What changed in this filing

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Item 1. Business

2022-02-16 compared with 2021-02-12 · 128 added, 115 removed, 269 unchanged (47% of the section changed)

Meritage Homes Corporation ("Meritage Homes") is a leading designer and builder of single-family homes.

We primarily build in historically high-growth regions of the United States and offer a variety of homes that are designed for the first-time and first move-up buyers.

We primarily build in historically high-growth regions of the United States and offer a variety of entry-level and first move-up homes.

We have homebuilding operations in three regions:

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Managing our own title operations allows us greater control over the entire escrow and closing cycles in addition to generating additional revenue.

Beginning in the fourth quarter of 2019, we commenced operations of a wholly-owned insurance broker, Meritage Homes Insurance Agency (“Meritage Insurance”).

Meritage Insurance works in collaboration with insurance companies nationwide to offer homeowners' insurance and other various insurance products to our homebuyers.

Our financial services operations also provide mortgage loans to our homebuyers indirectly through an unconsolidated joint venture.

Meritage Homes Insurance Agency, Inc.

(“Meritage Insurance”), our wholly-owned insurance broker, works in collaboration with insurance companies nationwide to offer homeowners insurance and other insurance products to our homebuyers.

Our financial services operations also provide mortgage services to our homebuyers through an unconsolidated joint venture.

Our homebuilding activities are conducted under the name of Meritage Homes in each of our homebuilding markets.

At December 31, 2021, we were actively selling homes in 259 communities, with base prices ranging from approximately $214,000 to $962,000.

Our average sales price on both home closings and orders was approximately $377,000 for the year ended December 31, 2020.

Our average sales price on both home closings and orders was approximately $398,000 and $420,000, respectively, for the year ended December 31, 2021.

Available Information;

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Meritage Homes Corporation was incorporated in the state of Maryland in 1988 under the name of Homeplex Mortgage Investments Corporation and merged with Monterey Homes in 1996, at which time our name was changed to Monterey Homes Corporation and later ultimately to Meritage Homes Corporation.

Since that time, we have engaged in homebuilding and related activities and ceased to operate as a real estate investment trust.

Since that time, we have engaged in homebuilding and related activities.

Meritage Homes Corporation operates as a holding company and has no independent assets or operations.

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Our periodic and current reports, including any amendments, filed or furnished pursuant to section 13(a) or 15(d) of the Securities Exchange Act of 1934 (the “Exchange Act”) are available, free of charge, on our website as soon as reasonably practicable after they are electronically filed with or furnished to the Securities and Exchange Commission (“SEC”).

Meritage operates within a comprehensive plan of corporate governance for the purpose of defining responsibilities and setting high standards for ethical conduct.

Meritage Homes operates within a comprehensive plan of corporate governance for the purpose of defining responsibilities and setting high standards for ethical conduct.

Our Board of Directors has established an audit committee, executive compensation committee, nominating/governance committee, environmental, social and sustainability committee and land committee.

The charters for each of these committees are available on our website, along with our Code of Ethics, Corporate Governance Principles and Practices, Conflict of Interest Policy and Securities Trading Policy.

All of our employees, officers and directors, are required to comply with our Code of Ethics and to immediately report through the appropriate channels, any known instances of non-compliance.

Our committee charters, Code of Ethics, Corporate Governance Principles and Practices, Conflict of Interest Policy and Securities Trading Policy are also available in print, free of charge, to any stockholder who requests any of them by calling us or by writing to us at our principal executive offices at the following address:

Our committee charters, Code of Ethics, Corporate Governance Principles and Practices, Conflict of Interest Policy, Securities Trading Policy and Human Rights Policy are also available in print, free of charge, to any stockholder who requests any of them by calling us or by writing to us at our principal executive offices at the following address:

Meritage Homes Corporation, 8800 East Raintree Drive, Suite 300, Scottsdale, Arizona 85260, Attention:

General Counsel.

Our telephone number is (480) 515-8100.

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• Lead with action, be relentless in our pursuit of excellence and never settle;

• Commitment to drive diversity, equity, and inclusion throughout our organization and industry by partnering with organizations that support and promote diversity and by providing an inclusive environment by applying such standards in our everyday hiring, promotion and operational activities;

• Create an inclusive and positive culture focused on cultivating an environment where every team member can be highly engaged in embracing opportunities to develop and grow in their careers.

These core values are evident in the operational decisions we make in each of our divisions and communities, all of which contribute to the successes we have achieved with our customers, within the marketplace and within the homebuilding industry.

Over the last several years we made a strategic shift in our business, focusing on the growing demand for entry-level and first move-up homes.

• Commitment to building an inclusive culture by fostering diversity and equity across our organization.

We believe that cultivating a diverse team allows us to collectively be more successful and better address the needs of our customers.

We champion a culture where team members are treated with respect, valued for their unique perspectives and experiences, and feel a sense of belonging.

These core values are evident in the operational decisions we make at our corporate offices and in each of our divisions and communities, all of which contribute to the successes we have achieved with our customers, within the marketplace and within the homebuilding industry.

Our operational strategy focuses on building affordable, quick move-in homes that are designed to meet the growing demand for entry-level and first move-up homes.

Our LiVE.NOW® communities are targeted to the entry-level price point combining nicely appointed affordable homes with a simplified and streamlined construction and sales processes aimed to create a stress-free buying experience for our customers while also allowing our trade partners and suppliers to work more efficiently and cost effectively, which allows us to pass resulting savings on to our customers.

