Meritage Homes CORP
For the period ended Dec 31, 2024. Filed Feb 20, 2025.
View on SEC.govAbout this filing
A company's yearly report to the SEC, with audited financial statements. It is the fullest account a company gives of its business, its finances and the risks it sees.
FY2024 · Filed Feb 20, 2025
MTH$68.05-4.2%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-K
Period ended 2023-12-31; filed 2024-02-14.
0000833079-24-000015
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-K
Period ended 2024-12-31; filed 2025-02-20.
0000833079-25-000021
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of OperationsThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 97 previous paragraphs and 95 current paragraphs.
42 unchanged; 43 reworded; 10 added; 12 removed; 0 previous and 0 current paragraphs rearranged.
Tables are not compared: 10 previous and 11 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (10)
Current report
The market for new homes was healthy in 2024 as the largest U.S. population cohorts of the millennial, Gen Z and baby boomer generations continue to need affordable, move-in ready homes. While demand was stable, volatile and elevated interest rates resulted in increased need for interest rate assistance for potential homebuyers to help with monthly mortgage affordability. The ability to offer financing incentives, including interest rate locks and buy-downs, combined with a short supply of re-sale inventory available has shifted demand to the new home market in recent years. We believe that our ability to offer financing incentives gives us a competitive advantage, particularly over resale homes, as individual home sellers are not typically able to provide such incentives, and that our all-spec strategy with a commitment to affordability can meet this demand, providing us with ample opportunity to capture and grow our market share.
Current report
Supply chain and labor market disruptions, shortages and other economic-related disruptions that impacted construction cycle times for the homebuilding industry during 2022 and 2023 stabilized in 2024. Throughout 2024, we further reduced our construction cycle time, reaching normalized cycle times of approximately 120 days by the end of the year. The increased capacity in supply chain has resulted in a decrease in some material costs over the past few years, and our higher volume allowed us to capture additional volume discounts from our national vendors. Land costs were elevated in 2024 following several years of historically high land development activity and negatively impacted our margins.
Current report
We believe that the execution of our all-spec strategy of move-in ready homes with a commitment to affordability will drive strong performance of the key financial goals such as higher home closing revenue, strong home closing gross margin, controlling selling, and general and administrative costs, and maintaining sufficient liquidity.
Current report
•Offering our customers affordable, move-in ready homes;
Current report
•Embracing external realtor relationships, as we view realtors as a trusted resource for potential customers, particularly for first-time buyers;
Current report
•Providing homebuyers with our 60-day closing ready commitment;
Current report
Companywide. Home closing gross margin of 24.9% for the year ended December 31, 2024 was consistent with 24.8% in the prior year, as lower direct costs, leverage of higher home closing revenue on overhead costs and shorter construction cycle times were partially offset by greater utilization of financing incentives and higher lot costs. Higher home closing revenue and relatively flat home closing gross margin led to higher home closing gross profit of $1.6 billion, up from $1.5 billion in 2023.
Current report
West. For the year ended December 31, 2024, the West Region home closing gross margin was 22.8% a 210 basis point improvement from 20.7% in 2023. The demand in this region recovered in 2024 from several challenging years and was able to generate margin improvements with savings in direct costs and leverage of higher home closing revenue and shorter construction cycle times despite higher lot costs.
Current report
East. The East Region home closing gross margin of 25.9% in 2024 declined 130 basis points from 27.2% in the prior year. The East Region increased financing incentives to address challenging demand conditions in the later half of 2024, particularly in Florida. The 2024 home closing gross margin in the East Region was also negatively impacted by higher lot costs which were partially offset by lower direct costs year over year.
Current report
During the years ended December 31, 2024 and 2023, our Board approved and we paid, a recurring quarterly cash dividend on common stock of $0.375 and $0.135 per share, respectively. Quarterly dividends declared and paid cumulatively totaled $1.50 and $0.54 per share for the years ended December 31, 2024 and 2023, respectively. Dividend amounts have been retroactively adjusted for the Stock Split. See Item 5 - Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Removed paragraphs (12)
Previous report
Since the start of the COVID-19 pandemic and until the aggressive rise of interest rates beginning in mid-2022, the homebuilding industry experienced unprecedented growth. Since mid-2022, the industry slow down was driven by affordability concerns due to rapidly rising interest rates, combined with uncertainty of future interest rates, inflation levels and deterioration in the general economy, the combination of which created homebuyer hesitancy. In 2023, homebuyers began to acclimate to the new interest rate environment and consumer confidence improved, which combined with favorable demographic need-based housing and the persistent shortage of existing homes for sale, shifted demand to the new home market. We believe that favorable homebuyer demographics will support long-term demand and our all-spec strategy will be ready to capture this demand with readily available inventory, which is highly desired. Combined with financing and other incentives offered in our commitment to affordability, we believe our homes provide an attractive opportunity for homeownership.
Previous report
At Meritage, we believe that the execution of our strategy will drive strong performance of the key financial measures of home closing volume, home closing gross margin, selling, general and administrative cost control, balance sheet management and long-term community count growth. Supply chain disruptions that impacted production costs and cycle times in the homebuilding industry as a whole over the last several years began to ease in 2023. We expect that over time, as industry conditions normalize, costs and cycle times will continue to trend downward.
Previous report
•Leveraging and expanding on technological solutions through digital offerings to our customers, such as our virtual home tours, interactive maps, digital financial services offerings and online warranty portal; and
Previous report
•Continuing to innovate and promote our energy efficiency program and our M.Connected® Automation Suite to create differentiation from existing available inventory.
Previous report
Valuation of Deferred Tax Assets
Previous report
We account for income taxes using the asset and liability method, which requires that deferred tax assets and liabilities be recognized based on future tax consequences of temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply in the years in which the temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in earnings in the period when the changes are enacted.
