Meritage Homes(MTH) - 2025 Q2 - Quarterly Results

Financial Highlights Meritage Homes reported its second quarter 2025 results, showing a mixed performance, with home orders and closings seeing slight unit increases, while revenue and profitability declined year-over-year, as home closing revenue fell 5% to $1.62 billion and net earnings dropped 37% to $146.9 million, resulting in a diluted EPS of $2.04, down 35% from the prior year Q2 2025 Key Financial Metrics (YoY) | | Three Months Ended June 30, | | | | :--- | :--- | :--- | :--- | | | 2025 | 2024 | % Chg | | Homes closed (units) | 4,170 | 4,118 | 1% | | Home closing revenue (in thousands) | $1,615,709 | $1,693,738 | (5)% | | Home orders (units) | 3,914 | 3,799 | 3% | | Net earnings (in thousands) | $146,879 | $231,555 | (37)% | | Diluted EPS | $2.04 | $3.15 | (35)% | Management Commentary Management highlighted a solid performance despite challenging market conditions, attributing it to their go-to-market strategy of move-in ready inventory, emphasizing strong operational execution with a 208% backlog conversion rate, strategically reducing land spend, increasing cash returns to shareholders through dividends and buybacks, and maintaining a strong liquidity position with $930 million in cash and a net debt-to-capital ratio of 14.6% - The company's strategy focuses on move-in ready inventory to remain competitive and grow market share amid high mortgage rates and weak consumer confidence[6] - Capital allocation strategy has been adjusted, with the full-year land acquisition and development spend target reduced from $2.5 billion to approximately $2.0 billion[6] - The company increased its return of cash to shareholders, spending $76 million in Q2 2025 on dividends and share repurchases, which tripled the quarterly buyback commitment[6] - The company maintained a strong liquidity position with $930 million in cash and a net debt-to-capital ratio of 14.6% as of June 30, 2025[6] Operating and Financial Review The financial review details performance for the second quarter and first half of 2025, highlighting pressure on revenue and gross margins due to increased financing incentives and higher costs, significant year-over-year declines in net earnings and EPS for both periods, and a strong balance sheet with increased cash reserves, a higher lot count, and active capital return programs Second Quarter 2025 Results In Q2 2025, home orders increased 3% YoY to 3,914 units, driven by a 7% increase in community count, but home closing revenue fell 5% to $1.6 billion due to a 6% decrease in Average Sales Price (ASP) to $387,000, largely from higher financing incentives, while home closing gross margin compressed by 480 bps to 21.1%, impacted by incentives, higher lot costs, and land deal termination charges, consequently decreasing net earnings by 37% to $147 million Q2 2025 Performance vs. Q2 2024 | Metric | Q2 2025 | Q2 2024 | Change | | :--- | :--- | :--- | :--- | | Home Orders (units) | 3,914 | 3,799 | +3% | | Home Closing Revenue (in billions) | $1.6 | $1.7 | -5% | | ASP on Closings | $387,000 | $411,000 | -6% | | Home Closing Gross Margin | 21.1% | 25.9% | -480 bps | | Adjusted Gross Margin* | 21.4% | 26.0% | -460 bps | | Net Earnings (in millions) | $147 | $232 | -37% | | Diluted EPS | $2.04 | $3.15 | -35% | - SG&A expenses as a percentage of home closing revenue rose to 10.2% from 9.3% in Q2 2024, driven by higher commissions, start-up costs, and increased spec inventory maintenance[9] Year-to-Date 2025 Results For the first six months of 2025, total sales orders were flat year-over-year at 7,790 units, home closing revenue decreased 6% to $3.0 billion, driven by a 6% drop in ASP, and home closing gross margin fell 440 bps to 21.5% due to incentives and higher costs, resulting in net earnings declining 35% to $270 million, with diluted EPS at $3.73 H1 2025 Performance vs. H1 2024 | Metric | H1 2025 | H1 2024 | Change | | :--- | :--- | :--- | :--- | | Home Orders (units) | 7,790 | 7,790 | 0% | | Home Closing Revenue (in billions) | $3.0 | $3.2 | -6% | | Home Closing Gross Margin | 21.5% | 25.9% | -440 bps | | Net Earnings (in millions) | $270 | $418 | -35% | | Diluted EPS | $3.73 | $5.68 | -34% | - The effective income tax rate for the first half of 2025 increased to 23.6% from 21.4% in 2024, as fewer homes qualified for energy tax credits under the Inflation Reduction Act[9] Balance Sheet & Liquidity As of June 30, 2025, the company's balance sheet showed strong liquidity with cash and equivalents at $930 million, up from $652 million at year-end 2024, boosted by a senior notes issuance, while land acquisition and development spend was reduced to $509 million in Q2, and the company increased its lot inventory to approximately 81,900 lots, with debt-to-capital and net debt-to-capital ratios of 25.8% and 14.6%, respectively, and returned $76 million to shareholders in Q2 through dividends and share repurchases Key Balance Sheet & Liquidity Metrics | Metric | June 30, 2025 | Dec 31, 2024 | | :--- | :--- | :--- | | Cash and cash equivalents (in millions) | $930 | $652 | | Total Lots Owned/Controlled | ~81,900 | N/A | | Debt-to-capital | 25.8% | 20.6% | | Net debt-to-capital | 14.6% | 11.7% | - In Q2 2025, the company repurchased 674,124 shares for $45 million and paid $31 million in dividends[11] - Subsequent to Q2 2025, the company refinanced its revolving credit facility, extending its maturity from 2029 to 2030[11] Consolidated Financial Statements The consolidated financial statements provide a detailed view of the company's financial performance and position, with the Income Statement confirming the decline in revenue and net earnings, the