Meritage Homes(MTH) - 2021 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements Unaudited consolidated financial statements for June 30, 2021, reflect substantial asset and net earnings growth, with operating cash flow turning negative due to real estate investments Unaudited Consolidated Balance Sheets As of June 30, 2021, total assets reached $4.32 billion, driven by real estate inventory, while liabilities and stockholders' equity also increased Consolidated Balance Sheet Highlights (in thousands USD) | Account | June 30, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Total Assets | $4,321,553 | $3,864,398 | | Cash and cash equivalents | $684,374 | $745,621 | | Real estate | $3,251,787 | $2,778,039 | | Total Liabilities | $1,693,409 | $1,516,530 | | Senior notes, net | $1,141,934 | $996,991 | | Total Stockholders' Equity | $2,628,144 | $2,347,868 | Unaudited Consolidated Income Statements Q2 2021 saw total closing revenue rise to $1.28 billion and net earnings surge to $167.4 million, despite an $18.2 million loss on early debt extinguishment Q2 and H1 2021 vs 2020 Performance (in thousands USD, except per share) | Metric | Q2 2021 | Q2 2020 | YTD 2021 | YTD 2020 | | :--- | :--- | :--- | :--- | :--- | | Total closing revenue | $1,277,599 | $1,033,079 | $2,361,380 | $1,934,092 | | Home closing gross profit | $345,301 | $220,696 | $611,956 | $399,056 | | Earnings before income taxes | $215,651 | $115,862 | $381,628 | $202,695 | | Net earnings | $167,389 | $90,678 | $299,232 | $161,830 | | Diluted EPS | $4.36 | $2.38 | $7.80 | $4.20 | - The company incurred a loss on early extinguishment of debt of $18.2 million in the second quarter and first half of 2021, with no similar charge in 2020[13] Unaudited Consolidated Statements of Cash Flows Net cash used in operating activities for H1 2021 was $143.5 million, a reversal from the prior year, primarily due to increased real estate investment Six Months Ended June 30 Cash Flow Summary (in thousands USD) | Cash Flow Category | 2021 | 2020 | | :--- | :--- | :--- | | Net cash (used in)/provided by operating activities | $(143,472) | $237,445 | | Net cash used in investing activities | $(10,679) | $(9,087) | | Net cash provided by/(used in) financing activities | $92,904 | $(63,202) | | Net (decrease)/increase in cash | $(61,247) | $165,156 | Notes to Unaudited Consolidated Financial Statements Notes detail business operations, accounting policies, debt structure including a $450 million senior note issuance, and segment performance across nine states - The company designs and builds single-family homes for entry-level and first move-up buyers in Arizona, California, Colorado, Texas, Florida, Georgia, North Carolina, South Carolina, and Tennessee[18] - In April 2021, the company issued $450.0 million of 3.875% Senior Notes due 2029 and used the proceeds to redeem all $300.0 million of its 7.00% Senior Notes due 2022, resulting in an $18.2 million loss on early debt extinguishment[52] Homebuilding Segment Operating Income (in thousands USD) | Segment | Q2 2021 | Q2 2020 | YTD 2021 | YTD 2020 | | :--- | :--- | :--- | :--- | :--- | | West | $78,938 | $44,742 | $143,189 | $86,600 | | Central | $84,965 | $37,895 | $141,958 | $66,800 | | East | $73,477 | $37,791 | $123,656 | $59,500 | | Total | $237,380 | $120,428 | $408,803 | $213,000 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management reported strong Q2 2021 results with record gross margins and closing volume, driven by robust housing demand despite supply chain disruptions - Housing market conditions in Q2 2021 remained strong, driven by low interest rates, limited supply, and increased desire for space to accommodate work/school from home needs[84] - The company achieved its highest quarterly home closing gross margin in history at 27.3%, a 590 basis point increase year-over-year[86] - Pandemic-related supply chain disruptions resulted in construction cycle delays of approximately four weeks, impacting both orders and closings[85] Q2 2021 Key Performance Indicators vs Q2 2020 | Metric | Q2 2021 | Q2 2020 | % Change | | :--- | :--- | :--- | :--- | | Home Closing Revenue (Billions USD) | $1.26 | $1.03 | +22.6% | | Homes Closed | 3,273 | 2,770 | +18.2% | | Home Orders (Units) | 3,542 | 3,597 | -1.5% | | Home Order Value (Billions USD) | $1.50 | $1.29 | +16.2% | | Backlog Value (Billions USD) | $2.3 | $1.6 | +40.6% | Item 3. Quantitative and Qualitative Disclosures About Market Risk Primary market risk is interest rate sensitivity, as rising mortgage rates could negatively impact housing demand and financing, despite fixed-rate senior notes - The company's operations are sensitive to interest rates, as rising rates can negatively affect housing demand and homebuyers' financing ability[144] - The company's fixed-rate debt consists mainly of $1.2 billion in senior notes, while its revolving credit facility is subject to variable interest rates based on LIBOR or Prime[143] Item 4. Controls and Procedures Disclosure controls and procedures were effective as of June 30, 2021, with no material changes to internal control over financial reporting during the quarter - Management concluded that as of June 30, 2021, the company's disclosure controls and procedures were effective[145] - No changes in internal control over financial reporting occurred during the quarter that materially affected, or are reasonably likely to materially affect, these controls[146] PART II. OTHER INFORMATION Item 1. Legal Proceedings Routine legal proceedings, primarily construction defect claims, are not expected to have a material adverse impact, as management believes sufficient reserves exist - The company is involved in routine legal proceedings, primarily construction defect claims, which are generally covered by subcontractor warranties or insurance[78][148] Item 1A. Risk Factors A key risk factor is supply chain constraints for building materials, causing construction delays and potential cost increases that could erode margins - A key risk factor is supply chain constraints for building materials, which have delayed construction cycle times in 2021[150] - These delays can impact the timing of home closings and lead to cost increases that may not be fully passed on to customers, potentially eroding margins[150] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company repurchased 200,000 shares in Q2 2021, with $86.8 million remaining in its stock repurchase program, retaining cash for business development - During Q2 2021, the company purchased 200,000 shares of its common stock for a total of approximately $19.16 million[152][153] - As of June 30, 2021, $86.8 million remained available under the authorized stock repurchase program[152] Item 6. Exhibits This section lists exhibits filed with the Form 10-Q, including corporate governance documents, officer certifications, and financial data in Inline XBRL format