Previous report
In accordance with ASC 740-10, Income Taxes, we evaluate our deferred tax assets by tax jurisdiction, including the benefit from net operating losses ("NOLs") by tax jurisdiction, to determine if a valuation allowance is required. Companies must assess, using significant judgments, whether a valuation allowance should be established based on the consideration of all available evidence using a “more likely than not” standard with significant weight being given to evidence that can be objectively verified. This assessment considers, among other matters, the nature, frequency and severity of current and cumulative losses, forecasts of future profitability, the length of statutory carryforward periods, experience with NOLs and experience of utilizing tax credit carryforwards and tax planning alternatives. We have no valuation allowance on our deferred tax assets and NOL carryovers at December 31, 2023.
Previous report
We have not made any material changes in our methodology or significant assumptions used to evaluate our Deferred tax assets, net during the past three years.
Previous report
Companywide. Home closing gross margin of 24.8% for the year ended December 31, 2023 declined 380 basis points compared 28.6% in the prior year, due to increased financing incentives, rising land costs, and still elevated direct costs, as lower lumber costs have been offset by other cost increases. While direct construction costs are up year over year, they have declined sequentially each quarter in 2023. Lower home closing revenue and home closing gross margin led to lower home closing gross profit of $1.5 billion, down from $1.8 billion in 2022.
Previous report
West. For the year ended December 31, 2023, the West Region home closing gross margin was 20.7%, versus 27.4% in 2022. This region experienced more challenging demand conditions throughout most of 2023. In response, the region aggressively increased financing incentives, which combined with rising land costs and higher direct construction costs led to the decline in home closing gross margin.
Previous report
East. The East Region had the Company's highest home closing gross margin of 27.2% in 2023, representing a 220 basis point decline from 29.4% in the prior year. The margin deterioration in the East Region was due to increased financing incentives and higher land costs, as savings in lumber costs were offset by increases in other direct construction costs.
Previous report
In February 2023, our Board of Directors approved the initiation of a recurring quarterly cash dividend on common stock of $0.27 per share. Quarterly dividends declared and paid during 2023 totaled $1.08 per share. There were no such transactions in 2022.
Reworded paragraphs (43)
Previous wording
Our results for 2023 reflect recovering buyer confidence throughout the year. We ended 2023 with 13,976 closings, our second highest closing volume in Company history, down just 0.9% from 14,106 closings in 2022. Order volume increased 12.2% to 13,193 in 2023, up from 11,759 in 2022 due to an 11.1% year-over-year increase in orders pace to 4.0 per month in 2023 while average active community count remained essentially flat. Cancellations returned to more normalized levels of 12.8% for the full year 2023, down from 21.0% in 2022. Reduced construction cycle times and higher backlog conversion resulted in 23.5% fewer homes in backlog at December 31, 2023, with 2,549 units valued at $1.1 billion compared to 3,332 units valued at $1.5 billion at December 31, 2022.
Current wording
Our results for 2024 reflect the continuing favorable market conditions for affordable, move-in ready homes. We ended 2024 with 15,611 closings, our highest closing volume in Company history, up 11.7% from 13,976 closings in 2023. We also achieved record order volume of 14,606 units, up 10.7% over 13,193 in 2023, due to a 7.5% year-over-year increase in orders pace to 4.3 per month in 2024 combined with a 1.4% increase in average active community count. Our strategy also favorably impacted cancellations as the length of time between sale and closing is shortened, contributing to a cancellation rate of 9.4% for the full year 2024, well below historical averages and improved from 12.8% for the full year 2023. Reduced construction cycle times and our all spec strategy led to record backlog conversions throughout the full year 2024, resulting in 39.4% fewer homes in backlog at December 31, 2024, with 1,544 units valued at $629.5 million compared to 2,549 units valued at $1.1 billion at December 31, 2023.
Previous wording
Total home closing revenue of $6.1 billion for the year ended December 31, 2023 decreased 2.4% from $6.2 billion in 2022, due to 0.9% lower home closing volume and a 1.5% reduction in ASPs. Home closing gross margin was 24.8% for the year ended December 31, 2023, down 380 basis points from 28.6% in 2022, due to more costly financing incentives, rising land costs, elevated direct costs and declining ASPs on closings. While direct construction costs are up year over year, they did decline sequentially each quarter in 2023. We recognized land closing gross profit of $4.4 million for the year ended December 31, 2023, compared to $11.6 million for the year ended December 31, 2022. Commissions and other sales costs of $384.9 million increased $61.6 million from 2022, due to increased advertising activities and higher commissions, both in response to the current sales environment. Commissions and other sales costs were 6.4% and 5.2% of home closing revenue in 2023 and 2022, respectively. General and administrative expenses of $231.7 million for the year ended December 31, 2023 were 3.8% of home closing revenue, an increase of $38.7 million or 70 basis points year over year, primarily due to higher performance-based compensation and insurance costs, and a greater investment in technology. Other income, net of $47.9 million increased from $2.7 million in the prior year primarily due to interest income from higher interest rates earned on larger cash balances. In September 2023 we partially redeemed $150.0 million of our 6.00% Senior Notes due 2025 (the "2025 Notes"), resulting in charges of $0.9 million reflected in Loss on early extinguishment of debt, with no similar charges in 2022. Earnings before income taxes of $949.4 million in 2023 decreased 26.4% from $1.3 billion in 2022. Our effective tax rate in 2023 was 22.2% in 2023 as compared to 23.0% in 2022, leading to net income of $738.7 million and $992.2 million for the years ended December 31, 2023 and 2022, respectively.
Current wording
Total home closing revenue of $6.3 billion for the year ended December 31, 2024 increased 4.7% from $6.1 billion in 2023, due to 11.7% higher home closing volume and 6.3% lower ASP on closings. Home closing gross margin was 24.9% for the year ended December 31, 2024, consistent with 24.8% in 2023, as lower direct costs, leverage of higher home closing revenue on overhead costs and shorter construction cycle times were offset by greater utilization of financing incentives and higher lot costs. Commissions and other sales costs of $409.1 million for the full year ended December 31, 2024 increased $24.2 million from the prior year period due to higher home closing revenue. Commissions and other sales costs were 6.5% of home closing revenue in 2024, relatively consistent with the prior year. General and administrative expenses of $230.9 million for the year ended December 31, 2024 were 3.6% of home closing revenue and improved 20 basis points year over year, primarily due to leverage of higher home closing revenue on fixed overhead expenses and lower performance-based compensation. Other income, net of $45.2 million in 2024 decreased 5.8% from the prior year primarily due to lower interest income earned on smaller cash balances. In May 2024 we redeemed the remaining $250.0 million of our 6.00% Senior Notes due 2025 (the "2025 Notes"), resulting in charges of $0.6 million reflected in Loss on early extinguishment of debt, compared with charges of $0.9 million in 2023. Earnings before income taxes of $1.0 billion in 2024 increased 5.6% from $949.4 million in 2023. Our effective tax rate for the year ended December 31, 2024 was 21.6% as compared to 22.2% in 2023, leading to net income of $786.2 million and $738.7 million for the years ended December 31, 2024 and 2023, respectively.
