Meritage Homes reports third quarter 2024 results

8% year-over-year increase in home closings and record 145% backlog conversion

SCOTTSDALE, Ariz., Oct. 29, 2024 (GLOBE NEWSWIRE) -- Meritage Homes Corporation (NYSE: MTH), the fifth-largest U.S. homebuilder, reported third quarter results for the period ended September 30, 2024.

"Our solid third quarter 2024 results reflected the pivot in our strategy to affordable, quick-turning move-in ready homes, which generated $1.6 billion of home closing revenue and our highest third quarter closing volume," said Steven J. Hilton, executive chairman of Meritage Homes. "Our rate buy-down offerings in July and August and the pull back in mortgage rates in September all contributed to order volume that slightly outpaced traditional seasonality, aiding us to achieve orders totaling 3,512 homes this quarter with average monthly absorptions of 4.1. Although the mortgage rate market remains volatile, we believe that the expectation of lower rates over the next several quarters and the ongoing combination of favorable demographics and an undersupply of homes will be constructive for homebuyer demand and will enable us to keep growing our market share."

"With nearly 45% of this quarter's closings also sold this quarter, our backlog conversion rate was a company-record 145%," added Phillippe Lord, chief executive officer of Meritage Homes. "Our 3,942 deliveries this quarter combined with home closing gross margin of 24.8% and SG&A leverage of 9.9% contributed to diluted EPS of $5.34. We increased our book value per share 15% year-over-year to $139.02 and generated a return on equity of 17.2% as of September 30, 2024."*

"Our capital allocation in the third quarter of 2024 continued to focus on both investing in growth and returning cash to shareholders. Our land acquisition and development spend totaled $659.4 million this quarter, as we put nearly 7,800 net new lots under control. We also spent a combined $57.1 million on cash dividends and share repurchases," concluded Mr. Lord. "At September 30, 2024, our balance sheet remained strong, with ample liquidity and nothing drawn under our revolving credit facility. We ended the quarter with cash of $831.6 million and a net debt-to-capital ratio of 8.8%."

THIRD QUARTER RESULTS

• Orders of 3,512 homes for the third quarter of 2024 slightly increased 1% year-over-year with both average community count and average absorption pace relatively consistent across the third quarter periods in 2024 and 2023. Third quarter 2024 average sales price ("ASP") on orders of $406,000 was down 6% from the third quarter of 2023 due to product and geographic mix shift as well as increased financing incentive costs. Entry-level represented 92% of third quarter 2024 sales orders, compared to 88% in the prior year.

• The 2% year-over-year decrease in home closing revenue in the third quarter of 2024 to $1.6 billion was the result of 8% higher home closing volume offset by a 9% decrease in ASP on closings due to product and geographic mix. Third quarter 2024 closing ASP reflected higher utilization of financing incentives compared to prior year, although the per-home financing incentive cost was lower. Entry-level represented 93% of third quarter 2024 home closings, compared to 86% in the prior year.

• Home closing gross margin of 24.8% decreased 190 bps in the third quarter of 2024 from 26.7% in the prior year due to higher lot costs, increased utilization of financing incentives and less leverage of fixed costs on lower home closing revenue, which were partially offset by cost savings and shorter construction cycle times.

• The financial services profit of $3.1 million included $3.0 million in write-offs related to rate lock unwind costs in the third quarter of 2024. The financial services profit of $5.7 million in the third quarter of 2023 had no similar write-offs.

• Selling, general and administrative expenses ("SG&A") as a percentage of third quarter 2024 home closing revenue of 9.9% improved from 10.1% in the third quarter of 2023, due primarily to lower performance-based compensation costs.

• In the third quarter of 2023, we recognized a loss on early extinguishment of debt of $0.9 million in connection with the $150.0 million partial redemption of our 6.00% senior notes due 2025 (the "2025 Notes"). There were no such redemptions in the third quarter of 2024.

• The third quarter effective income tax rate was 21.6% in 2024 compared to 22.4% in 2023. The Company's tax rates in both periods benefited from earned eligible energy tax credits on qualifying homes under the Inflation Reduction Act ("IRA").

• Net earnings were $196.0 million ($5.34 per diluted share) for the third quarter of 2024, a 12% decrease from $221.8 million ($5.98 per diluted share) for the third quarter of 2023, mainly resulting from lower home closing revenue and gross profit.

