Financial Performance - Home closing revenue for 2022 reached $6.2 billion, a 21.8% increase year-over-year, driven by a 10.2% rise in closing volume and a 10.6% increase in average sales price [27][30]. - Net earnings increased by 34.5% to $992.2 million, with diluted EPS rising by 38.6% compared to the previous year [27][30]. - The gross margin on home closings improved to 28.6%, up 80 basis points from 27.8% in 2021, marking the highest full-year margin in company history [30]. - Earnings before income taxes increased by 35.0% to $1.3 billion in 2022, up from $954.8 million in 2021 [154]. - Home closing gross profit increased by $354.6 million to $1.8 billion in 2022, with a gross margin improvement to 28.6% [181]. - Financial services profit for 2022 was $18.3 million, a slight increase of $0.3 million compared to 2021, despite higher home closing volumes [186]. Sales and Orders - The company experienced a 14.8% reduction in order volume in the second half of 2022, leading to a 9.3% decrease in home order value compared to 2021 [30][29]. - The company experienced significant cancellations in the last half of 2022, attributed to economic uncertainty and rising interest rates, with expectations for cancellations to trend above normal in early 2023 [90]. - Homes in backlog decreased by 41.3% year-over-year, totaling 3,332 units valued at $1.5 billion as of December 31, 2022, down from 5,679 units valued at $2.5 billion in 2021 [153]. - The company experienced a 14.8% decline in order volume, with 11,759 orders in 2022 compared to 13,808 in 2021, attributed to decreased demand and a higher cancellation rate of 21.0% [153]. - Cancellation rates increased to 21.0% in 2022, compared to 10.2% in 2021, indicating a significant rise in cancellations [173]. Inventory and Land Acquisition - As of December 31, 2022, the company had cash and cash equivalents of $861.6 million, up from $618.3 million at the end of 2021, while inventory grew by 16.7% to $4.4 billion [31]. - In 2022, the company invested approximately $1.5 billion in land acquisition and development, securing about 2,000 net new lots, a significant decrease from 34,000 in 2021 [32]. - As of December 31, 2022, the company had 63,182 lots under control, down from 75,049 in 2021, maintaining a 4.5-year supply of lots based on 2022 closings [32]. - At the end of 2022, the company had 46,317 owned lots and 16,865 lots under committed purchase or option contracts, with a total purchase price of approximately $738.5 million [39]. Debt and Liquidity - The debt-to-capital ratio was 22.6% and the net debt-to-capital ratio was 6.8% at the end of 2022, compared to 27.6% and 15.1% respectively at the end of 2021 [31]. - As of December 31, 2022, the company had approximately $1.2 billion in indebtedness and $861.6 million in cash and cash equivalents [102]. - The company has $725.6 million available to be drawn under its credit facility, which may be necessary for working capital needs [102]. - The company's credit ratings were BB+, Ba1, and BB+ from Standard and Poor's, Moody's, and Fitch Ratings, respectively, as of December 31, 2022 [104]. Operational Challenges - The company experienced building material cost pressures and supply chain constraints throughout 2022, impacting construction timelines [45]. - Supply chain and labor constraints in 2021 and 2022 led to lengthened construction cycle times, with expectations for these conditions to persist at least through early 2023 [91]. - The company faced higher material and labor costs in recent months, negatively impacting profitability, although it has historically passed cost increases onto customers [87]. - The company experienced delays in construction schedules due to a limited pool of subcontract labor, impacting construction cycle times in 2021 and 2022 [112]. Market Conditions - In 2022, long-term interest rates increased significantly from historically low averages, impacting home sales and cash flow, with potential material effects on the business [84]. - Home prices declined in the latter half of 2022 due to rising interest rates, with expectations for this trend to continue into 2023 and potentially beyond, adversely affecting homebuilding volumes and cash flows [92]. - The company is subject to competitive pressures from national, regional, and local developers, with competition expected to intensify in the housing industry [97]. - The company’s operational success is dependent on the availability of lots and land that meet its investment criteria, which is influenced by external factors [107]. Strategic Initiatives - The company’s strategy includes a focus on affordable, quick move-in homes, with a goal of achieving a 100% speculative home building strategy for entry-level products [20][21]. - The company’s marketing strategy includes digital offerings such as virtual tours and a chatbot for customer support, enhancing the home buying experience [51]. - The company aims for a 100% spec home building strategy for entry-level products, with spec inventory per active community increasing to 18.0 units or 4,891 units as of December 31, 2022, compared to 12.3 units or 3,180 units a year prior [54]. - The company believes favorable homebuyer demographics support long-term demand for homes, despite current downward pressure on the housing market [151]. Environmental and Regulatory Factors - Meritage Homes has adopted an Environmental Responsibility Policy and issued its inaugural Task Force on Climate-Related Financial Disclosures report in 2022 [23]. - The company has received multiple awards for its commitment to energy efficiency, including the 2022 EPA's ENERGY STAR Partner of the Year for Sustained Excellence [24]. - California's updated building codes require all homes constructed with permits obtained in 2020 and beyond to have solar panels, which may increase future operating and compliance costs [123]. - The company anticipates that new building code requirements imposing stricter energy efficiency standards could significantly increase construction costs [124]. - The SEC's proposed climate-related disclosure rules could impose significant compliance costs if adopted, impacting the company's financial performance [125].