Previous wording
We believe that the investments in our new communities designed for the first-time and first move-up homebuyer, our commitment to being primarily an all-spec builder, and industry-leading innovation in energy-efficient product offerings and automation create a differentiated strategy that has aided us in our growth in the highly competitive new home market.
Current wording
We believe that the investments in our new communities designed for the first-time and first move-up homebuyer, our move-in ready homes with our recently introduced 60-day closing ready commitment, and our partnership with external realtors create a differentiated strategy that has aided us in our growth in the highly competitive new home market.
Previous wording
•Delivering affordable homes on a shorter timeline through simplification of production processes and maintaining market-appropriate levels of spec inventory;
Current wording
•Delivering affordable homes on a shorter timeline through simplification of production processes and maintaining levels of spec inventory that are aligned with our strategy;
Previous wording
•Continuously improving the overall home buying experience through simplification and innovation;
Current wording
•Continuously improving the overall home buying experience through simplification and innovation; and
Previous wording
•Increasing homeowner satisfaction by offering healthier, energy-efficient homes that come equipped with a suite of home automation standard features.
Current wording
•Increasing homeowner satisfaction by offering energy-efficient homes that come equipped with a suite of home automation standard features.
Previous wording
•Achieving or maintaining a position of at least 5% market share in all of our markets;
Current wording
•Achieving or maintaining a top 5 market position in all of our markets;
Previous wording
•Targeting a strong yet sustainable orders pace through the use of our consumer and market research to ensure that we build homes that offer our buyers their desired features and amenities; and
Current wording
•Targeting a strong, yet sustainable, orders pace through the use of consumer, market and potentially artificial intelligence research to ensure that we build homes that offer our buyers their desired features and amenities;
Previous wording
•Maintaining our home closing gross profit by growing closing volume, allowing us to better leverage our direct overhead;
Current wording
•Maintaining and where possible, expanding, our home closing gross profit by growing closing volume, allowing us to better leverage our direct overhead;
Previous wording
•Carefully managing our liquidity and a strong balance sheet, including a $150.0 million early redemption of debt this year, we ended the year with a 17.9% debt-to-capital ratio and a 1.9% net debt-to-capital ratio;
Current wording
•Carefully managing our liquidity and a strong balance sheet. We ended the year with a 20.6% debt-to-capital ratio and a 11.7% net debt-to-capital ratio, after issuing $575.0 million of convertible senior notes;
Previous wording
•Managing construction efficiencies and costs through national and regional vendor relationships with a focus on timely, quality construction and warranty management;
Current wording
•Managing construction efficiencies and costs through national and regional vendor relationships with a focus on timely, quality construction and warranty management; and
Previous wording
•Promoting a positive environment for our employees through our commitment to foster DE&I and providing market-competitive benefits in order to develop and motivate our employees, minimize turnover and maximize recruitment efforts;
Current wording
•Promoting a positive environment for our employees through our commitment to inclusion and belonging, and providing market-competitive benefits in order to develop and motivate our employees, minimize turnover and maximize recruitment efforts.
Previous wording
We have established various accounting policies that govern the application of United States generally accepted accounting principles (“GAAP”) in the preparation and presentation of our consolidated financial statements. Our significant accounting policies are described in Note 1 of the accompanying consolidated financial statements included in this Form 10-K. Certain of these policies involve critical accounting estimates, which are significant judgments, assumptions and estimates by management in accordance with GAAP that involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on the carrying value of certain assets and liabilities, and revenue and costs. We are subject to uncertainties such as the impact of future events, economic, environmental, political and regulatory factors and changes in our business environment; therefore, actual results could differ from these estimates. Accordingly, the accounting estimates used in the preparation of our financial statements may change as new events occur, as more experience is acquired, as additional information is obtained and as our operating environment changes. Changes in estimates are revised when circumstances warrant. Such changes in estimates and refinements in methodologies are reflected in our reported results of operations and, if material, the effects of changes in estimates are disclosed in the notes to our consolidated financial statements. The judgments, assumptions and estimates we use and believe to be critical to our business are based on historical experience, knowledge of the accounts, industry practices, and other factors, which we believe to be reasonable under the circumstances. Because of the nature of the judgments and assumptions we have made, actual results may differ from these judgments and estimates and could have a material impact on the carrying values of assets and liabilities and the results of our operations.
Current wording
We have established various accounting policies that govern the application of United States generally accepted accounting principles (“GAAP”) in the preparation and presentation of our consolidated financial statements. Our significant accounting policies are described in Note 1 of the accompanying consolidated financial statements included in this Form 10-K. Certain of these policies involve critical accounting estimates, which are significant judgments, assumptions and estimates by management in accordance with GAAP that involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on our financial condition or results of operations. We are subject to uncertainties such as the impact of future events, economic, environmental, political and regulatory factors and changes in our business environment; therefore, actual results could differ from these estimates. Accordingly, the accounting estimates used in the preparation of our financial statements may change as new events occur, as more experience is acquired, as additional information is obtained and as our operating environment changes. Changes in estimates are revised when circumstances warrant. Such changes in estimates and refinements in methodologies are reflected in our reported results of operations and, if material, the effects of changes in estimates are disclosed in the notes to our consolidated financial statements. The judgments, assumptions and estimates we use and believe to be critical to our business are based on historical experience, knowledge of the accounts, industry practices, and other factors, which we believe to be reasonable under the circumstances. Because of the nature of the judgments and assumptions we have made, actual results may differ from these judgments and estimates and could have a material impact on the carrying values of assets and liabilities and the results of our operations.