Our strategy shift also encompassed a simplification of the home buying process for the first-time move-up segment, a demographic we have historically had a significant presence in.

For our first-time move-up product, our design center called "Studio M" provides an experience that simplifies the sale and design center processes and provides an efficient and less stressful way for homebuyers to personalize their new homes through design center collections versus the traditional a-la-carte design center offerings.

We strive to achieve a 100% speculative ("spec") home building strategy for our entry-level product by maintaining reduced SKU counts and plan libraries.

In the current market of rising interest rates, supply chain disruptions and labor shortages, this strategy also provides us a competitive advantage by allowing our customers to lock their mortgage rate and avoid rate lock expirations in addition to providing predictability of volume and timing for our trade partners.

Our strategy also encompasses a simplification of the home buying process for the first-time move-up segment, a demographic we have historically had a significant presence in.

For our first-time move-up product, our design center called Studio M™ provides an experience that simplifies the sale and design center processes, providing an efficient and less stressful way for homebuyers to personalize their new homes through design center collections versus the traditional a-la-carte design center offerings.

We believe our strategy addresses the need for well-appointed yet lower-priced homes, while allowing us to simplify and maximize the profitability of our business.

We continue to focus on innovation in every new home we build, employing industry-leading building techniques and technologies aimed at setting the standard for energy-efficient homebuilding.

Accordingly, at a minimum, every new home we construct meets ENERGY STAR ® standards, with many of our communities greatly surpassing those levels, offering our customers homes that utilize, on average, half of the energy of a typical U.S.

Accordingly, at a minimum, every new home we construct meets or exceeds ENERGY STAR ® standards and comes standard with the MERV-13 air filter, one of the most advanced air filtration systems offered today for residential construction.

In 2021, we introduced a multispeed heating, ventilation and air conditioning ("HVAC") system as a standard feature in newly-constructed homes.

The system is designed to operate more efficiently than traditional HVAC, allowing owners to better manage the comfort of their home while reducing their environmental impact and operating costs.

These standard offerings provide our customers with homes that utilize, on average, half of the energy of a typical U.S.

home of the same size.

In 2020, we introduced MERV-13 air filters in our homes, one of the most advanced air filtration systems offered today for residential construction, which controls and improves air exchange within the home.

As a result of our commitment to interior air quality with these new filters, we now carry the Environmental Protection Agency’s Indoor airPLUS certification.

Our commitment to incorporate

these energy and healthy living standards into all of our homes has resulted in our achievement of design, purchasing and production efficiencies that have allowed us to offer these as standard features to our home buyers for nominal additional cost while providing significant additional value to our customers.

In addition, all homes we build include home automation features through our M.Connected Home Automation Suite ® .

This technology includes features that allow homeowners to monitor and control key components of their homes, such as Wi-Fi enabled thermostats, garage doors and smart door locks.

As a result of our commitment to interior air quality, we carry the U.S.

Environmental Protection Agency’s ("EPA") Indoor airPLUS certification.

Our commitment to incorporate these energy and healthy living standards into all of our homes has resulted in our achievement of design, purchasing and production efficiencies that have allowed us to offer these as standard features to our home buyers for nominal additional cost while providing significant additional value to our customers.

In addition, all homes we build include home automation features through our M.Connected Home™ Automation Suite which includes the Honeywell Home Pro Series Hub that allows users to monitor and control key components of their homes, such as Wi-Fi enabled thermostats, garage doors and smart door locks.

Year after year, the homes we design and build help deliver energy savings to our homeowners.

As a result, we have earned various national and regional awards, including:

• 2021 ENERGY STAR ® Partner of the Year for Sustained Excellence for the eighth year awarded by the EPA;

• 2021 Indoor airPLUS Leader Award;

• 2013 - 2020 ENERGY STAR ® Leadership in Housing;

• 2013 - 2019 ENERGY STAR ® Partner of the Year for Sustained Excellence, awarded by the U.S.

Environmental Protection Agency;

• 2020 Builder of the Year for Green Home Builder;

• Various AVID Diamond, Gold and Benchmark awards across multiple categories and divisions.

• Various AVID Diamond, Gold and Benchmark customer service awards across multiple categories and divisions.

We believe responsible corporate governance and social responsibility is important for the long-term sustainability of the business.

We are committed to sustainability through the homes we build, the communities in which we live and work, and the ways we conduct ourselves every day.

We provide information regarding these topics on our website and within publicly filed reports, including our Corporate Sustainability Report which is located within the Investor Relations area of our website.

We take pride in being an organization driven by ethics and living by our core values and our promise to deliver a

Life.Built.Better.® We promote the long-term interests of stakeholders and customers and focus on the transparency and accountability of Meritage’s Board of Directors, executive management, our employees and trade partners.

We provide information regarding these topics on our website and within publicly filed reports, including our environmental, social, and governance (“ESG”) report which is located within the Investor Relations area of our website.

We currently build and sell homes in the following markets:

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South Florida 2016

Myrtle Beach, SC 2021

Recent Industry and Company Developments

The housing market was exceptionally strong in 2020 despite a short pause in March and April due to COVID-19-related shutdowns.

Post COVID-19, demand was driven by favorable market factors including historically-low mortgage interest rates, a limited supply of existing homes and an increased demand for healthier, safer homes.