Financial Data and Key Metrics Changes - Home closing revenue grew 32% year-over-year to $2 billion in Q4 2022, driven by a 29% increase in home closing volume and a 3% increase in average selling prices (ASPs) [11][49] - The fourth quarter 2022 home closing gross margin was 25.2%, a decline of 380 basis points from 29.8% in Q4 2021, attributed to higher incentives and direct costs [22][49] - Diluted EPS increased by 13% year-over-year to $7.09, supported by higher closing volume and a lower outstanding share count [24][52] Business Line Data and Key Metrics Changes - The company delivered 4,540 homes in Q4 2022, a 29% increase year-over-year, with entry-level homes making up 85% of closings, up from 81% in the prior year [16][49] - Sales orders for Q4 2022 totaled 1,808 homes, with 89% being entry-level homes, an increase from 82% in Q4 2021 [16][43] - The cancellation rate in Q4 2022 was 39%, up from 12% in Q4 2021, significantly impacting net sales [43][49] Market Data and Key Metrics Changes - The highest regional absorption pace was 2.6 homes per month in the Central region, while the West region saw a decline in orders with an absorption pace of 1.6 homes per month [17][18] - In Florida, average selling prices on orders increased by 11% despite a 25% reduction in orders, indicating a shift in product mix [18] - The East region had the lowest decline in orders at 41% year-over-year, with a gross sales pace in line with the target of 3 to 4 homes per month [44] Company Strategy and Development Direction - The company aims to maintain a sales pace of 3 to 4 net sales per month by prestarting 100% of entry-level homes, which are ready for quick sale [30][40] - The strategy includes moderating construction starts to align with lower demand, with approximately 2,100 homes started in Q4 2022 compared to over 3,700 in Q4 2021 [19] - The company is focused on cost reductions and operational efficiencies, targeting a long-term gross margin of 22% or higher [50][81] Management's Comments on Operating Environment and Future Outlook - Management noted that ongoing economic uncertainty, rising mortgage rates, and inflation have overshadowed favorable demographics and low housing inventory [5][39] - The company expressed cautious optimism about January sales, reporting a net absorption pace greater than 4 homes per month, indicating potential recovery in demand [45][65] - Management highlighted the importance of move-in ready inventory in driving sales, as buyers prefer homes that can close within 45 to 60 days [40][70] Other Important Information - The company ended Q4 2022 with a backlog of 3,300 units, improving the conversion rate from 60% last year to 75% this year [20] - The company maintained a strong cash position with over $860 million in cash and generated $562 million of free cash flow in Q4 2022 [25][53] - The company has no impaired communities despite reduced ASPs and higher direct costs, indicating confidence in asset valuations [26][103] Q&A Session Questions and Answers Question: Can you help us think through Q1 gross margins? - Management indicated that Q1 margins are expected to be choppy due to various cost factors and market conditions, with no clear guidance beyond Q1 [32][80] Question: What are the potential cost tailwinds outside of lumber? - Management is actively rebidding vertical costs to capture savings, with some divisions reporting savings of $15,000 per home [35][62] Question: How does the company view the current market conditions? - Management noted that while January showed improvement, the overall market remains uncertain, and they are focused on operational discipline [65][94] Question: What is the strategy regarding community openings? - Management stated that they will prioritize opening communities with strong inventory and cost structures rather than rushing to increase community counts [94][95]

Financial Performance - The company achieved a record home closing revenue of $1.6 billion for Q3 2022, a 25.4% increase from $1.3 billion in Q3 2021, driven by a 12.1% increase in volume and an 11.9% increase in average sales price (ASP) to $450,000[89]. - Year-to-date net income for the nine months ended September 30, 2022, was $729.8 million, compared to $500.0 million for the same period in 2021, reflecting a significant increase in profitability[90]. - Home Closing Revenue for the nine months ended September 30, 2022, was $4,223,435, an increase of $627,375 or 17.4% compared to $3,596,060 in 2021[100]. - Home closing gross profit for Q3 2022 was $450.6 million, a 21.2% increase from $371.7 million in Q3 2021[120]. - Financial services profit for Q3 2022 was $4.8 million, up from $4.2 million in Q3 2021, attributed to a higher number of closings[125]. Home Orders and Sales - Home orders for Q3 2022 were 2,310, down 32.9% year-over-year, with a cancellation rate of 30%, compared to 10% in the prior year, indicating increased buyer uncertainty[91]. - Homes ordered decreased to 2,310, down by 1,131 homes or 32.9% compared to 3,441 in the previous year[101]. - Total home orders for the nine months ended September 30, 2022, amounted to $4,551,894, representing a 4.9% increase from $4,337,753 in 2021[102]. - Homes ordered decreased to 9,951 in 2022 from 10,441 in 2021, reflecting a decline of 4.7%[102]. - Cancellation rates for the three months ended September 30, 2022, rose to 30% compared to 10% in 2021[105]. Average Sales Price - The average sales price for home orders decreased by 2.5% year-over-year to $450,000, largely due to increased incentives and a shift towards more affordable products[92]. - Average sales price rose to $441.5, reflecting an increase of $53.8 or 13.9% from $387.7 in 2021[100]. - The average sales price increased by 10.1% to $457.4 in 2022 from $415.5 in 2021[102]. - Average sales price (ASP) on closings increased by 11.9% year-over-year, contributing to improved revenue despite lower order volumes[107]. Backlog and Inventory - The company ended Q3 2022 with a backlog of 6,064 homes valued at $2.8 billion, representing a 3.9% increase in units and a 10.6% increase in value compared to the previous year[92]. - The backlog