Previous wording
We rely on certain estimates to determine our construction and land development costs. Construction and land costs are comprised of direct and allocated costs, including estimated future costs. In determining these costs, we compile project budgets that are based on a variety of assumptions, including future construction schedules and costs to be incurred. Actual results can differ from budgeted amounts for various reasons, including construction delays, labor or material shortages, sales orders absorptions that differ from our expectations, increases in costs that have not yet been contracted, changes in governmental requirements, or other unanticipated issues, encountered during construction and development and other factors beyond our control, including weather. To address uncertainty in these budgets, we assess, update and revise project budgets on a regular basis, utilizing the most current information available to estimate home construction and land development costs.
Current wording
We rely on certain estimates to determine our construction and land development costs. Construction and land costs are comprised of direct and allocated costs, including estimated future costs. In determining these costs, we compile project budgets that are based on a variety of assumptions, including future construction schedules and costs to be incurred. Actual results can differ from budgeted amounts for various reasons, including construction delays, labor or material shortages, sales orders absorption rates that differ from our expectations, increases in costs that have not yet been contracted, changes in governmental requirements, or other unanticipated issues, encountered during construction and development and other factors beyond our control, including weather. To address uncertainty in these budgets, we assess, update and revise project budgets on a regular basis, utilizing the most current information available to estimate home construction and land development costs.
Previous wording
At December 31, 2023, our warranty reserve was $37.4 million, reflecting an accrual of 0.1% to 0.5% of a home’s sale price depending on our loss history in the geographic area in which the home was built. A 10% increase in our warranty reserve rate would have increased our accrual and corresponding cost of sales by approximately $2.3 million in 2023. There were no adjustments to our reserve balance during the year ended December 31, 2023. As a result of the routine review described previously, we increased our reserve balance $10.9 million related to specific cases during the year ended December 31, 2022. See Notes 1 and 16 in the accompanying consolidated financial statements for more information. While we believe that the warranty reserve is sufficient to cover our projected costs, there can be no assurances that historical data and trends will accurately predict our actual warranty costs. Furthermore, there can be no assurances that future economic, financial or legislative developments might not lead to a significant change in the reserve.
Current wording
At December 31, 2024, our warranty reserve was $32.7 million, reflecting an accrual of 0.1% to 0.5% of a home’s sale price depending on our loss history in the geographic area in which the home was built. A 10% increase in our warranty reserve rate would have increased our accrual and corresponding cost of home closings by approximately $2.2 million in 2024. As a result of the routine review described previously, we decreased our reserve balance by $1.0 million related to specific case reserves during the year ended December 31, 2024. There were no adjustments to our reserve balance during the year ended December 31, 2023. See Notes 1 and 16 in the accompanying consolidated financial statements for more information. While we believe that the warranty reserve is sufficient to cover our projected costs, there can be no assurances that historical data and trends will accurately predict our actual warranty costs. Furthermore, there can be no assurances that future economic, financial or legislative developments might not lead to a significant change in the reserve.
Previous wording
Companywide. Home closing revenue was $6.1 billion on 13,976 units in 2023, compared to $6.2 billion on 14,106 units in 2022, driven by reduced home closing volume of 0.9% and a 1.5% lower ASP on closings. The lower ASP on closings was caused by higher incentives, primarily in the form of financing incentives. Order value increased 8.0% to $5.7 billion from $5.3 billion, as improved demand led to a 12.2% higher order volume that was partially offset by a 3.7% decrease in ASP on orders. Order volume of 13,193 units for the year ended December 31, 2023 rose from 11,759 in 2022 primarily due to an 11.1% increase in orders pace of 4.0 homes per month on an essentially flat average active community count. The cancellation rate of 12.8% returned to more normalized levels from the elevated rate of 21.0% in 2022. We ended the year with 2,549 homes in backlog valued at $1.1 billion, compared to 3,332 homes in backlog valued at $1.5 billion, down 23.5% and 28.6%, respectively, compared to 2022. The number of homes in backlog decreased year over year due to reduced cycle times, allowing us to close homes more quickly.
Current wording
Companywide. We achieved record home closing volume of 15,611 units in 2024, compared to 13,976 units in 2023. Home closing revenue of $6.3 billion for the year ended December 31, 2024 increased 4.7% from $6.1 billion in the prior period, as the 11.7% higher home closing volume was partially offset by a 6.3% lower ASP on closings. The lower ASP on closings was caused by higher utilization of financing incentives and a shift in geographic and product mix. Entry-level homes represented 91% of closings in 2024, compared to 85% in 2023. We also achieved record orders in 2024, with 14,606 orders increasing 10.7% from 13,193 in 2024. The improvement in order volume was driven primarily by a 7.5% increase in orders pace of 4.3 homes per month combined with a 1.4% increase in average active community count. Higher order volume offset by a 5.3% decrease in ASP on orders led to a 4.8% increase in home order value of $6.0 billion for the year ended December 31, 2024, compared to $5.7 billion in the prior year period. The cancellation rate of 9.4% in 2024 improved from 12.8% in 2023 and is below historical normal levels, partially due to our move-in ready strategy which shortens the period between sale and closing. We ended the year with 1,544 homes in backlog valued at $629.5 million, compared to 2,549 homes in backlog valued at $1.1 billion, decreases of 39.4% and 42.1%, respectively, compared to 2023. The number of homes in backlog decreased year over year due to our higher backlog conversion rates throughout 2024. As anticipated with our strategy of offering move-in ready homes, we are selling a higher percentage of spec homes later in the construction cycle, contributing to the higher backlog conversion rates in all of our regions.