We believe the strengthening demand experienced throughout the year reflects the sustained positive macroeconomic factors in the economy allowing more people to own their own homes.

We believe demand for affordable new homes will at least keep pace with demand for other home offerings for the short to mid-term.

Accordingly, homebuilders with attractive, lower price-point product in desirable locations with inventory available for quick move-in should be poised to capture this demand for nicely appointed but affordable homes.

Over the last couple of years, we have executed a strategy to address the demand for more affordable homes by acquiring and developing communities and designing homes that can be delivered at a lower cost.

The housing market was exceptionally strong in 2021 as the high demand that we experienced in 2020 continued, driven by favorable market factors including low mortgage interest rates, record low supply of existing homes and persistent demand, particularly from the millennial and baby boomer generations who are experiencing increased levels of household savings alongside life events that align with home ownership.

We believe that the elevated demand created by these underlying economic and demographic factors will continue in the near to mid-term but will taper to a normalized pace over time.

We believe our strategy for providing affordable new homes in desirable locations with inventory available for quick move-in is well positioned to address these buyer concerns.

During 2021, supply chain constraints and labor shortages caused by COVID-19 and other economic-related disruptions impacted our production and the homebuilding industry as a whole.

Through long cultivated relationships with our national and local partners, we were able to navigate the limitations and expect to continue to utilize our spec-heavy, limited SKU operating model to manage the supply chain concerns that are expected to continue for at least the next several quarters.

We have been successfully executing on our strategy to address the demand for more affordable homes by acquiring and developing communities and designing homes that can be delivered at a lower cost.

We are achieving our goal by simplifying our product and construction processes, switching to an all spec home sales program for our entry-level communities, which allow buyers to move in quicker, and by enhancing and making the entire home buying experience easier for our customers.

We are confident in our strategy and continue to demonstrate our commitment to first-time and first move-up buyers through our land acquisitions, our Studio M streamlined option and upgrade offerings for our move-up product, and our focus on delivering affordable homes through simplification of the design, development and construction processes.

We also remain committed to our key financial goals such as home closing gross margin improvement and controlling selling, and general and administrative costs, both of which are benefiting from our strategic product switch and simplification initiatives.

We are now fully operational with these strategies, which will enable us to continuously improve profitability and turn our focus to expanding our market share as we pursue long-term community count growth.

Approximately 94% of our active communities are targeted to first-time and first move-up buyers and who collectively represented approximately 95% of our orders in 2020.

We had a 42.7% increase in orders in 2020, translating to a 27.7% higher closing volume than in 2019 thanks in large part to our shortened construction and sale to close timeline for our entry-level and first move-up product.

Home closing revenues grew 23.9% for the year ended December 31, 2020 despite a decline in average sales prices compared to the prior year.

Home closing gross margin improved by 310 basis points to 22.0% in 2020 compared to 18.9% in 2019.

We are confident in our strategy and continue to demonstrate our commitment to first-time and first move-up buyers through our land acquisitions, our Studio M™ streamlined option and upgrade offerings for our first move-up product, and our focus on delivering affordable homes through simplification of the design, development and construction processes.

We also remain committed to our key financial goals such as higher home closing revenue, home closing gross margin improvement and sustainability, controlling selling, and general and administrative costs, and maintaining sufficient liquidity.

Our strategic product switch and simplification initiatives have enabled us to deliver on these goals and we believe will continue to provide improved profitability while also preserving liquidity.

Our current focus is on expanding our market share as we pursue long-term community count growth.

Nearly our entire portfolio of active communities are targeted to first-time and first move-up buyers and who collectively represented approximately 98% of our orders and 97% of our closings in 2021.

We had an 11% increase in Average Sales Price ("ASP") on orders in 2021, translating to a 12% higher order value than in 2020 as we experienced pricing power due to the strong market demand with limited housing supply.

Home closing revenue grew 14% for the year ended December 31, 2021, the result of an 8% increase in home closing volume and a 6% increase in

ASP on closings.

Home closing gross margin improved by 580 basis points to our highest full-year home closing margin in Company history of 27.8% in 2021, compared to 22.0% in 2020.

Our 2021 net earnings increased by 74% with a 75% increase in diluted EPS compared to prior year.

We carefully manage our liquidity and balance sheet, particularly during times of limited economic visibility.

Our improved earnings are generating cash that is allowing us to reinvest in our business through acquiring and developing land while also repurchasing our common stock.

Throughout 2020, we repurchased 1,100,000 shares of our common stock and we ended the year with cash and cash equivalents totaling $745.6 million as compared to $319.5 million at December 31, 2019.

Our debt-to-capital ratio was 30.3% and our net debt-to-capital ratio was 10.5% at December 31, 2020, down from 34.0% and 26.2%, respectively, at December 31, 2019.

Our improved earnings are generating cash that is allowing us to reinvest in our business through acquiring and developing land, increasing the number of homes under construction as our community count grows and repurchasing our common stock.

Throughout 2021, we repurchased 639,346 shares of our common stock and we ended the year with cash and cash equivalents totaling $618.3 million as compared to $745.6 million at December 31, 2020, while growing our inventory 34% to $3.7 billion.

Our debt-to-capital ratio was 27.6% and our net debt-to-capital ratio was 15.1% at December 31, 2021, compared to 30.3% and 10.5%, respectively, at December 31, 2020.

