Meritage Homes(MTH) - 2024 Q2 - Quarterly Results

Summary Operating Results Meritage Homes reported strong second-quarter 2024 results, highlighted by an 18% year-over-year increase in home closings and a 26% rise in diluted EPS to $6.31, with home closing revenue growing 10% to $1.7 billion | (Dollars in millions, except per share amounts) | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | % Chg | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | % Chg | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Homes closed (units) | 4,118 | 3,490 | 18% | 7,625 | 6,387 | 19% | | Home closing revenue | $1,693.7M | $1,543.0M | 10% | $3,159.8M | $2,804.9M | 13% | | Home orders (units) | 3,799 | 3,340 | 14% | 7,790 | 6,827 | 14% | | Home order value | $1,573.5M | $1,474.7M | 7% | $3,204.7M | $2,981.6M | 7% | | Net earnings | $231.6M | $186.8M | 24% | $417.6M | $318.1M | 31% | | Diluted EPS | $6.31 | $5.02 | 26% | $11.37 | $8.56 | 33% | Management Commentary Management attributed the strong Q2 performance to their strategy of delivering quick move-in ready homes, resulting in record closings and orders, alongside effective capital management and strategic debt restructuring - The company's focus on affordable, move-in ready inventory is expected to drive continued market share gains despite interest rate volatility[6] - A high backlog conversion rate of 136% was achieved, with over 40% of the quarter's closings coming from intra-quarter sales[6] - Capital allocation in Q2 included $631 million in land acquisition and development, securing over 8,700 new lots, and returning $27.2 million to shareholders via dividends[6] - The company enhanced its debt structure by issuing $575.0 million of new convertible debt and redeeming $250.0 million of senior notes due in 2025, ending the quarter with a net debt-to-capital ratio of 6.2%[6] Financial Performance The company demonstrated robust financial growth in Q2 and year-to-date 2024, marked by increased home closing revenue, expanded gross margins, and significant net earnings growth Second Quarter 2024 Results In Q2 2024, home orders rose 14% year-over-year, driven by a 15% increase in absorption pace, with home closing revenue growing 10% to $1.7 billion and net earnings increasing 24% to $231.6 million - Home orders increased 14% to 3,799 homes, with the average absorption pace rising to 4.5 per month from 3.9 in Q2 2023[9] - Entry-level homes represented 92% of sales orders, a notable increase from 85% in the prior year, indicating a strategic shift[9] - Home closing gross margin expanded to 25.9% from 24.4% year-over-year, driven by lower direct costs, greater leverage of fixed costs, and shorter construction cycle times[9] - SG&A as a percentage of home closing revenue improved by 30 bps to 9.3% due to leverage on higher revenue[9] Year-to-Date 2024 Results For the first half of 2024, Meritage increased home closing revenue by 13% to $3.2 billion, driven by a 19% rise in closing volume, leading to a 31% increase in net earnings to $417.6 million - Total sales orders for the first half of 2024 increased 14% year-over-year, driven by a 15% increase in average absorption pace[12] - Home closing gross margin improved significantly to 25.9% from 23.5% in the first half of 2023, benefiting from lower direct costs and operational efficiencies[12] - Net earnings rose 31% to $417.6 million ($11.37 per diluted share) for the first half of 2024, compared to $318.1 million ($8.56 per diluted share) in the prior year period[12] Balance Sheet & Liquidity The company maintained a strong liquidity position, ending Q2 with $992.9 million in cash, accelerating land acquisition and development spending, and strengthening its balance sheet through strategic capital market activities | Metric | June 30, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Cash and cash equivalents | $992.9 million | $921.2 million | | Lots owned or controlled | ~71,000 | N/A | | Debt-to-capital ratio | 21.2% | 17.9% | | Net debt-to-capital ratio | 6.2% | 1.9% | - Land acquisition and development spend totaled $631.1 million for Q2 2024, a significant increase from $408.5 million in Q2 2023[12] - The company refinanced its revolving credit