increased to 6,064 homes valued at $2.8 billion, up from 5,838 homes valued at $2.6 billion year-over-year[108]. Regional Performance - In the West Region, home orders dropped to $241,098, down by $329,831 or 57.8% from $570,929 in the previous year[101]. - The Central Region saw home orders decrease to $253,321, a decline of $174,368 or 40.8% compared to $427,689 in 2021[101]. - The East Region saw a 47.7% increase in home closing revenue to $1.1 billion, with 2,671 homes in backlog valued at $1.1 billion, a 40.5% increase from the prior year[115]. - The West Region experienced a 15.7% decrease in backlog value to $0.9 billion, with a cancellation rate of 43%[109]. - The Central Region's home closing revenue increased by 30.4% to $499.7 million, despite a 40.7% decline in order volume due to a 37% cancellation rate[111]. Costs and Margins - The gross margin for home closings declined by 100 basis points to 28.7%, resulting in a gross profit of $450.6 million, up from $371.7 million in Q3 2021[89]. - Home closing gross margin decreased by 100 basis points to 28.7% in Q3 2022 compared to 29.7% in Q3 2021, primarily due to rising direct costs and increased sales incentives[120]. - The West Region's home closing gross margin decreased by 170 basis points to 26.6% in Q3 2022, while year-to-date gross margin improved by 280 basis points to 29.2%[122]. - The Central Region had the highest home closing gross margin at 30.1% in Q3 2022, down 200 basis points from the prior year due to increased sales incentives and direct costs[123]. - The East Region's gross margin improved by 90 basis points to 29.9% in Q3 2022, with a year-to-date increase of 430 basis points to 30.6%[124]. Cash Flow and Debt Management - The company maintains a debt-to-capital ratio of 23.9% and a net debt-to-capital ratio of 18.9% as of the end of Q3 2022, indicating a strong balance sheet[95]. - The company has no debt maturities until 2025, with plans to fund contractual obligations primarily through cash flows generated by operations[138]. - As of September 30, 2022, the debt-to-capital ratio was 23.9%, down from 27.6% as of December 31, 2021, indicating improved capital structure[146]. - The net debt-to-capital ratio increased to 18.9% as of September 30, 2022, compared to 15.1% at the end of 2021, reflecting a rise in net debt[146]. - The company has never declared cash dividends and plans to utilize cash for liquidity management and community growth[147]. Strategic Focus - The company plans to focus on growing market share and improving the home buying experience through innovation and simplification of processes[95]. - The company continues to invest in energy-efficient product offerings and automation to differentiate its brand in the competitive new home market[94]. - The average number of actively selling communities increased by 16.5% year-over-year, ending the quarter with 275 communities[107].

Financial Data and Key Metrics Changes - Home closing revenue increased by 25% year-over-year to $1.6 billion due to a 12% greater home closing volume and a 12% increase in average selling prices (ASPs) [43][48] - The gross margin for home closings was 28.7%, a 100 basis points decline from 29.7% a year ago, primarily due to increased incentives and $8.8 million in write-offs for option deposits [44][48] - Diluted EPS reached a record high of $7.10, reflecting a 35% year-over-year increase [48] Business Line Data and Key Metrics Changes - Sales order volume decreased by 33% year-over-year to 2,310 homes, with a cancellation rate of 30%, significantly above the historical average [13][27] - The absorption pace was 2.7 homes per month, down from 5.0 homes per month in the prior year [13][27] - Entry-level homes constituted 84% of closings, up from 78% in the prior year [26] Market Data and Key Metrics Changes - The East region outperformed other regions with an average absorption pace of 3.8 homes per month, while the West region struggled with a pace of 1.5 homes per month [28][29] - Florida maintained strong performance, representing 44% of the East region's orders, with an absorption pace of 5.0 net sales per month [33] - The company experienced the highest cancellation rates in the West region, particularly in Colorado and Arizona, due to affordability issues and supply chain challenges [30][31] Company Strategy and Development Direction - The company is focusing on pre-starting 100% of entry-level homes and prioritizing pace over price to navigate the current market environment [20][63] - A significant pullback on new land deals has been implemented, with a focus on exceptional opportunities only [22][24] - The company aims to maintain a strong balance sheet and liquidity while managing through changing market conditions [50][51] Management's Comments on Operating Environment and Future Outlook - Management anticipates continued weaker demand in the near term due to rising mortgage rates and economic uncertainty [12][20] - The company expects further deterioration in buyer confidence, impacting both new customers and those in the backlog [20] - Future gross margins are projected to be materially impacted by aggressive incentive actions and increasing costs in a rising interest rate environment [60][62] Other Important Information - The company ended the third quarter with a backlog of approximately 6,100 units, with a conversion rate decline from 57% last year to 48% this year [41] - The company has ample liquidity, with a cash balance of $299 million and no draws on its credit facility [50][51] - The company is forecasting total closings for Q4 2022 to be between 4,300 and 4,700 units, with home closing revenue projected at $1.85 billion to $2.10 billion [60][61] Q&A Session Summary Question: What are the expectations for gross margins in the current environment? - Management indicated that predicting future margins is challenging due to fluctuating market dynamics and costs, but they believe they can outperform despite the need for incentives [66][68] Question: What are the current incentive levels across markets? - Incentives vary by region, with high teens in the West and more normal adjustments in the East, reflecting the need to remain competitive [75][78] Question: Has the speed of price adjustments surprised management? - Management expressed surprise at the rapid increase in mortgage rates, which necessitated significant price rollbacks to maintain consumer confidence [88][90] Question: What is the outlook for impairments in the current market? - Management does not anticipate broad-based impairments unless there are significant further declines in ASPs, as many communities are still above impairment thresholds [94][96] Question: What is the expected sales pace for Q4? - Management does not expect a significant improvement in sales pace for Q4, citing ongoing market challenges and the need for rate stabilization [105]

