $3,864,398 


(1) Real estate – Allocated costs:
    
Homes under contract under construction $1,008,648  $873,365 
Unsold homes, completed and under construction 328,125  357,861 
Model homes 77,264  82,502 
Finished home sites and home sites under development 1,561,084  1,464,311 
Total real estate $2,975,121  $2,778,039 
         


 
Supplemental Information and Non-GAAP Financial Disclosures (Dollars in thousands – unaudited):
  
 Three Months Ended March 31,
 2021 2020
Depreciation and amortization$6,535  $7,011 
    
Summary of Capitalized Interest:   
Capitalized interest, beginning of period$58,940  $82,014 
Interest incurred16,092  16,535 
Interest expensed(90) (16)
Interest amortized to cost of home and land closings(17,402) (20,371)
Capitalized interest, end of period$57,540  $78,162 
    
 March 31, 2021 December 31, 2020
Senior notes, net, loans payable and other borrowings$1,020,556  $1,020,085 
Stockholders' equity2,476,693  2,347,868 
Total capital$3,497,249  $3,367,953 
Debt-to-capital29.2% 30.3%
    
Senior notes, net, loans payable and other borrowings$1,020,556  $1,020,085 
Less: cash and cash equivalents(716,433) (745,621)
Net debt$304,123  $274,464 
Stockholders’ equity2,476,693  2,347,868 
Total net capital$2,780,816  $2,622,332 
Net debt-to-capital10.9% 10.5%
      


 
Meritage Homes Corporation and Subsidiaries
Consolidated Statements of Cash Flows 
(In thousands)
(Unaudited)
   
  Three Months Ended March 31,
  2021 2020
Cash flows from operating activities:    
Net earnings $131,843  $71,152 
Adjustments to reconcile net earnings to net cash (used in)/provided by operating activities:    
Depreciation and amortization 6,535  7,011 
Stock-based compensation 5,367  6,437 
Equity in earnings from unconsolidated entities (750) (684)
Distribution of earnings from unconsolidated entities 1,100  849 
Other 2,651  164 
Changes in assets and liabilities:    
Increase in real estate (193,395) (45,207)
Increase in deposits on real estate under option or contract (4,821) (3,266)
(Increase)/decrease in other receivables, prepaids and other assets (7,118) 7,557 
Increase/(decrease) in accounts payable and accrued liabilities 38,743  (1,956)
Increase in home sale deposits 5,899  1,856 
Net cash (used in)/provided by operating activities (13,946) 43,913 
Cash flows from investing activities:    
Investments in unconsolidated entities (1) (1)
Distributions of capital from unconsolidated entities   1,000 
Purchases of property and equipment (4,993) (5,331)
Proceeds from sales of property and equipment 84  96 
Maturities/sales of investments and securities 2,566  83 
Payments to purchase investments and securities (2,566) (83)
Net cash used in investing activities (4,910) (4,236)
Cash flows from financing activities:    
Proceeds from Credit Facility, net   500,000 
Repayment of loans payable and other borrowings (1,947) (1,009)
Repurchase of shares (8,385) (60,813)
Net cash (used in)/provided by financing activities (10,332) 438,178 
Net (decrease)/increase in cash and cash equivalents (29,188) 477,855 
Cash and cash equivalents, beginning of period 745,621  319,466 
Cash and cash equivalents, end of period $716,433  $797,321 
         


 
Meritage Homes Corporation and Subsidiaries
Operating Data
(Dollars in thousands)
(Unaudited)
         
  Three Months Ended March 31,
  2021 2020
  Homes Value Homes Value
Homes Closed:        
Arizona 410  $137,268  459  $151,244 
California 277  171,899  208  134,802 
Colorado 175  84,263  186  91,684 
West Region 862  393,430  853  377,730 
Texas 963  318,385  774  255,909 
Central Region 963  318,385  774  255,909 
Florida 417  140,828  236  93,789 
Georgia 146  55,139  115  41,998 
North Carolina 299  107,013  222  79,417 
South Carolina 85  27,846  53  17,405 
Tennessee 118  37,341  63  24,169 
East Region 1,065  368,167  689  256,778 
Total 2,890  $1,079,982  2,316  $890,417 
         
Homes Ordered:        
Arizona 602  $222,435  570  $183,371 
California 286  173,391  352  224,930 
Colorado 169  89,779  199  98,466 
West Region 1,057  485,605  1,121  506,767 
Texas 1,115  391,968  1,059  342,990 
Central Region 1,115  391,968  1,059  342,990 
Florida 479  179,109  317  119,443 
Georgia 164  61,557  156  54,984 
North Carolina 419  157,687  287  101,255 
South Carolina 76  26,402  87  27,914 
Tennessee 148  46,802  75  26,585 
East Region 1,286  471,557  922  330,181 
Total 3,458  $1,349,130  3,102  $1,179,938 
         
Order Backlog:        
Arizona 1,185  $429,171  622  $218,497 
California 453  276,202  289  182,361 
Colorado 202  110,279  209  104,335 
West Region 1,840  815,652  1,120  505,193 
Texas 1,782  645,959  1,333  459,888 
Central Region 1,782  645,959  1,333  459,888 
Florida 612  253,188  452  189,193 
Georgia 174  64,355  174  62,777 
North Carolina 574  214,079  284  101,305 
South Carolina 111  39,785  105  34,963 
Tennessee 147  49,241  100  35,198 
East Region 1,618  620,648  1,115  423,436 
Total 5,240  $2,082,259  3,568  $1,388,517 
               


 
Meritage Homes Corporation and Subsidiaries
Operating Data
(Unaudited)
         
  Three Months Ended March 31,
  2021 2020
  Ending Average Ending Average
Active Communities:        
Arizona 33  33.0  33  32.0 
California 19  17.5  29  26.5 
Colorado 12  11.5  13  15.5 
West Region 64  62.0  75  74.0 
Texas 59  61.0  78  77.5 
Central Region 59  61.0  78  77.5 
Florida 30  30.5  34  33.5 
Georgia 12  9.5  15  16.5 
North Carolina 24  22.5  20  22.5 
South Carolina 6  6.0  7  8.0 
Tennessee 8  7.5  12  10.5 
East Region 80  76.0  88  91.0 
Total 203  199.0  241  242.5 
             

About Meritage Homes Corporation

Meritage Homes is the sixth-largest public homebuilder in the United States, based on homes closed in 2020. The Company offers a variety of homes that are designed with a focus on entry-level and first move-up buyers in Arizona, California, Colorado, Texas, Florida, Georgia, North Carolina, South Carolina and Tennessee.

Meritage Homes has delivered over 135,000 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 ENERGY STAR® Partner of the Year for Sustained Excellence Award since 2013 for innovation and industry leadership in energy efficient homebuilding.

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, and our projected 2021 home closings, home closing revenue, gross margins, effective tax rate, diluted earnings per share and future community counts.

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; inflation in the cost of materials used to develop communities and construct homes; our ability to obtain performance and surety bonds in connection with our development work; 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 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 to comply with laws and regulations; our compliance with government regulations; negative publicity that affects our reputation; disruptions to our business by COVID-19, fear of a similar event, 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, 2020 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