Previous wording
West. The West Region generated $2.1 billion in home closing revenue for the year ended December 31, 2023, a 4.3% decrease from $2.2 billion in the prior year, due entirely to a 4.7% decrease in ASP on closings as a result of increased financing incentives. Order value of $2.0 billion in 2023 increased 19.7% from $1.7 billion in 2022, as a 28.6% increase in order volume for the year ended December 31, 2023 to 3,983 homes from 3,098 in 2022 was offset by a 6.9% decrease in ASP on orders. The West Region had the greatest year over year improvement in home orders in the Company, as price adjustments and increased financing incentives combined with improved consumer confidence boosted demand and helped to overcome the buyer hesitancy that impacted the Region in 2022, particularly in the latter half. The improved demand is also evidenced by the West Region's improved cancellation rate of 14.2% in 2023, compared to 25.7% in 2022, which contributed to a 32.1% increase in year-over-year orders pace per community to 3.7 homes per month compared to 2.8 per month in 2022, more than offsetting the 2.6% decrease in average actively selling communities. Backlog of 746 homes valued at $379.8 million at December 31, 2023 was down 14.4% and 17.4%, respectively, from 872 homes valued at $459.9 million at December 31, 2022.
Current wording
West. The West Region generated $2.2 billion in home closing revenue for the year ended December 31, 2024, a 5.5% increase from $2.1 billion in the prior year, due to a 10.1% increase in home closing volume that was partially offset by a 4.2% decrease in ASP on closings as a result of geographic mix within the region, product shift mix to more entry-level homes, and increased utilization of financing incentives. Order value of $2.1 billion in 2024 was relatively consistent with prior year, as a 5.8% increase in order volume for the year ended December 31, 2024 to 4,215 homes from 3,983 in 2023 was offset by a 3.7% decrease in ASP on orders. Order volume increased due to a 13.5% higher orders pace per community to 4.2 homes per month compared to 3.7 per month in 2023, more than offsetting the 6.0% decrease in average actively selling communities. The West Region's cancellation rate of 9.4% improved significantly from 14.2% in 2023. Backlog of 435 homes valued at $214.4 million at December 31, 2024 was down 41.7% and 43.6%, respectively, from 746 homes valued at $379.8 million at December 31, 2023.
Previous wording
Central. The Central Region, made up of our Texas markets, closed 4,486 homes and generated home closing revenue of $1.8 billion for the year ended December 31, 2023 compared to 4,556 homes and $1.8 billion in 2022. The 1.5% decrease in closing units led to a 2.0% decrease in home closing revenue as ASP on closings was relatively flat year over year. Similar to the West Region, the Central Region also had year over year increases in both order volume and value of 17.9% and 11.8%, respectively, with a 5.1% decrease in ASP on orders partially offsetting the higher order volume. Orders during the year ended December 31, 2023 of 4,291 valued at $1.7 billion, compared to 3,641 homes valued at $1.5 billion in the prior year. The increase in order volume was due to an 8.4% increase in average actively selling communities coupled with a 7.5% higher orders pace resulting from the stabilization of demand. The Central Region exceeded our target orders pace of 3-4 homes per month, with 4.3 homes per month for the full year 2023 compared to 4.0 in 2022. The Central Region cancellation rate of 13.6% in 2023 improved significantly from 25.1% in the prior year. The Central Region ended the year with 768 homes in backlog valued at $289.4 million, compared to 963 homes valued at $425.4 million in 2022, reflecting a 14.7% decrease in ASP. The lower backlog units is due to improved cycle times.
Current wording
Central. The Central Region, made up of our Texas markets, closed 4,834 homes and generated home closing revenue of $1.7 billion for the year ended December 31, 2024 compared to 4,486 homes and $1.8 billion in 2023. The 7.8% increase in home closing volume was fully offset by a 10.2% decrease in ASP on closings, which led to the 3.3% lower home closing revenue. ASP on closings decreased due to product shift mix to more entry-level homes and higher incentives. The Central Region order volume of 4,508 increased 5.1% from 4,291, while order value decreased 3.1% to $1.6 billion compared to $1.7 billion in 2023 due to a 7.7% decrease in ASP on orders. The increase in order volume was due to an 11.6% higher orders pace of 4.8 homes per month in 2024, as average actively selling communities decreased 4.8% year over year. The Central Region cancellation rate of 10.3% in 2024 was down from 13.6% in 2023. The Central Region ended the year with 442 homes in backlog valued at $159.5 million, compared to 768 homes in backlog valued at $289.4 million in 2023.
Previous wording
East. The East Region closed 5,381 homes in the year ended December 31, 2023, down 1.4% from 5,458 homes in 2022, generating $2.2 billion in home closing revenue. Lower home closing volume led to a 0.9% decrease in home closing revenue, as ASP on closings was relatively flat year over year. Order pace of 4.0 homes per month in 2023 improved slightly from 3.9 homes per month in 2022, and offset the 2.6% decrease in average active communities. The East Region was least impacted by the difficult market conditions in late 2022, and therefore did not have the same outsized year over year improvements in 2023 in home orders activity as the West and Central Regions. Order volume of 4,919 homes decreased 2.0% from 5,020 homes, combined with a 2.6% decrease in ASP on orders for a 4.5% decrease in home order value of $2.0 billion for the year ended December 31, 2023, compared to $2.0 billion in 2022. The East Region ended 2023 with 1,035 homes in backlog valued at $419.0 million, down 30.9% and 34.5%, respectively, from 1,497 homes valued at $639.5 million, due to lower orders volume and cycle time improvements.
Current wording
East. The East Region had strong growth in 2024, closing 6,251 homes in the year ended December 31, 2024, up 16.2% from 5,381 homes in 2023, and generating 10.6% higher home closing revenue of $2.4 billion with the higher home closing volume partially offset by 4.8% decrease in ASP on closings. ASP on closings decreased due to product mix shift to more entry-level homes and higher utilization of financing incentives. Order volume of 5,883 homes increased 19.6% from 4,919 homes, combined with a 4.0% decrease in ASP on orders for a 14.8% increase in home order value of $2.2 billion for the year ended December 31, 2024, compared to $2.0 billion in 2023. Order pace of 4.2 homes per month in 2024 improved from 4.0 homes per month in 2023, and the East Region grew its average active community count by 13.0%. The East Region ended 2024 with 667 homes in backlog valued at $255.6 million, down 35.6% and 39.0%, respectively, from 1,035 homes in backlog valued at $419.0 million in 2023.