Revenue and Sales Performance - Total home closing revenue for Q2 2022 was $1.4 billion, an 11.4% increase from $1.3 billion in Q2 2021, driven by a 13.2% increase in average sales price (ASP) to $437.4 thousand[96]. - Home closing gross margin improved by 430 basis points to 31.6%, resulting in a gross profit of $444.7 million compared to $345.3 million in Q2 2021[96]. - Home orders reached a record 3,767 in Q2 2022, a 6.4% increase from 3,542 in Q2 2021, with home order value increasing by 20.7% year-over-year to $1.8 billion[97]. - The company ended Q2 2022 with a backlog of 7,241 homes valued at $3.4 billion, representing a 31.4% increase in units and a 48.4% increase in value compared to June 30, 2021[98]. - Total revenue for the quarter reached $444.62 million, an increase of $30.78 million or 3.2% compared to the previous quarter[104]. - The company reported a total of 583,263 dollars in sales, with a 4.0% increase from the previous quarter[104]. - Total home orders increased to $1,809,870, a 20.7% increase from $1,499,672 in the previous year[105]. - Homes ordered increased to 7,641, up by 641 homes or 9.2% from 7,000 in the previous year[106]. Average Sales Price Trends - Average sales price for homes closed was $380.4 thousand, reflecting a 4.8% increase from the prior quarter[104]. - Average sales price in California was $370.13 thousand, down by $9.09 thousand or 2.5% from the previous quarter[104]. - Average sales price in Colorado was $415.25 thousand, a decrease of $3.78 thousand or 2.4% compared to the last quarter[104]. - Average sales price in Texas was $722.22 thousand, showing a 6.6% increase from the previous quarter[104]. - Average sales price in Georgia was $611.76 thousand, with a 7.0% increase from the previous quarter[104]. - Average sales price in North Carolina was $822.85 thousand, reflecting an 8.1% increase compared to the last quarter[104]. - Average sales price in South Carolina was $560.55 thousand, an increase of $28.02 thousand or 5.3% from the previous quarter[104]. - The average sales price across all regions was $461.0 thousand, reflecting a 5.1% increase from the previous quarter[104]. - The average sales price rose to $468.2 thousand, reflecting an increase of $61.2 thousand or 15.0% compared to $407.0 thousand in 2021[106]. Market Dynamics and Order Trends - Order cancellation rates increased to 13% in Q2 2022, up from 8% in the prior year, indicating a softening market[97]. - The average orders pace decreased to 4.4 per month in Q2 2022, down from 5.5 in Q2 2021, reflecting a shift in market dynamics[111]. - The East Region's order volume increased by 64.2% year-over-year, with backlog value rising to $1.1 billion, a 64.2% increase[110]. - The East Region achieved the highest gross margin improvement of 550 basis points to 32.0% in Q2 2022, compared to 26.5% in the prior year[126]. Financial Performance and Expenses - Earnings before income taxes improved by $116.0 million, or 54%, year-over-year to $331.7 million for Q2 2022[96]. - Net earnings for Q2 2022 were $250.1 million, compared to $167.4 million in Q2 2021, reflecting a higher effective income tax rate of 24.6%[96]. - General and administrative expenses increased by $4.8 million, or 11.1%, due to higher headcount and travel expenses, but remained consistent as a percentage of revenue[96]. - Financial services profit decreased to $4.1 million in Q2 2022 from $4.6 million in Q2 2021, and to $7.4 million for the six months ended June 30, 2022, down from $8.4 million in the prior year[129]. - Commissions and other sales costs decreased to $69.4 million in Q2 2022, representing 4.9% of home closing revenue, down from 5.8% in the prior year[130]. - The effective tax rate increased to 24.6% for Q2 2022, up from 22.4% in Q2 2021, due to the expiration of certain tax credits[135]. Cash Flow and Capital Management - Net cash used in operating activities for the six months ended June 30, 2022, totaled $206.8 million, compared to $143.5 million for the same period in 2021[145]. - Operating cash flows in the first half of 2022 benefited from net earnings of $467.3 million and an increase in accounts payable and accrued liabilities of $113.4 million[145]. - Net cash used in investing activities during the first half of 2022 was $18.3 million, primarily due to property and equipment purchases of $12.9 million and investments in unconsolidated entities of $5.7 million[146]. - Net cash used in financing activities for the six months ended June 30, 2022, was $121.1 million, primarily reflecting $109.3 million in share repurchases[148]. - As of June 30, 2022, the debt-to-capital ratio was 25.3%, down from 27.6% as of December 31, 2021[149]. - The net debt-to-capital ratio as of June 30, 2022, was 20.6%, compared to 15.1% as of December 31, 2021[149]. - The company has no debt maturities until 2025, with significant cash requirements for land acquisition, home construction, and operating expenses[141]. - The company expects to meet short-term liquidity needs primarily through cash and cash equivalents on hand and net cash flows from operations[138]. - The company plans to utilize cash to manage liquidity and grow community count, with no cash dividends declared historically[149]. - The company was in compliance with all Credit Facility covenants as of June 30, 2022, including a minimum tangible net worth of $3.37 billion and a leverage ratio of 19.7%[152].