Land Acquisition and Development

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We are aggressively securing new land positions to replace communities as they sell out and to expand our business and grow our footprint.

During the year ended December 31, 2020, we invested approximately $1.3 billion in land acquisition and development and secured more than 27,200 net new lots, a 60% increase as compared to approximately 17,000 new lots in 2019.

During the year ended December 31, 2021, we invested approximately $2.0 billion in land acquisition and development and secured nearly 34,000 net new lots, a 25% increase as compared to approximately 27,200 new lots in 2020.

We grew our lot supply with 75,049 lots under control at December 31, 2021 versus 55,502 in 2020.

We are currently focused on adding to our current lot positions and expanding our market share in our existing markets and their surrounding submarkets while also exploring opportunities outside of our existing markets, when available, with a target of 300 actively selling communities by mid-2022.

As of December 31, 2021 we have a 5.9 year supply of lots, based on 2021 closings.

We continually evaluate our markets, monitoring and adjusting our lot supply through lot and land acquisitions to ensure we have a sufficient pipeline that is in sync with local market dynamics as well as our goals for growth in those markets.

While this is above our goal to maintain four to five years supply, when based on forward projections of growth in closings our supply is closer to five years.

Approximately 90% of the lots placed under control in 2021 are designated for entry-level communities.

During 2021, we closed 12,801 homes, purchased approximately 30,200 lots for $1.1 billion, spent $865 million on land development, and started construction on 14,272 homes.

At December 31, 2021 and 2020, respectively, 65% and 59% of our controlled lots were owned.

We are currently purchasing primarily partially-developed or undeveloped lots as the opportunity to purchase substantially finished lots in desired locations is limited.

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• entitlement and development risks and timelines;

• availability of seller-provided purchase options or agreements that allow us to defer lot purchases until needed for production.

• availability and financial impact of seller-provided purchase options or agreements that allow us to defer lot purchases until needed for production.

When purchasing undeveloped or partially developed land, we strive to defer the closing for the land until after entitlements have been obtained to eliminate or minimize risk and so that development or construction may begin as market conditions dictate.

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Even though entitlements are usually obtained before land is purchased, we are typically still required to secure a variety of other governmental approvals and permits prior to and during development, and the process of obtaining such approvals and permits can be lengthy.

We may consider the purchase of unentitled land when we can do so in a manner consistent with our business strategy.

Currently, we are generally purchasing and developing parcels that on average range from 100 to 200 lots.

In unique circumstances, we may consider the purchase of unentitled land when we can do so in a manner consistent with our business strategy.

Currently, we are generally purchasing and developing parcels that provide us with communities that range on average from 100 to 200 lots.

Once we secure undeveloped land, we generally supervise and control the development of the land through contractual agreements with subcontractors.

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Land purchases are generally financed through our working capital, including corporate borrowings.

At December 31, 2020, in addition to our 32,768 owned lots, we also had 22,734 lots under non-refundable purchase or option contracts with a total purchase price of approximately $867.3 million secured by $56.7 million in cash deposits.

At December 31, 2021, in addition to our 48,554 owned lots, we also had 26,495 lots under committed purchase or option contracts with a total purchase price of approximately $1.0 billion secured by $82.7 million in cash deposits.

We purchase and develop land primarily to support our homebuilding operations, although we may sell land and lots to other developers and homebuilders from time to time where we have excess land positions or for other strategic reasons.

Information related to lots and land under option is presented in Note 3 in the accompanying consolidated financial statements.

All land and lot acquisitions are reviewed by our corporate land acquisition committee, which is comprised of certain members of our executive management team and key operating executives.

All land acquisitions exceeding a specified dollar amount must also be approved by our Board of Directors' Land Committee.

Information related to lots and land under option contracts is presented in Note 3 in the accompanying consolidated financial statements.

All land and lot acquisitions are reviewed by our corporate land acquisition committee, which is comprised of certain members of our executive management team and key operational leaders.

All land acquisitions exceeding a specified dollar amount must also be approved by our Executive Chairman, with a secondary threshold requiring approval by our Board of Directors' Land Committee.

Investments in Unconsolidated Entities — Joint Ventures

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While purchasing land through a joint venture can be beneficial, we do not view joint ventures as critical to the success of our homebuilding operations.

We currently have only one such active venture that is only selling a limited portfolio of land to third parties.

In addition to the land development joint venture, we also participate in one mortgage business joint venture.

We currently have two active land development ventures.

In addition to the land development joint ventures, we also participate in one mortgage business joint venture.

The mortgage joint venture is engaged in mortgage activities and primarily provides services to our homebuyers.

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We also enter into longer-term and national or regional contracts with subcontractors and suppliers, where possible, to obtain more favorable terms, minimize construction costs and to control product consistency and availability.

Our contracts require that our subcontractors comply with all laws and labor practices pertaining to their work, follow local building codes and permits, and meet performance, warranty and insurance requirements.

In addition to contractually requiring that our subcontractors comply with all laws and labor practices pertaining to their work, subcontractors must also adhere to our Code of Ethics, follow local building codes and permits, and meet performance, warranty and insurance requirements.

Our purchasing and construction managers coordinate and monitor the activities of subcontractors and suppliers, and monitor compliance with zoning, building and safety codes.

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We typically do not enter into any derivative contracts to hedge against weather or materials fluctuations as we do not believe they are particularly advantageous to our operations, although we do periodically lock in short and mid-term pricing with our vendors for certain key construction commodities.