Previous wording
Land Closing Revenue and Gross Profit/(Loss)
Current wording
Land Closing Revenue and Gross Profit (dollars in thousands)
Previous wording
From time to time, we may sell certain lots or land parcels to other homebuilders, developers or investors if we feel the sale will provide a greater economic benefit to us than continuing home construction or where we are looking to diversify our land positions in a specific geography or divest of assets that no longer align with our strategy. As a result of such sales, we recognized land closing revenue and gross profit of $56.2 million and $4.4 million, respectively, for the year ending December 31, 2023, and $61.2 million and $11.6 million, respectively, for the year ending December 31, 2022.
Current wording
From time to time, we may sell certain lots or land parcels to other homebuilders, developers or investors if we feel the sale will provide a greater economic benefit to us than continuing home construction or where we are looking to diversify our land positions in a specific geography or divest of assets that no longer align with our strategy. Land sales occur at various intervals and varying degrees of profitability depending upon market opportunities and our land management strategy. Therefore, the revenue and gross profit from land closings will fluctuate from period to period.
Previous wording
Central. The Central Region home closing gross margin of 26.8% for the declined 220 basis points year-over-year from 29.0% in the prior year, primarily due to increased financing incentives combined with higher land costs and direct construction costs.
Current wording
Central. The Central Region home closing gross margin of 26.2% declined 60 basis points year-over-year from 26.8% in the prior year, primarily due to increased financing incentives combined with higher lot costs, which were partially offset by lower direct construction costs and savings resulting from shorter construction cycle times.
Previous wording
Financial services profit. Financial services profit represents the net profit of our financial services operations, including the operating profit generated by our wholly-owned title and insurance companies, Carefree Title and Meritage Insurance, respectively, as well as our portion of earnings from a mortgage joint venture. Financial services profit of $12.5 million for the year ended December 31, 2023 decreased from $18.3 million in the prior year, primarily from $9.9 million in charges related to unused prepaid interest rate locks that expired. These charges were partially offset by increased profits from our insurance operations due to higher premiums.
Current wording
Financial services profit. Financial services profit represents the net profit of our financial services operations, including the operating profit generated by our wholly-owned title and insurance companies, Carefree Title and Meritage Insurance, respectively, as well as our portion of earnings from a mortgage joint venture. Financial services profit of $14.4 million for the year ended December 31, 2024 increased from $12.5 million in the prior year, as higher home closing volume generated greater title and insurance company profits.
Previous wording
Commissions and Other Sales Costs. Commissions and other sales costs are comprised of internal and external commissions and related sales and marketing expenses such as advertising and sales office costs. These costs increased $61.6 million, or 19.1% year over year. The higher spend in 2023 is primarily attributable to increased commission rates, higher external broker participation rates and increased advertising activities, all reflective of the more challenging sales environment. As a percentage of home closing revenue, commissions and other sales costs increased 120 basis points to 6.4% in 2023 compared to 5.2%, primarily due to higher commissions paid to external brokers.
Current wording
Commissions and Other Sales Costs. Commissions and other sales costs are comprised of internal and external commissions and related sales and marketing expenses such as advertising and sales office costs. These costs increased $24.2 million due to higher home closing volume and revenue, but as a percentage of home closing revenue, commissions and other sales costs of 6.5% were relatively flat with 6.4% in 2023.
Previous wording
General and Administrative Expenses. General and administrative expenses represent corporate and divisional overhead expenses such as salaries and bonuses, occupancy, insurance and travel expenses. For the year ended December 31, 2023, general and administrative expenses increased $38.7 million, or 20.1%. General and administrative expenses were 3.8% of home closing revenue in 2023, a 70 basis point increase from 3.1% in 2022. The increase in dollars and as a percentage of home closing revenue is due to higher performance-based compensation costs, including staff for our new and growing market operations, higher insurance costs, increased investment in technology and reduced overhead expense leverage from lower home closing revenue.
Current wording
General and Administrative Expenses. General and administrative expenses represent corporate and divisional overhead expenses such as salaries and bonuses, occupancy, insurance and travel expenses. For the year ended December 31, 2024, general and administrative expenses were $230.9 million compared to $231.7 million for the prior year period. General and administrative expenses were 3.6% of home closing revenue in 2024, a 20 basis point improvement from 3.8% in 2023. The improvement as a percentage of home closing revenue is due to leverage of higher home closing revenue on fixed overhead expenses and lower performance-based compensation.
Previous wording
Interest Expense. Interest expense is comprised of interest incurred, but not capitalized, on our senior notes, other borrowings and our Credit Facility. We had no interest expense for the year ended December 31, 2023, and had interest expense of $41,000 for the year ended December 31, 2022.
Current wording
Interest Expense. Interest expense is comprised of interest incurred, but not capitalized, on our senior and convertible senior notes, other borrowings and our $910.0 million amended and restated unsecured revolving credit facility agreement (the "Credit Facility"). We had no interest expense for the years ended December 31, 2024 and 2023.
Previous wording
Other Income, Net. Other income, net primarily consists of (i) interest earned on our cash and cash equivalents, (ii) sub lease income, (iii) payments and awards related to legal settlements, and (iv) our portion of pre-tax income or loss from non-financial services joint ventures. Other income, net of $47.9 million in 2023 increased from $2.7 million in 2022 due to higher interest earned on larger cash and cash equivalents balances.
Current wording
Other Income, Net. Other income, net primarily consists of (i) interest earned on our cash and cash equivalents, (ii) sub lease income, (iii) payments and awards related to legal settlements, and (iv) our portion of pre-tax income or loss from non-financial services joint ventures. Other income, net was $45.2 million and $47.9 million in 2024 and 2023, respectively.
Previous wording
Loss on Early Extinguishment of Debt. Loss on early extinguishment of debt of $0.9 million for the year ended December 31, 2023 is related to the $150.0 million partial redemption of our 2025 Notes. There were no similar charges for the year ended December 31, 2022. See Note 7 in the accompanying consolidated financial statements for more information related to the partial redemption of our 2025 Notes.