Balance Sheet reflecting an increase in assets, primarily cash and real estate, and a rise in liabilities due to new debt issuance, and the Statement of Cash Flows showing cash generation from financing activities outpaced cash used in operations and investing, leading to a higher cash balance Consolidated Income Statements For Q2 2025, total closing revenue decreased 4% to $1.62 billion, while total cost of closings increased 2%, leading to a 23% drop in total closing gross profit, with net earnings for the quarter at $146.9 million, a 37% decrease from $231.6 million in Q2 2024, and for the six months ended June 30, 2025, net earnings fell 35% to $269.7 million Q2 2025 Income Statement Highlights (in thousands) | | Three Months Ended June 30, | | | :--- | :--- | :--- | | | 2025 | 2024 | | Total closing revenue | $1,623,986 | $1,693,738 | | Total closing gross profit | $340,609 | $439,506 | | Earnings before income taxes | $193,060 | $297,361 | | Net earnings | $146,879 | $231,555 | Consolidated Balance Sheets As of June 30, 2025, total assets were $7.76 billion, an increase from $7.16 billion at the end of 2024, driven by a rise in cash to $930 million and real estate assets to $5.96 billion, while total liabilities increased to $2.49 billion from $2.02 billion, mainly due to an increase in senior notes, and total stockholders' equity grew to $5.27 billion Balance Sheet Highlights (in thousands) | | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $930,463 | $651,555 | | Real estate | $5,963,674 | $5,728,775 | | Total assets | $7,756,369 | $7,162,654 | | Liabilities & Equity | | | | Senior and convertible senior notes, net | $1,801,609 | $1,306,535 | | Total liabilities | $2,487,195 | $2,021,081 | | Total stockholders' equity | $5,269,174 | $5,141,573 | Consolidated Statements of Cash Flows For the first six months of 2025, the company used $28.9 million in cash from operating activities, primarily due to an increase in real estate inventory, and investing activities used $21.6 million, while financing activities provided $329.4 million in cash, driven by $497.2 million in proceeds from issuing senior notes, which more than offset $90.0 million in share repurchases and $61.5 million in dividend payments, resulting in a net cash increase of $278.9 million Six Months Ended June 30, 2025 Cash Flow (in thousands) | | 2025 | | :--- | :--- | | Net cash used in operating activities | $(28,875) | | Net cash used in investing activities | $(21,610) | | Net cash provided by financing activities | $329,393 | | Net increase in cash and cash equivalents | $278,908 | | Ending cash and cash equivalents | $930,463 | Segment Operating Data The company's operations are divided into West, Central, and East regions, with the East region being the strongest performer in Q2 2025, showing year-over-year increases in both homes closed (+15%) and homes ordered (+14%), while the Central region saw a modest 2% increase in orders, and the West region experienced declines in both closings and orders, with the overall ending community count growing 9% YoY to 312, and the Tennessee segment reclassified from East to Central effective January 1, 2025 Q2 2025 Homes Ordered by Region (YoY) | Region | Q2 2025 Homes Ordered | Q2 2024 Homes Ordered | % Change | | :--- | :--- | :--- | :--- | | West | 1,001 | 1,114 | (10)% | | Central | 1,298 | 1,274 | +2% | | East | 1,615 | 1,411 | +14% | | Total | 3,914 | 3,799 | +3% | Q2 2025 Homes Closed by Region (YoY) | Region | Q2 2025 Homes Closed | Q2 2024 Homes Closed | % Change | | :--- | :--- | :--- | :--- | | West | 1,165 | 1,265 | (8)% | | Central | 1,374 | 1,440 | (5)% | | East | 1,631 | 1,413 | +15% | | Total | 4,170 | 4,118 | +1% | - Total ending active communities increased 9% year-over-year, from 287 in Q2 2024 to 312 in Q2 2025[30] Supplemental and Non-GAAP Information This section provides supplemental data, including details on capitalized interest, and reconciles GAAP to non-GAAP financial measures, with the key non-GAAP measure presented being the net debt-to-capital ratio, which stood at 14.6% at the end of Q2 2025, up from 11.7% at the end of 2024, and the company explains that this metric is useful for investors to understand its operating results and for comparison with industry peers Reconciliation of Net Debt-to-Capital | Metric (in thousands) | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Total Debt | $1,827,729 | $1,335,878 | | Less: Cash and cash equivalents | $(930,463) | $(651,555) | | Net Debt | $897,266 | $684,323 | | Stockholders' Equity | $5,269,174 | $5,141,573 | | Net debt-to-capital | 14.6% | 11.7% | - The company defines net debt-to-capital as net debt (total debt less cash) divided by total net capital (net debt plus stockholders' equity) and considers it a relevant non-GAAP measure for investors[34] About Meritage Homes & Forward-Looking Statements Meritage Homes identifies itself as the fifth-largest public homebuilder in the U.S. based on 2024 closings, focusing on energy-efficient entry-level and first move-up homes, with a 40-year history and operations in 12 states, and the press release includes a standard forward-looking statements disclaimer, highlighting numerous risks such as interest rate changes, material costs, competition, and other market uncertainties that could affect future results - Meritage is the fifth-largest public homebuilder in the United States, based on homes closed in 2024, and specializes in energy-efficient homes[35] - The company cautions that forward-looking statements are subject to significant risks and uncertainties, including interest rates, material costs, cancellation rates, and supply chain constraints[38]