We experienced building material cost pressures, particularly for lumber, and in some instances, limited production capacity issues with some of our main product suppliers, including supply chain constraints in 2020 largely associated with COVID-19 responses.

These upward cost trends may continue in 2021.

We experienced building material cost pressures, particularly for lumber, and production capacity issues with some of our main product suppliers, including supply chain constraints in 2021 largely associated with world-wide labor, material, and transportation shortages that were further exacerbated by the impact of COVID-19.

Although we have been working with our trade partners to minimize the impact of these obstacles in 2021 by leveraging the long-term relationships we have cultivated, we expect these trends to continue to pose challenges for the foreseeable future.

We generally build and sell homes in phases within our larger projects, which we believe creates efficiencies in land development, home construction operations and cash management.

We also believe it improves customer satisfaction by reducing the number of vacant lots and construction activity surrounding completed homes.

Our homes are typically completed within three to five months from the start of construction, depending upon the geographic location and the size and complexity of the home.

Our homes are typically completed within three to five months from the start of construction, although currently longer, depending upon the geographic location and the size and complexity of the home.

Construction schedules may vary depending on the size of the home, availability of labor, materials and supplies, product type, location, municipal requirements and weather.

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Part of these plans involve reaching new customers through a combination of advertising and other promotional activities targeting key consumer segments through online advertising, online listings, social media, email, articles and posts to drive consumers to our website at www.meritagehomes.com .

During 2020, we accelerated various company-wide digital initiatives that were in progress to provide a contactless customer experience, including:

During 2021, we continued to leverage and expand our digital offerings to provide a contactless customer experience, including:

• Launched online scheduling to allow customers to schedule in-person, self-guided model home tours after hours in select locations;

• Offering virtual tours in all of our communities to realtors, customers, and prospective buyers;

• Offering extensive online tools such as 3-D tours and dynamic floor plans to mimic the live experience of walking through a model home;

• Launched our chat bot, Virtual Assistant Liaison ("VAL"), which provides customers and owners with around-the-clock information and support on our website;

• Pre-qualifying buyers for mortgages through digital solutions on our website;

• Collecting earnest money payments remotely through third-party hosted money-transfer solutions;

• Offering drive-through and partial or fully virtual closings in states where such services are permitted.

In addition, our local marketing efforts are focused to drive consumers to visit specific communities in the market via incremental online promotions, direct mail, grass roots marketing campaigns and events, as well as strategically placed signs in the vicinities near our communities.

Our marketing strategy is aimed at differentiating Meritage from resale homes, as well as new homes offered by other homebuilders.

We market this differentiation by highlighting our industry leading energy-efficient features and benefits as part of a larger, integrated system that enables us to deliver on our LIFE.

• Providing a warranty portal for our homeowners to submit and track warranty-related matters and a comprehensive online suite of financial services such as on-demand homeowners’ insurance quotes;

• Offering digital signing of sales contracts and drive-through and partial or fully virtual closings in states where such services are permitted.

In addition, our local marketing efforts are focused on opening new communities with strong interest lists and driving consumer traffic to communities through digital media campaigns, virtual events for both consumers and real estate agents, grass roots marketing, and strategically placed signs in the vicinities near our communities.

Our marketing strategy is aimed at differentiating Meritage Homes by highlighting our simplification throughout the buying, building and closing processes, our transparency in setting clear expectations and by building a better home leveraging industry leading energy-efficient features, cutting edge design, upgrades and finishes.

All of this is part of our LIFE.

BETTER.® brand promise to our customers, which means having a home that is quieter, cleaner, healthier, smarter and safer.

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We strive to implement marketing strategies that will educate our buyers on how our unique building techniques and the energy efficient and home automation features in our homes differentiate them from other homes.

In every community, we integrate interactive in-home displays in order to inform our buyers about our many energy-efficient and home automation features and help them understand how and to what extent a Meritage home can help them realize savings through reduced energy bills, and experience and enjoy better health, improved comfort and peace of mind.

For our move-up buyers, we offer home customization options through Studio M, a completely re-imagined design center experience.

We integrate interactive in-home displays in order to inform our buyers about our many energy-efficient and home automation features and help them understand how and to what extent a Meritage home can help them realize savings through reduced energy bills, and experience and enjoy better health, improved comfort and peace of mind.

For our first move-up buyers, we offer home customization options through Studio M™, a completely re-imagined design center experience.

Rather than the traditional à la carte design studio process, Studio M™ offers option packages which we refer to as our "Design Collections".

These collections offer a pre-selected combination of flooring, cabinetry, countertops, lighting and fixtures that are all professionally designed to work together to meet each buyer's preference.

Our homebuyers meet with our designers to follow a streamlined process for personalizing their homes through a selection of these packages and enhancements, while benefiting from bulk-purchase savings that we attain from our national vendor relationships.

Our concept for Studio M is a direct result of feedback from our homebuyers and, based on our core values of innovating with the customer in mind, we took action to completely rethink how the home buying and design process should work to meet the needs of today’s buyer.

Our concept for Studio M™ is a direct result of feedback from our homebuyers and based on our core values of innovating with the customer in mind.

We took action to completely rethink how the home buying and design process should work to meet the needs of today’s buyer.

Our homes generally are sold by our commissioned sales associate employees who work from a sales office typically located in a converted garage of one of the model homes for each community.