Current wording
Loss on Early Extinguishment of Debt. Loss on early extinguishment of debt of $0.6 million for the year ended December 31, 2024 is related to the $250.0 million full redemption of our remaining 2025 Notes. Loss on early extinguishment of debt of $0.9 million for the year ended December 31, 2023 is related to the $150.0 million partial redemption of our 2025 Notes. See Note 7 in the accompanying consolidated financial statements for more information related to the redemption of our 2025 Notes.
Previous wording
Income Taxes. The effective tax rate was 22.2% and 23.0% for 2023 and 2022, respectively. The effective tax rate in both years reflects the energy-efficient homes tax credits on qualifying homes under the Inflation Reduction Act of 2022 (the "IRA"). The lower rate for 2023 reflects the increased per-home energy-efficiency credit amount starting in 2023.
Current wording
Income Taxes. The effective tax rate was 21.6% and 22.2% for 2024 and 2023, respectively. The effective tax rate in both years reflects the energy-efficient homes tax credits on qualifying homes under the Inflation Reduction Act of 2022 (the "IRA").
Previous wording
We have historically generated cash and funded our operations primarily from cash flows from operating activities. Additional sources of funds may include additional debt or equity financing and borrowing capacity under our Credit Facility. We exercise strict controls and believe we have a prudent strategy for Company-wide cash management, including those related to cash outlays for land acquisition and development and spec home construction. Our principal uses of cash include acquisition and development of land and lots, home construction, operating expenses, share repurchases and the payment of interest, routine liabilities, and dividends. We also opportunistically repurchase our senior notes, as we did this year with a $150.0 million partial redemption of our 2025 Notes.
Current wording
We have historically generated cash and funded our operations primarily from cash flows from operating activities. Additional sources of funds may include additional debt or equity financing and borrowing capacity under our Credit Facility. We exercise strict controls and believe we have a prudent strategy for Company-wide cash management, including those related to cash outlays for land acquisition and development and spec home construction. Our principal uses of cash include acquisition and development of land and lots, home construction, operating expenses, share repurchases and the payment of interest, routine liabilities, and dividends. We also opportunistically repurchase or redeem our senior notes, as we did this year with the $250.0 million early redemption of our 2025 Notes.
Previous wording
Over the course of the next twelve months, we expect that our primary demand for funds will be for the construction of homes, as well as acquisition and development of both new and existing lots, operating expenses, including general and administrative expenses, interest and dividend payments and common stock repurchases. In addition, we may opportunistically retire or redeem a portion of our senior notes. We expect to meet these short-term liquidity requirements primarily through our cash and cash equivalents on hand and the net cash flows provided by our operations.
Current wording
Over the course of the next twelve months, we expect that our primary demand for funds will be for the construction of homes, as well as acquisition and development of both new and existing lots, operating expenses, including general and administrative expenses, interest and dividend payments and common stock repurchases. Although we don't anticipate any early redemptions in the near term, we may opportunistically repurchase or redeem a portion of our senior notes. We expect to meet these short-term liquidity requirements primarily through our cash and cash equivalents on hand and the net cash flows provided by our operations.
Previous wording
Between our cash and cash equivalents on hand combined with the availability of liquidity from our Credit Facility, we believe that we currently have sufficient liquidity. Nevertheless, we may seek additional capital to strengthen our liquidity position, enable us to acquire additional land inventory in anticipation of improving market conditions, and/or strengthen our long-term capital structure.
Current wording
Between our cash and cash equivalents on hand combined with the availability of liquidity from our Credit Facility, we believe that we currently have sufficient liquidity. Nevertheless, in the future, we may seek additional capital to strengthen our liquidity position, enable us to acquire additional land inventory in anticipation of improving market conditions, and/or strengthen our long-term capital structure.
Previous wording
Beyond the next twelve months, our principal demands for funds will be for the construction of homes, land acquisition and development activities needed to maintain our lot supply and active community count, payments of principal and interest on our senior notes as they become due or mature, common stock repurchases and payments of dividends. We expect our existing and future generated cash will be adequate to fund our ongoing operating activities as well as provide capital for investment in future land purchases and related development activities. To the extent the sources of capital described above are insufficient to meet our long-term cash needs, we may also conduct additional public offerings of our securities, refinance or secure new debt or dispose of certain assets to fund our operating activities. There can be no assurances that we would be able to obtain such additional capital on terms acceptable to us, if at all, and such additional equity or debt financing could dilute the interests of our existing stockholders or increase our interest costs.
Current wording
Beyond the next twelve months, our principal demands for funds will be for the construction of homes, land acquisition and development activities needed to maintain our lot supply and active community count, payments of principal and interest on our senior and convertible senior notes as they become due or mature, share repurchases and dividend payments. We expect our existing and future generated cash will be adequate to fund our ongoing operating activities as well as provide capital for investment in future land purchases and related development activities. To the extent the sources of capital described above are insufficient to meet our long-term cash needs, we may also conduct additional public offerings of our securities, refinance or secure new debt or dispose of certain assets to fund our operating activities. There can be no assurances that we would be able to obtain such additional capital on terms acceptable to us, if at all, and such additional equity or debt financing could dilute the interests of our existing stockholders or increase our interest costs.
Previous wording
We are a party to many contractual obligations involving commitments to make payments to third parties. These obligations impact both short-term and long-term liquidity and capital resource needs. Certain contractual obligations are reflected on our consolidated balance sheets as of December 31, 2023, while others are considered future commitments for materials or services not yet provided. Our contractual obligations primarily consist of principal and interest payments on our senior notes, loans payable and other borrowings, including our unsecured revolving credit facility, letters of credit and surety bonds and operating leases. We have no senior note maturities until 2025. We also have requirements for certain short-term lease commitments, funding working capital needs of our existing unconsolidated joint ventures, and other purchase obligations in the normal course of business. Other material cash requirements include land acquisition and development costs, home construction costs and operating expenses, including our commissions and other sales costs and our general and administrative expenses, as previously discussed. We plan to fund these commitments primarily with cash flows generated by operations, but may also utilize additional debt or equity financing and borrowing capacity under our Credit Facility. Our maximum exposure to loss on our purchase and option agreements is generally limited to non-refundable deposits and capitalized or committed pre-acquisition costs.