facility, increasing its size to $910.0 million and extending its maturity to 2029[14] - Quarterly cash dividends were increased to $0.75 per share, totaling $27.2 million paid in Q2 2024[14] Full Year 2024 Guidance Based on strong first-half results, Meritage Homes updated its full-year 2024 guidance, projecting home closings between 14,750 and 15,500 units, generating $6.1 to $6.3 billion in revenue | Guidance Metric | Full Year 2024 Projection | | :--- | :--- | | Home closing volume | 14,750-15,500 units | | Home closing revenue | $6.1-6.3 billion | | Home closing gross margin | 24.5%-25.0% | | Effective tax rate | Approximately 22.5% | | Diluted EPS | $19.80-21.00 | Segment Operating Data The East Region was the largest contributor to homes closed and ordered in Q2 and H1 2024, while a significant year-over-year decrease in order backlog reflects the company's high backlog conversion rate | Q2 2024 Performance | West Region | Central Region | East Region | Total | | :--- | :--- | :--- | :--- | :--- | | Homes Closed (units) | 1,265 | 1,265 | 1,588 | 4,118 | | Homes Ordered (units) | 1,114 | 1,100 | 1,585 | 3,799 | - The total order backlog at the end of Q2 2024 stood at 2,714 units valued at $1.11 billion, a decrease from 3,772 units valued at $1.69 billion at the end of Q2 2023[32] - The company ended the quarter with 287 active communities, a slight decrease from 291 in the prior year but up 4% sequentially from Q1 2024[14][33] Consolidated Financial Statements The consolidated financial statements reflect strong revenue and earnings growth, a strengthened balance sheet with increased assets and strategic debt management, and a shift in cash flow dynamics due to increased real estate investments Consolidated Income Statements The consolidated income statements for Q2 and the first half of 2024 show strong top-line and bottom-line growth, with Q2 home closing revenue up 10% to $1.7 billion and net earnings up 24% to $231.6 million | Three Months Ended June 30, | 2024 | 2023 | % Change | | :--- | :--- | :--- | :--- | | Home closing revenue | $1,693.7M | $1,543.0M | 10% | | Home closing gross profit | $439.5M | $377.0M | 17% | | Net earnings | $231.6M | $186.8M | 24% | | Six Months Ended June 30, | 2024 | 2023 | % Change | | :--- | :--- | :--- | :--- | | Home closing revenue | $3,159.8M | $2,804.9M | 13% | | Home closing gross profit | $817.5M | $659.4M | 24% | | Net earnings | $417.6M | $318.1M | 31% | Consolidated Balance Sheets As of June 30, 2024, the company's balance sheet reflects growth, with total assets increasing to $6.9 billion from $6.4 billion at year-end 2023, primarily driven by a $454 million increase in real estate assets | (In millions) | June 30, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Total assets | $6,924.0M | $6,353.1M | | Real estate | $5,175.1M | $4,721.3M | | Cash and cash equivalents | $992.9M | $921.2M | | Total liabilities | $2,041.4M | $1,741.2M | | Senior and convertible senior notes, net | $1,303.6M | $994.7M | | Total stockholders' equity | $4,882.5M | $4,611.9M | Consolidated Statements of Cash Flows For the first half of 2024, cash flow from operations was a net use of $36.0 million, mainly due to a significant increase in real estate investments, while financing activities provided $127.4 million in cash | Six Months Ended June 30, (In millions) | 2024 | 2023 | | :--- | :--- | :--- | | Net cash (used in)/provided by operating activities | $(36.0M) | $355.9M | | Net cash used in investing activities | $(19.6M) | $(22.1M) | | Net cash provided by/(used in) financing activities | $127.4M | $(32.1M) | | Net increase in cash and cash equivalents | $71.7M | $301.7M | - The primary driver for the use of cash in operations was a $450.6 million increase in real estate assets during the first half of 2024[30] Supplemental and Non-GAAP Information This section provides a reconciliation of non-GAAP financial measures, specifically focusing on debt-to-capital ratios, which increased due to higher debt levels from recent financing activities | Debt-to-Capital Ratios | June 30, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Debt-to-capital | 21.2% | 17.9% | | Net debt-to-capital (Non-GAAP) | 6.2% | 1.9% |