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At December 31, 2021, we had approximately 494 full-time sales and marketing personnel.

Our goal is to ensure that our sales force has extensive knowledge of our housing product, our energy efficient and innovative features, our sales strategies, mortgage options, and community dynamics, in order to fully execute our marketing message.

Our goal is to ensure that our sales force has extensive knowledge of our homes, our energy efficient and innovative features, our sales strategies, mortgage options, and community dynamics, in order to fully execute our marketing message.

To achieve this goal, we train our sales associates and conduct regular meetings to update them on our product, communities, sales techniques, competition in the area, financing availability, construction schedules, marketing and advertising plans, available product lines, pricing, and options offered, as well as the numerous benefits and savings our energy efficient product provides.

Our sales associates are licensed real estate agents where required by law.

We may offer various sales incentives, including price concessions, assistance with closing costs, and landscaping or interior upgrades, to attract buyers.

The use, type and amount of incentives depends largely on economic and local competitive market conditions.

Third-party brokers may also sell our homes and are usually paid a sales commission based on the price of the home.

Frequently, third-party brokers bring prospective buyers to our communities.

We have a robust loyalty program for these brokers and we aim to regularly educate them on the benefits of owning a Meritage home and our community offerings, which we believe helps enhance the impact of our marketing message.

We differentiate ourselves from our competitors with our highly desirable and affordable community and plan offerings and our simplified home buying process to effectively meet the needs of today's homebuyers.

We also differentiate ourselves through the superior design and value of our communities and homes and our energy-efficiency features and home automation packages.

We believe our commitment to design and build energy-efficient homes is aligned with buyer sensitivities about how eco-friendly designs, features and materials help impact the environment and the livability of cleaner, healthier homes, as well

as their pocketbooks.

As evidenced in our strategic shift to focus primarily on first-time and first move-up buyers through our LiVE.NOW ® and Design Collections offerings, we are committed to continually evaluating buyer preferences and making adjustments to the homes we offer and the targeted price points in accordance with buyer demand.

We believe these efforts set us and our homes apart from both other new homes available for sale and the re-sale home market.

We have a robust loyalty program for these brokers and we aim to regularly educate them on the benefits of owning a Meritage home and our community offerings, which we believe help enhance the impact of our marketing message.

We may offer various sales incentives, including price concessions, assistance with closing costs, and landscaping or interior upgrades, to attract buyers.

The use, type and amount of incentives depends largely on economic and local competitive market conditions.

Our sales contracts require cash deposits and may be subject to certain contingencies such as the buyer’s ability to qualify for financing.

Homes covered by sales contracts but which are not yet closed are considered “backlog” and are representative of potential future revenues.

Homes covered by sales contracts but which are not yet closed are considered “backlog” and are representative of potential future home closing revenue.

Started homes are excluded from backlog until a sales contract is signed and are referred to as unsold speculative or “spec” inventory.

A contract contingent upon the sale of a customer’s existing home or a mortgage pre-approval is not considered a sale and not included in backlog until the contingency is removed.

All of our entry-level homes are started as spec homes whereas a signed sales contract is generally required to release a specific lot to start construction of a move-up home, although on a regular basis we also start a certain number of move-up homes for speculative sales inventory.

All of our entry-level homes are started as spec homes whereas our first move-up homes can be started as a spec home or after a sales contract is signed.

We may also start construction on spec homes to accelerate or facilitate the close-out of a community.

Our spec inventory per active community is consistent with prior year, at 12.9 as of December 31, 2020 as compared to 12.4 as of December 31, 2019.

Our spec inventory per active community is consistent with prior year, at 12.3 or 3,180 units as of December 31, 2021 as compared to 12.9 or 2,519 units as of December 31, 2020.

At December 31, 2021, 88% of our 5,679 homes in backlog were under construction.

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A portion of the unsold homes resulted from homesites that began construction with valid sales contracts that were subsequently canceled.

We believe that during 2021 we will deliver to customers substantially all homes in backlog at December 31, 2020 under existing or, in the case of cancellations, replacement sales contracts.

We believe that during 2022 we will deliver to customers substantially all homes in backlog at December 31, 2021 under existing contracts, or, in the case of cancellations, replacement sales contracts.

The number of units in backlog increased 22% to 5,679 units at December 31, 2021 from 4,672 units at December 31, 2020 with a 39% increase in the value of backlog to $2.5 billion from $1.8 billion.

Customer Financing

Most of our homebuyers require financing to purchase their home Accordingly, we refer them to mortgage lenders that offer a variety of financing options.

Most of our homebuyers require financing to purchase their home.

Accordingly, we refer them to mortgage lenders that offer a variety of financing options.

While our homebuyers may obtain financing from any mortgage provider of their choice, we have a joint venture arrangement with an established mortgage broker that acts as a preferred mortgage broker to our buyers to help facilitate the financing process as well as generate additional revenue for us through our interest in the joint venture (see Note 5 in the accompanying consolidated financial statements for additional information on joint venture financial results).

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We require our subcontractors to provide evidence of insurance before beginning work and to provide a warranty to us and to indemnify us from defects in their work and the materials they provide and therefore any claims relating to workmanship and materials are generally the subcontractors’ responsibility.