Financial Data and Key Metrics Changes - Home closing revenue grew 11% year-over-year to $1.4 billion in Q2 2022, driven by a 13% increase in average selling price (ASP) despite a 2% decline in closing volumes due to supply chain issues [35][39] - The gross margin for home closings reached a record 31.6%, a 430 basis points improvement from 27.3% a year ago, attributed to higher ASPs and lower land costs [35][38] - Diluted EPS increased by 55% year-over-year to $6.77, reflecting improved pricing power and expanded margins [38][39] Business Line Data and Key Metrics Changes - The company achieved its highest second quarter sales order volume of 3,767 homes, a 6% increase from the previous year, with entry-level homes comprising 86% of quarterly orders [9][20] - Order cancellation rates increased from 10% in Q1 to 13% in Q2, with some buyers opting for move-in ready homes [21][29] Market Data and Key Metrics Changes - Demand was strongest in the East region, with a 24% increase in order volume, primarily due to a 37% increase in active communities [23] - South Carolina saw a 64% year-over-year increase in order volume, while Texas experienced flat order volume due to a decline in average orders placed [24][25] Company Strategy and Development Direction - The company aims to focus on affordable products and streamline operations, with a disciplined land acquisition process to move down the price band [49][50] - The strategy includes offering rate locks to help buyers secure monthly payments and adjusting pricing and incentives based on local market conditions [17][33] Management's Comments on Operating Environment and Future Outlook - Management acknowledged a softening housing market due to rising mortgage rates and changing buyer psychology, but remains optimistic about long-term demand driven by favorable demographics [8][18] - The company expects to navigate the current market dynamics and maintain volume and market share through strategic adjustments [19][50] Other Important Information - The company opened 49 new communities, increasing its community count to 303, and plans to maintain this count for the rest of the year [44] - The cash balance at June 30, 2022, was $272 million, with a net debt to capitalization ratio of 20.6% [40] Q&A Session Summary Question: Impact of rate locks and lumber costs on gross margin - Management indicated that rate locks would weigh on gross margin, with an estimated impact of around 100 basis points, while lumber savings are expected to materialize late in Q4 [54][56] Question: Normal absorption levels and incentives - Management expects normal absorption levels to be between 3 and 4 sales per month, with current incentives aligned with historical averages [57][59] Question: Cancellation rates and buyer behavior - Cancellation rates were reported at 13% in Q2, with a mix of recent and legacy buyers contributing to this figure [64][65] Question: Build-to-rent segment performance - The build-to-rent segment accounted for approximately 5% of orders, with steady demand anticipated as more communities come online [66][68] Question: Land acquisition strategy - Management is closely scrutinizing land deals, renegotiating terms where necessary, and has not walked away from significant options yet [75][79]

Financial Performance - The company achieved record quarterly sales order volume in Q1 2022[20] - Home closing revenue increased by 15% to $1,245.5 million in 1Q22, compared to $1,080.0 million in 1Q21[19] - Home closing gross profit increased significantly by 42% to $377.6 million in 1Q22, compared to $266.7 million in 1Q21[19] - Home closing gross margin improved by 560 basis points to 30.3% in 1Q22, compared to 24.7% in 1Q21[19] - Diluted EPS increased by 68% to $5.79 in 1Q22, compared to $3.44 in 1Q21[19] Community Growth and Orders - Average community count increased significantly, with entry-level communities growing from 96 in 1Q21 to 176 in 1Q22, a 83% increase[10] - Total orders increased from 3,102 in 1Q20 to 3,874 in 1Q22[11] - The company had 268 active communities at March 31, 2022, a 32% increase from 203 at March 31, 2021[22] Land and Inventory - Total lots controlled amounted to 75,176 in 1Q22, compared to 58,085 in 1Q21[22] - The supply of lots is 5.9 years, with 65% owned and 35% optioned[22] - Real estate assets spending was $371 million in 1Q22, similar to $370 million in 1Q21[22] Balance Sheet and Capital Allocation - The company has $520 million in cash and nothing drawn under its $780 million credit facility as of March 31, 2022[21] - Net debt-to-capital ratio is 16.9% as of March 31, 2022[21] - The company repurchased over 1 million shares for $99.3 million in 2022[21]

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2022 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number 1-9977 Meritage Homes Corporation (Exact Name of Registrant as Specified in its Charter) (State or Other Jurisdiction of Incorporati ...

Financial Data and Key Metrics Changes - Homebuilding revenue grew 15% year-over-year to $1.2 billion in Q1 2022, driven by a 17% increase in average selling prices (ASPs) [45][46] - Home closing gross margin reached a record 30.3%, a 560 basis point improvement from 24.7% a year ago, primarily due to higher ASPs offsetting increased commodity costs [46][50] - Diluted EPS increased by 68% year-over-year to $5.79 [50] Business Line Data and Key Metrics Changes - Entry-level homes comprised 86% of closings, up from 72% in the prior year, reflecting a shift in product mix [26][27] - Total orders for Q1 2022 were 3,874, reflecting a 12% year-over-year increase, driven by a 32% increase in average asset community count [26][28] - Cancellation rate remained stable at 9.6%, similar to the last eight quarters [22] Market Data and Key Metrics Changes - The central region, primarily Texas, saw a 16% increase in order volume, attributed to a 21% increase in average asset communities [28] - The east region experienced a 15% year-over-year order growth, primarily due to a 45% increase in average asset communities [29] - The west region's order volume increased by 5% year-over-year, despite a 19% decline in average order pace [31] Company Strategy and Development Direction - The company focuses on entry-level and first move-up markets, emphasizing affordability and efficient operations [18][67] - A new division was announced for the Salt Lake City market, expanding operations into a region with steady growth [14] - The company plans to maintain a disciplined approach to land acquisition, evaluating opportunities in light of rising interest rates [100][101] Management's Comments on Operating Environment and Future Outlook - Management