Current wording
We are a party to many contractual obligations involving commitments to make payments to third parties. These obligations impact both short-term and long-term liquidity and capital resource needs. Certain contractual obligations are reflected on our consolidated balance sheets as of December 31, 2024, while others are considered future commitments for materials or services not yet provided. Our contractual obligations primarily consist of principal and interest payments on our senior and convertible senior notes, loans payable and other borrowings, including our Credit Facility, letters of credit and surety bonds and operating leases. We have no material debt maturities until 2027. We also have requirements for certain short-term lease commitments, funding working capital needs of our existing unconsolidated joint ventures, and other purchase obligations in the normal course of business. Other material cash requirements include land acquisition and development costs, home construction costs and operating expenses, including our selling, general and administrative expenses, as previously discussed. We plan to fund these commitments primarily with cash flows generated by operations, but may also utilize additional debt or equity financing and borrowing capacity under our Credit Facility. Our maximum exposure to loss on our purchase and option agreements is generally limited to non-refundable deposits and capitalized or committed pre-acquisition costs.
Previous wording
For information about our lease obligations, loans payable and other borrowings, including our Credit Facility, and senior notes, reference is made to Notes 4, 6, and 7 in the accompanying Notes to the consolidated financial statements included in this Annual Report on Form 10-K and are incorporated by reference herein.
Current wording
For information about our lease obligations, loans payable and other borrowings, including our Credit Facility, and senior and convertible senior notes, reference is made to Notes 4, 6, and 7 in the accompanying Notes to the consolidated financial statements included in this Annual Report on Form 10-K and are incorporated by reference herein.
Previous wording
We do not engage in commodity trading or other similar activities. We had no derivative financial instruments at December 31, 2023 or 2022.
Current wording
We do not engage in commodity trading or other similar activities. We had no derivative financial instruments that required derivative accounting under ASC 815-10, Derivatives and Hedging, at December 31, 2024 or 2023.
Previous wording
During the years ended December 31, 2023 and 2022, net cash provided by operations totaled $355.6 million and $405.3 million, respectively. Generally, our operating cash flows fluctuate primarily based on changes in our net earnings, real estate inventory and, to a lesser extent, timing of payments of accounts payable and accrued liabilities.
Current wording
During the year ended December 31, 2024, net cash used by operations totaled $227.6 million, compared to net cash provided by operations of $355.6 million during the year ended December 31, 2023. Generally, our operating cash flows fluctuate primarily based on changes in our net earnings, real estate inventory and, to a lesser extent, timing of payments of accounts payable and accrued liabilities.
Previous wording
Operating cash flow results in 2023 primarily reflect $738.7 million in net earnings, and were offset by a $357.4 million increase in real estate and a $64.2 million increase in receivables, prepaids and other assets. The increase in real estate was due to increased land acquisition and development activities as well as construction activities on a greater number of homes under construction. The increase in other receivables, prepaids and other assets was largely due to receivables from municipalities for land development reimbursements and timing of receivables from title companies and closing agents. Operating cash flow results in 2022 reflect $992.2 million in net earnings which were offset by a $624.5 million increase in real estate and a $103.0 million increase in receivables, prepaids and other assets. The increase in real estate was due to construction of homes as well as land acquisition and development activities. The increase in other receivables, prepaids and other assets was largely due to receivables from municipalities for land development reimbursements and the purchase of fixed rate interest locks.
Current wording
Operating cash flow results in 2024 primarily reflect $786.2 million in Net earnings, and were offset by a $979.3 million increase in Real estate and an $81.4 million increase in Deposits on real estate under option or contract. The increases in Real estate and Deposits on real estate under option or contract were due to increased land acquisition and development activities as well as construction activities on a greater number of homes under construction. Operating cash flow results in 2023 primarily reflect $738.7 million in Net earnings, and were offset by a $357.4 million increase in Real estate and a $64.2 million increase in Receivables, prepaids and other assets. The increase in Real estate was due to increased land acquisition and development activities as well as construction activities on a greater number of homes under construction. The increase in Receivables, prepaids and other assets was largely due to receivables from municipalities for land development reimbursements and timing of receivables from title companies and closing agents.
Previous wording
During the years ended December 31, 2023 and 2022, net cash used in investing activities totaled $43.6 million $32.3 million, respectively. Cash used in investing activities in both periods is mainly attributable to the purchases of property, plant and equipment totaling $38.2 million and $27.0 million, respectively.
Current wording
During the years ended December 31, 2024 and 2023, net cash used in investing activities totaled $44.1 million and $43.6 million, respectively. Cash used in investing activities in 2024 was mainly attributable to purchases of property and equipment of $28.7 million and investments in unconsolidated entities of $18.5 million. Cash used in investing activities in 2023 was mainly attributable to purchases of property and equipment of $38.2 million.
Previous wording
During the years ended December 31, 2023 and 2022, net cash used in financing activities totaled $252.3 million and $129.8 million, respectively. The net cash used in financing activities in 2023 includes $150.0 million for the partial redemption of our 2025 Notes and associated early tender fees of $0.9 million, $59.1 million in share repurchases and $39.5 million of dividends paid. The net cash used in financing activities in 2022 primarily reflects $109.3 million in share repurchases. See Part II, Item 5 - "Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities" for more information about our authorized share repurchase program.
Current wording
During the year ended December 31, 2024, net cash provided by financing activities totaled $2.0 million, as compared to net cash used in financing activities of $252.3 million during the year ended December 31, 2023. The net cash provided by financing activities in 2024 primarily reflects the net proceeds of $557.9 million from the issuance of our 1.750% Convertible Senior Notes due 2028 (the "2028 Convertible Notes"), offset by the early redemption of our remaining 2025 Notes of $250.0 million aggregate principal and $61.8 million for the purchase of capped calls relating to the 2028 Convertible Notes, along with $125.9 million of share repurchases and $108.6 million of dividends paid. The net cash used in financing activities in 2023 includes $150.0 million for the partial redemption of our 2025 Notes and associated early tender fees of $0.9 million, $59.1 million in share repurchases and $39.5 million of dividends paid. See Part II, Item 5 - "Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities" for more information about our authorized share repurchase program.
Showing the first 40 of 43 pairs. Open the source sections for the rest.