In certain markets and for certain attached product, we offer an owner-controlled insurance program to our subcontractors which, if accepted, is the insurance for damage resulting from construction defects in lieu of some of the insurance we require from the subcontractor.

subcontractors are generally required to repair and replace any product or labor defects (and for those operating in markets with our owner-controlled insurance program, pay a deductible as a condition to such coverage), we are, during applicable warranty periods, ultimately responsible to the homeowner for making such repairs.

Accordingly, with the assistance of an actuary, we have estimated and established reserves for future structural warranty costs based on the number of home closings and historical data trends for warranty work within our communities.

In certain markets and for certain attached product, we offer a Company-controlled insurance program to our subcontractors underwritten on behalf of Meritage which, if accepted, is the insurance for damage resulting from construction defects in lieu of the standard insurance we require from subcontractors.

Although our subcontractors are generally required to repair and replace any product or labor defects (and for those operating in markets with our Company-controlled insurance program, pay a deductible as a condition to such coverage), we are, during applicable warranty periods, ultimately responsible to the homeowner for making such repairs.

Accordingly, with the assistance of an actuary, we have estimated and established reserves for future structural warranty costs

based on the number of home closings and historical data trends for warranty work within our communities.

Warranty reserves generally range between 0.1% to 0.5% of a home’s sale price.

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We compete for sales in each of our markets with national, regional and local developers and homebuilders, as well as existing resale homes, condominiums and rental housing.

Some of our competitors have significantly greater financial resources and may have lower costs than we do.

Some of our competitors have greater financial resources and may have lower costs than we do.

Competition among residential homebuilders of all sizes is based on a number of interrelated factors, including location, reputation, product type, amenities, design, innovation, quality and price.

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• ability to capitalize on opportunities to acquire land in desirable locations and on favorable terms;

• digital offerings in all stages of the homebuying process, as previously discussed;

• reputation for outstanding service and quality products and our exceptional customer and warranty service.

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This analysis and resulting analytical tools assist in decision-making regarding product designs, positioning, and pricing and underwriting standards for land purchases and land development.

Additionally, our market research department is focused on evaluating and identifying new market opportunities.

Additionally, our market research department supports the Company strategy by researching new market opportunities, new market entries, product library development and evolving consumer trends and preferences in housing.

Government Regulation and Environmental Matters

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These fees are normally established when maps or plats are recorded and building permits obtained.

Governing agencies may also require concessions or may require the builder to construct certain improvements to public places such as parks and streets.

growth” initiatives or building permit allocation ordinances, which could be implemented in the future.

However, because most of our land is entitled, construction moratoriums typically would not affect us in the near term unless they arise from health, safety or welfare issues, such as insufficient water, electric or sewage facilities.

Governing agencies may also require concessions or may require the builder to construct certain improvements to public areas such as parks and streets.

In addition, governing agencies may impose construction moratoriums and therefore we could become subject to delays or may be precluded entirely from developing communities due to building moratoriums, “no growth” or “slow growth” initiatives or building permit allocation ordinances, which could be implemented in the future.

However, because most

of our land is entitled, construction moratoriums typically would not affect us in the near term unless they arise from health, safety or welfare issues, such as insufficient water, electric or sewage facilities.

In addition, there is constantly a variety of new legislation being enacted, or considered for enactment at the federal, state and local levels relating to energy and climate change.

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However, there is no assurance that we will not incur material liabilities in the future relating to toxic waste removal or other environmental conditions affecting land currently or previously owned.

Some of our homebuyers elect to purchase their homes with mortgages that are insured or guaranteed by certain government entities.

In order for our homebuyers to finance their home purchases with Federal Housing Administration ("FHA")-insured or Veterans Administration ("VA")-guaranteed or United States Department of Agriculture ("USDA")-guaranteed mortgages, we are required to build such homes in accordance with the regulatory requirements of those agencies.

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Human Capital

Human capital is our greatest asset.

Developing our employees enhances each individual’s opportunity to progress their career at Meritage and enrich their work experience.

We work to retain talent by offering competitive and comprehensive compensation and benefits that include health insurance, 401(k) savings plan with a competitive company match, paid time off, paid parental benefits, employee discounts, tuition reimbursement, and a wellness program, among many others.

At December 31, 2021, we had 1,773 full-time employees, including 346 in management and administration, 55 in our title and insurance companies, 494 in sales and marketing, and 878 in construction and warranty operations.

We are committed to creating an inclusive and positive culture for our employees.

Our culture is guided by our core values where every employee is strongly encouraged to embrace opportunities to develop and grow their careers.

We have a robust talent recognition and succession planning model in place to help identify talent and provide a roadmap for promotion of identified individuals.

We are committed to creating an inclusive and positive culture for our employees in which everyone feels valued and invited to contribute.

Our culture is guided by our core values where every employee is strongly encouraged to embrace opportunities to develop and grow their skills and careers.

We have a robust talent recognition and succession planning model designed to help identify and develop talent and provide a roadmap for promotion of identified employees.

Of our entire employee population at December 31, 2021, 40% were female and 25% were minorities.

While we are proud of our current diversity, through a combination of targeted recruiting and talent development, we intend to expand the diversity of our employee base across the Company over the coming years.

In 2020, we implemented trainings to educate our employees on unconscious bias in the workplace and identified an internal resource to lead our diversity, equity and inclusion ("DE&I") efforts.

In addition, we donated $200,000 to established charitable organizations that support racial equity and inclusion initiatives.

These efforts are integrated in a broader DE&I focus for the organization that will extend into 2021 and beyond.