acknowledged that rising interest rates may impact buyer psychology and affordability but believes underlying demand remains solid [11][62] - The company expects total closings for 2022 to be between 14,500 and 15,500 units, with home closing revenue projected at $6.5 billion to $6.9 billion [63] - Management remains prepared for market fluctuations and is focused on maintaining a healthy land position [67] Other Important Information - The company has initiated a tree planting program in partnership with the Arbor Day Foundation as part of its ESG initiatives [16] - A new general counsel was appointed, bringing extensive legal experience to the company [15] Q&A Session Summary Question: Is the entry-level segment still a good place to be in a rising rate environment? - Management indicated that demand is based on current rates, with buyers adjusting their expectations accordingly [73][76] Question: What is the outlook for gross margins and incentives? - Management expects margins to stabilize and anticipates some incremental incentives to be necessary in the rising interest rate environment [80][81] Question: How is consumer behavior changing in the current market? - There is more handholding required to get buyers comfortable with financing, but demand remains strong [87][89] Question: What is the level of investor activity in core for-sale communities? - The company maintains a tight control on investor activity, limiting it to around 5% of overall community sales [91] Question: What are the economics of the build-for-rent (BFR) platform? - The BFR platform is expected to be net neutral for the company, with some cost savings passed to operator partners [96] Question: What is the strategy regarding land acquisition? - The company plans to adopt a more measured approach to land acquisition, focusing on quality over quantity in light of rising interest rates [100][101]

Part I [Business](index=4&type=section&id=Item%201.%20Business) Meritage Homes is a leading single-family homebuilder focused on affordable, energy-efficient homes for entry-level and first move-up buyers across nine states, achieving record financial performance in 2021 [The Company and Strategy](index=4&type=section&id=The%20Company%20and%20Strategy) Meritage Homes designs and builds energy-efficient, quick move-in homes for entry-level and first move-up buyers across nine states, supported by a financial services segment - The company operates in three regions (West, Central, East) across **nine states**[12](index=12&type=chunk) - The operational strategy focuses on affordable, quick move-in homes for entry-level and first move-up markets, using a **100% speculative building approach** for entry-level products[20](index=20&type=chunk) - All new homes meet or exceed **ENERGY STAR standards** and include advanced features like MERV-13 air filters and the M.Connected Home™ Automation Suite[21](index=21&type=chunk) [Recent Industry and Company Developments](index=7&type=section&id=Recent%20Industry%20and%20Company%20Developments) In 2021, the company achieved record financial performance, including a 580 basis point improvement in gross margin and 75% diluted EPS growth, driven by strong housing demand and its focus on affordable homes FY 2021 Financial Performance Highlights | Metric | 2021 Value | Change vs 2020 | | :--- | :--- | :--- | | Home Closing Revenue Growth | 14% | - | | Home Closing Volume Growth | 8% | - | | ASP on Closings Growth | 6% | - | | Home Closing Gross Margin | 27.8% | +580 bps | | Net Earnings Growth | 74% | - | | Diluted EPS Growth | 75% | - | Balance Sheet Position (as of Dec 31, 2021) | Metric | Dec 31, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | Cash and Cash Equivalents | $618.3 million | $745.6 million | | Inventory | $3.7 billion | - | | Debt-to-Capital Ratio | 27.6% | 30.3% | | Net Debt-to-Capital Ratio | 15.1% | 10.5% | - First-time and first move-up buyers accounted for approximately **97% of 2021 closings**[27](index=27&type=chunk) [Land Acquisition and Development](index=8&type=section&id=Land%20Acquisition%20and%20Development) The company aggressively invested approximately $2.0 billion in land acquisition and development in 2021, securing nearly 34,000 new lots, primarily for entry-level communities, to maintain a four-to-five year supply Land Position and Investment (FY 2021) | Metric | 2021 | 2020 | | :--- | :--- | :--- | | Investment in Land Acquisition & Development | ~$2.0 billion | - | | Net New Lots Secured | ~34,000 | ~27,200 | | Total Lots Under Control (Year-End) | 75,049 | 55,502 | | Year Supply of Lots (based on 2021 closings) | 5.9 years | - | - Approximately **90% of lots acquired in 2021** are designated for entry-level communities[31](index=31&type=chunk) - At year-end 2021, the company controlled **26,495 lots** under option or purchase contracts with a total purchase price of approximately **$1.0 billion**, secured by **$82.7 million** in cash deposits[38](index=38&type=chunk) [Operations and Sales](index=10&type=section&id=Operations%20and%20Sales) The company navigated 2021 building material cost pressures and supply chain constraints, expanded digital marketing, and saw its sales backlog increase significantly by 39% in value - The company experienced **building material cost pressures** and **supply chain constraints** in 2021, with expectations for continuation[44](index=44&type=chunk) - Marketing and sales expanded **digital offerings**, including online scheduling, virtual tours, and digital contract signing[46](index=46&type=chunk)[51](index=51&type=chunk) Sales Backlog (as of Dec 31, 2021) | Metric | Dec 31, 2021 | Dec 31, 2020 | Change | | :--- | :--- | :--- | :--- | | Backlog Units | 5,679 | 4,672 | +22% | | Backlog Value | $2.5 billion | $1.8 billion | +39% | [Human Capital](index=15&type=section&id=Human%20Capital) As of December 31, 2021, Meritage Homes had 1,773 full-time employees, demonstrating a commitment to DE&I with 40% female and 25% minority representation, and implemented COVID-19 safety measures Employee Statistics (as of Dec 31, 2021) | Category | Number/Percentage | | :--- | :--- | | Total Full-Time Employees | 1,773 | | Management & Administration | 346 | | Sales & Marketing | 494 | | Construction & Warranty | 878 | | Female Employees | 40% | | Minority Employees | 25% | - In 2021, the company adopted a Human Rights Policy and donated **$300,000** to organizations supporting racial equity and inclusion[72](index=72&type=chunk) [Risk Factors](index=17&type=section&id=Item%201A.