• Total sales orders for the first nine months of 2024 increased 10% over the prior year, driven entirely by a 10% increase in average absorption pace compared to the first nine months of 2023.

• Home closing revenue increased 7% in the first nine months of 2024 to $4.7 billion, reflecting a 15% increase in home closing volume that was partially offset by a 7% decrease in ASP on closings due to product and geographic mix. ASP on closings for the first nine months of 2024 reflected greater utilization of financing incentives compared to prior year, although the per-home financing incentive cost was lower.

• Home closing gross margin improved 80 bps to 25.5% in the first nine months of 2024 from 24.7% in the prior year, primarily resulting from lower direct costs, greater leverage of fixed costs on higher home closing revenue and shorter construction cycle times, which were partially offset by higher lot cost.

• The financial services profit of $7.2 million included $10.9 million in write-offs related to rate lock unwind costs in the first nine months of 2024. This compared to financial services profit of $6.1 million in the first nine months of 2023 that had $9.8 million in similar write-offs.

• SG&A expenses of 9.8% of home closing revenue improved from 10.0% in the prior year due to greater leverage on higher home closing revenue and lower performance-based compensation costs.

• In the first nine months of 2024, other income, net totaled $31.2 million, compared to $35.0 million in the prior year, mainly as a result of less interest income earned on a lower cash balance.

• In the first nine months of 2024, we recognized a loss on early extinguishment of debt of $0.6 million in connection with the $250.0 million redemption of the 2025 Notes. In the first nine months of 2023, we recognized a loss on early extinguishment of debt of $0.9 million in connection with the $150.0 million partial redemption of the 2025 Notes.

• The effective tax rate for the first nine months of 2024 and 2023 was 21.5% and 21.8%, respectively. The Company's tax rates in both periods benefited from earned eligible energy tax credits on qualifying homes under the IRA.

• Net earnings were $613.5 million ($16.72 per diluted share) for the first nine months of 2024, a 14% increase from $539.9 million ($14.55 per diluted share) for the first nine months of 2023, primarily reflecting higher home closing revenue and gross profit, as well as lower SG&A as a percentage of home closing revenue.

• Cash and cash equivalents at September 30, 2024 totaled $831.6 million, compared to $921.2 million at December 31, 2023.

• Land acquisition and development spend totaled $659.4 million for the third quarter of 2024, compared to $537.2 million for the third quarter of 2023.

• Approximately 74,800 lots were owned or controlled as of September 30, 2024, compared to approximately 60,700 total lots as of September 30, 2023. Nearly 7,800 net new lots were added in the third quarter of 2024, representing an estimated 48 future communities.

• Third quarter 2024 ending community count was 278 compared to 287 at June 30, 2024 and 272 at September 30, 2023.

• Debt-to-capital and net debt-to-capital ratios were 20.7% and 8.8%, respectively, at September 30, 2024, which compared to 17.9% and 1.9%, respectively, at December 31, 2023.

• The Company declared and paid quarterly cash dividends of $0.75 per share totaling $27.1 million in the third quarter of 2024, up from $0.27 per share totaling $9.8 million in the third quarter of 2023. Year-to-date dividends paid were $81.6 million and $29.7 million in 2024 and 2023, respectively.

• During the third quarter of 2024, the Company repurchased 151,220 shares of stock, or 0.4% of shares outstanding at the beginning of the quarter, for $30.0 million. For the first nine months of 2024, the Company repurchased 513,639 shares of stock, or 1.4% of shares outstanding at the beginning of the year, for a total of $85.9 million. As of September 30, 2024, $99.1 million remained available to repurchase under the authorized share repurchase program.

The Company is providing the following guidance for the fourth quarter of 2024, based on year to date results and current market conditions:

Management will host a conference call to discuss its third quarter 2024 results at 8:00 a.m. Pacific Time (11:00 a.m. Eastern Time) on Wednesday, October 30, 2024. To listen, please go to Meritage's Investor Relations page for the live webcast or dial in to 1-877-407-6951 US toll free or 1-412-902-0046. A replay will be available on the Investor Relations page.

* The Company's return on equity is calculated as net income for the trailing twelve months divided by average total stockholders' equity for the trailing five quarters. The Company's book value per share is calculated as total stockholders' equity as of the last day of the period divided by the shares outstanding as of the last day of the period.