In response to the COVID-19 pandemic, we implemented a number of strategies, policies and procedures to allow our employees to work remotely, safely and effectively return to the office and address actual and suspected COVID-19 cases all in an effort to reduce the potential spread of COVID-19.

The safety of our employees, customers and trade partners guided the decisions we made along with adherence to CDC guidelines and practices.

We communicated early and often with our employees and provided several resources including a dedicated intranet site, webinars and trainings.

We also provided employees with personal protective equipment, cleaning supplies and increased flexibility to work remotely.

In 2021, we adopted a Human Rights Policy which applies to all employees and our Board of Directors, as well as contractors, subcontractors, vendors, suppliers and partners.

The Human Rights Policy defines our responsibilities to adhere to the Universal Declaration of Human Rights.

In addition, in 2021 we donated $300,000 to established charitable organizations that support racial equity and inclusion initiatives.

These efforts are integrated in a broader diversity, equity and inclusion (DE&I) focus for the organization that we will extend into 2022 and beyond.

Our operations are carried out through both local and centralized management.

Our centralized management sets our strategy and leads decisions related to the Company's land acquisition, risk management, finance, cash management, capital allocation and information systems.

Local operations are made up of our division employees, led by management with significant homebuilding experience and who possess a depth of knowledge in their particular markets.

Our corporate management team sets our strategy and leads decisions related to the Company's land acquisition, risk management, finance, cash management, capital allocation and information systems.

Local operations are made up of our division employees, led by management with significant homebuilding experience and who possess a great depth of knowledge in their particular markets.

Our employees are not unionized, and we have a highly engaged workforce.

We act solely as a general contractor, and all construction operations are coordinated by our project managers and field superintendents who schedule and monitor third-party independent subcontractors.

We use independent consultants and contractors for certain architectural, engineering, advertising, technology and legal services, and we strive to maintain good relationships with our subcontractors and independent consultants and contractors.

We maintain open lines of communication to support and develop our employees.

We may use independent consultants and contractors for certain architectural, engineering, advertising, technology and legal services, and we strive to maintain good relationships with our subcontractors and independent consultants and contractors.

We promote an open-door policy where individuals are encouraged to voice concerns which are promptly addressed.

We recognize and emphasize the importance of a balanced work-life and offer our employees competitive and comprehensive compensation and benefits packages.

We pay for a substantial portion of our employees’ insurance costs.

We also offer a 401(k) savings plan, which is available to all employees who meet the plan’s participation requirements, as well as various other employment-related benefits.

Our top priority from the very start of the COVID-19 pandemic has been the health, safety and well-being of our employees and their families, our trade partners and customers.

From the onset, we have consulted the evolving guidelines and practices from the Centers for Disease Control and Prevention to shape our decisions in our sales offices, on our job sites and at our corporate and division headquarters.

Our response to the COVID-19 pandemic continued throughout 2021, with policies and procedures that allowed our employees to work remotely where possible, and to safely and effectively return to the office at their discretion.

We addressed actual and suspected COVID-19 cases in an effort to reduce the potential spread of COVID-19.

We communicated early and often with our employees and provided several resources including a dedicated intranet site, webinars and trainings.

We provided employees with personal protective equipment, access to temperature monitors, cleaning supplies and increased flexibility to work remotely.

We also provided a vaccination incentive and paid time off for employees to support COVID-19 vaccination efforts.

Historically, we have experienced seasonal variations in our quarterly operating results and capital requirements.

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We typically benefit from the cash generated from home closings more in the third and fourth quarters than in the first and second quarters.

In 2020, historical cycles were impacted by low interest rates and COVID-19.

However, we expect our historical seasonal pattern to continue over the long term although it may continue to be affected by volatility in the homebuilding industry and in the overall economy.

In 2020 and 2021, historical cycles were impacted by COVID-19 and its impact on consumer behavior and supply chain, particularly as it relates to the homebuilding market, which resulted in prolonged construction timelines.

We saw a slight return of seasonality in the second half of 2021 and expect our historical seasonal pattern to continue over the long term although it may continue to be affected by volatility in the homebuilding industry and in the overall economy.

Information about our Executive Officers

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Hilla Sferruzza 46 Chief Financial Officer, Executive Vice President

Timothy White 60 General Counsel, Executive Vice President and Secretary

Clinton Szubinski 45 Chief Operating Officer, Executive Vice President

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Hilton co-founded Monterey Homes in 1985, which merged with Homeplex in December 1996 and later became known as Meritage Homes.

Hilton served as Co-Chairman and Co-Chief Executive Officer from July 1997 to May 2006, served as Chief Executive Officer from May 2006 to December 2020, has been the Chairman since May 2006, and became the Executive Chairman effective January 1, 2021.

Hilton served as Co-Chairman and Co-Chief Executive Officer from July 1997 to May 2006, served as Chairman and Chief Executive Officer from May 2006 to December 2020, and became the Executive Chairman effective January 1, 2021.

Phillippe Lord was appointed Chief Executive Officer on January 1, 2021.

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Sferruzza was our Chief Accounting Officer and Corporate Controller since 2010 and has worked in other management roles at the Company since 2006.

Timothy White has been General Counsel, Executive Vice President and Secretary since October 2005 and served on our Board of Directors from December 1996 until October 2005.

Clinton Szubinski was appointed Chief Operating Officer, Executive Vice President on January 1, 2021.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business