%20Risk%20Factors) The company faces significant risks including rising interest rates, supply chain shortages, land availability, IT failures, and regulatory changes, which could impact its operations and financial performance - Housing demand is adversely affected by increases in **interest rates** and lack of mortgage availability, with predictions for further increases in 2022 and beyond[84](index=84&type=chunk) - **Supply chain constraints** for construction materials, which lengthened cycle times in 2021, are expected to persist in 2022 and potentially beyond[88](index=88&type=chunk) - A shift in market demand away from **entry-level and first move-up homes** could negatively impact operations[106](index=106&type=chunk) - **Information technology failures** and **data security breaches** pose significant operational risks, though a Q1 2020 malware attack was remediated without material adverse effect[111](index=111&type=chunk)[112](index=112&type=chunk) [Unresolved Staff Comments](index=25&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) The company reports no unresolved staff comments from the Securities and Exchange Commission - No unresolved staff comments were reported[133](index=133&type=chunk) [Properties](index=25&type=section&id=Item%202.%20Properties) The company leases its 72,000 square foot corporate office in Scottsdale, Arizona, and an additional 325,000 square feet for operating divisions - The corporate office is a leased space of approximately **72,000 square feet** in Scottsdale, Arizona[134](index=134&type=chunk) - Approximately **325,000 square feet** of office space is leased for operating divisions and other corporate offices[134](index=134&type=chunk) [Legal Proceedings](index=26&type=section&id=Item%203.%20Legal%20Proceedings) The company is involved in routine legal proceedings, mainly warranty and construction defect claims, which are expected to be covered by subcontractor obligations and insurance, with no material adverse impact anticipated - The company is involved in routine legal proceedings, primarily **warranty and construction defect claims**, generally covered by subcontractor indemnities and insurance[136](index=136&type=chunk) - Pending legal and warranty matters are not expected to have a **material adverse impact** beyond existing reserves[137](index=137&type=chunk) [Mine Safety Disclosures](index=26&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company's operations - Not applicable[138](index=138&type=chunk) Part II [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=27&type=section&id=Item%205.%20Market%20For%20Registrant's%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) Meritage Homes' common stock trades on the NYSE (MTH), with no cash dividends planned, while the company repurchased $61.0 million in shares during 2021 under an ongoing program - The company's common stock is listed on the **NYSE** under the symbol **"MTH"**[141](index=141&type=chunk) - The company does not intend to declare **cash dividends** in the foreseeable future, retaining earnings for operations and growth[146](index=146&type=chunk) Share Repurchase Activity (FY 2021) | Metric | Value | | :--- | :--- | | Shares Repurchased | 639,346 | | Aggregate Purchase Price | $61.0 million | | Amount Available for Repurchase (as of Dec 31, 2021) | $153.4 million | [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=29&type=section&id=Item%207.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) In 2021, the company achieved record home closing revenue of $5.1 billion and net earnings of $737.4 million, driven by strong market conditions and strategic focus, despite negative operating cash flow due to inventory investment [Summary Company Results](index=29&type=section&id=Summary%20Company%20Results) In 2021, the company achieved record home closing revenue of $5.1 billion and net income of $737.4 million, with gross margin expanding to 27.8%, while year-end backlog value grew 38.8% FY 2021 vs. FY 2020 Key Results | Metric | 2021 | 2020 | | :--- | :--- | :--- | | Home Closing Revenue | $5.1 billion | $4.5 billion | | Home Closing Gross Margin | 27.8% | 22.0% | | Pre-tax Net Earnings | $954.8 million | $533.6 million | | Net Income | $737.4 million | $423.5 million | | Homes Closed | 12,801 | 11,834 | | Backlog Value (Year-End) | $2.5 billion | $1.8 billion | - Orders were intentionally **metered** to align with production constraints, resulting in relatively flat year-over-year order volume[152](index=152&type=chunk) [Home Closing Revenue, Home Orders and Order Backlog - Segment Analysis](index=32&type=section&id=Home%20Closing%20Revenue%2C%20Home%20Orders%20and%20Order%20Backlog%20-%20Segment%20Analysis) In 2021, total home closing revenue increased 14.1% to $5.1 billion, with the East Region showing strongest growth, and year-end backlog value rising 38.8% to $2.5 billion Home Closing Revenue by Region (FY 2021 vs 2020) | Region | 2021 Revenue ($M) | 2020 Revenue ($M) | % Change | | :--- | :--- | :--- | :--- | | West | $1,914.4 | $1,795.2 | +6.6% | | Central | $1,500.7 | $1,273.7 | +17.8% | | East | $1,679.8 | $1,395.5 | +20.4% | | **Total** | **$5,094.9** | **$4,464.4** | **+14.1%** | Home Orders by Region (FY 2021 vs 2020) | Region | 2021 Orders (Units) | 2020 Orders (Units) | % Change | | :--- | :--- | :--- | :--- | | West | 4,276 | 4,781 | -10.6% | | Central | 4,413 | 4,476 | -1.4% | | East | 5,119 | 4,467 | +14.6% | | **Total** | **13,808** | **13,724** | **+0.6%** | Order Backlog (as of Dec 31) | Metric | 2021 | 2020 | % Change | | :--- | :--- | :--- | :--- | | Backlog Value | $2,516.2 M | $1,812.5 M | +38.8% | | Homes in Backlog | 5,679 | 4,672 | +21.6% | [Other Operating Information](index=38&type=section&id=Other%20Operating%20Information) Home closing gross margin improved to 27.8% in 2021, driven by pricing power, while sales costs decreased as a percentage of revenue and the effective tax rate increased Home Closing Gross Profit Margin by Region (FY 2021 vs 2020) | Region | 2021 Margin | 2020 Margin | Basis Point Change | | :--- | :--- | :--- | :--- | | West | 27.1% | 21.2% | +590 bps | | Central | 29.9% | 23.9% | +600 bps | | East | 26.8% | 21.2% | +560 bps | | **Total** | **27.8%** | **22.0%** | **+580 bps** | - Commissions and other sales costs decreased to **5.6% of home closing revenue** in 2021 from 6.4% in 2020, driven by lower broker commissions and digital sales solutions[187](index=187&type=chunk)[188](index=188&type=chunk) - The effective tax rate increased to **22.8%** in 2021 from 20.6% in 2020, primarily due to higher profits in states with higher tax rates[193](index=193&type=chunk) [Liquidity and Capital Resources](index=40&type=section&id=Liquidity%20and%20Capital%20Resources) In 2021, net cash used in operations was $152.1 million, primarily due to a $948.1 million investment in real estate inventory, while the company maintained a strong balance sheet with a 27.6% debt-to-capital ratio Cash Flow Summary (FY 2021 vs 2020) | Cash Flow Activity ($M) | 2021 | 2020 | | :--- | :--- | :--- | | Net Cash (Used in)/Provided by Operating Activities | ($152.1) | $530.4 | | Net Cash Used in Investing Activities | ($26.8) | ($18.2) | | Net Cash Provided by/(Used in) Financing Activities | $51.6 | ($86.0) | - Negative operating cash flow in 2021 was primarily due to a **$948.1 million increase in real estate inventory** for homes under construction and new land acquisitions[205](index=205&type=chunk) Leverage Ratios (as of Dec 31) | Ratio | 2021 | 2020 | | :--- | :--- | :--- | | Debt-to-Capital | 27.6% | 30.3% | | Net Debt-to-Capital | 15.1% | 10.5% | [Quantitative and Qualitative Disclosures About Market Risk](index=43&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's primary market risk is interest rate sensitivity, as rising mortgage rates can adversely affect housing demand and its variable-rate borrowing costs, though most debt is fixed-rate - The company's operations are sensitive to **interest rates**, as higher mortgage rates can negatively impact homebuyer affordability and demand[217](index=217&type=chunk) - The company's fixed-rate debt comprises **$1.2 billion in senior notes**, with no maturities until 2025[215](index=215&type=chunk)[216](index=216&type=chunk) - There were **no outstanding borrowings** under the variable-rate Credit Facility at year-end 2021 or 2020[215](index=215&type=chunk) [Financial Statements and Supplementary Data](index=43&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section presents the company's audited consolidated financial statements for FY2021, with an unqualified auditor's opinion, highlighting real estate valuation as a critical audit matter [Report of Independent Registered Public Accounting Firm](index=44&type=section&id=Report%20of%20Independent%20Registered%20Public%20Accounting%20Firm) Deloitte & Touche LLP issued an unqualified opinion on the company's consolidated financial statements and internal control over financial reporting, identifying real estate valuation as a critical audit matter - The auditor issued an **unqualified opinion**, affirming the fair presentation of the company's financial position[221](index=221&type=chunk) - The **valuation of real estate** was identified as a Critical Audit Matter due to significant management judgments and estimates in assessing recoverability[225](index=225&type=chunk)[226](index=226&type=chunk)[227](index=227&type=chunk) [Consolidated Financial Statements](index=46&type=section&id=Consolidated%20Financial%20Statements) The consolidated financial statements show total assets increased to $4.81 billion, total closing revenue rose to $5.12 billion, and net earnings grew 74% to $737.4 million in 2021 Consolidated Balance Sheet Highlights (in thousands) | Account | Dec 31, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | Cash and cash equivalents | $618,335 thousand | $745,621 thousand | | Real estate | $3,734,408 thousand | $2,778,039 thousand | | **Total assets** | **$4,807,533 thousand** | **$3,864,398 thousand** | | Senior notes, net | $1,142,486 thousand | $996,991 thousand | | **Total liabilities** | **$1,763,144 thousand** | **$1,516,530 thousand** | | **Total stockholders' equity** | **$3,044,389 thousand** | **$2,347,868 thousand** | Consolidated Income Statement Highlights (in thousands) | Account | 2021 | 2020 | | :--- | :--- | :--- | | Total closing revenue | $5,120,110 thousand | $4,482,120 thousand | | Total closing gross profit | $1,417,294 thousand | $959,614 thousand | | Earnings before income taxes | $954,834 thousand | $533,566 thousand | | **Net earnings** | **$737,444 thousand** | **$423,475 thousand** | | Diluted EPS | $19.29 | $11.00 | [Notes to Consolidated Financial Statements](index=50&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) The notes detail accounting policies, including $2.1 million in real estate impairment charges, the issuance of $450 million in new senior notes, and segment performance, with the Central region showing the highest operating income margin - **Real estate impairment charges** were **$2.1 million** in 2021, down from $24.9 million in 2020, primarily due to selling non-strategic assets[272](index=272&type=chunk) - In April 2021, the company issued **$450.0 million** of 3.875% Senior Notes due 2029 and redeemed **$300.0 million** of 7.00% Senior Notes due 2022, incurring an **$18.2 million loss** on early extinguishment[302](index=302&type=chunk) Homebuilding Segment Operating Income (in thousands) | Region | 2021 | 2020 | | :--- | :--- | :--- | | West | $379,093 thousand | $213,918 thousand | | Central | $319,435 thousand | $185,202 thousand | | East | $302,487 thousand | $157,971 thousand | | **Total** | **$1,001,015 thousand** | **$557,091 thousand** | [Controls and Procedures](index=70&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2021, a conclusion affirmed by the independent auditor - Management concluded that the company's **disclosure controls and procedures were effective** as of December 31, 2021[339](index=339&type=chunk) - Management concluded that **internal control over financial reporting was effective** as of December 31, 2021, a conclusion audited and affirmed by Deloitte & Touche LLP[342](index=342&type=chunk)[345](index=345&type=chunk) Part III [Directors, Executive Officers, Corporate Governance, Compensation, and Security Ownership](index=72&type=section&id=Items%2010-14) Information for Items 10 through 14, covering directors, executive officers, corporate governance, compensation, and security ownership, is incorporated by reference from the 2022 Proxy Statement - Information for **Items 10-14** is incorporated by reference from the registrant's Proxy Statement for the 2022 Annual Meeting of Stockholders[353](index=353&type=chunk)[354](index=354&type=chunk)[355](index=355&type=chunk)[356](index=356&type=chunk)[357](index=357&type=chunk) Part IV [Exhibits and Financial Statement Schedules](index=73&type=section&id=Item%2015.%20Exhibits%20and%20Financial%20Statement%20Schedules) This section lists the financial statements, schedules, and exhibits filed as part of the Form 10-K, with consolidated financial statements in Item 8 and a comprehensive list of exhibits provided - The consolidated financial statements are included under **Part II, Item 8** of the report[360](index=360&type=chunk) - A list of exhibits filed with the report includes **governance documents, debt agreements, employment agreements, and certifications**[362](index=362&type=chunk)[363](index=363&type=chunk)[364](index=364&type=chunk)