Meritage Homes(MTH) - 2024 Q1 - Quarterly Results

Financial and Operational Highlights Meritage Homes reported a strong first quarter for 2024, achieving record-high quarterly sales orders, a home closing gross margin of 25.8%, and a significant 43% year-over-year increase in diluted EPS to $5.06 - The company announced record-high quarterly sales orders, a home closing gross margin of 25.8%, and a 43% increase in diluted EPS for Q1 2024[3] Q1 2024 Summary Operating Results (vs. Q1 2023) | Indicator | Q1 2024 | Q1 2023 | % Change | | :--- | :--- | :--- | :--- | | Homes closed (units) | 3,507 | 2,897 | 21% | | Home closing revenue | $1,466.1 million | $1,261.9 million | 16% | | Home orders (units) | 3,991 | 3,487 | 14% | | Home order value | $1,631.2 million | $1,506.9 million | 8% | | Ending backlog (units) | 3,033 | 3,922 | (23)% | | Ending backlog value | $1,244.3 million | $1,763.8 million | (29)% | | Net earnings | $186.0 million | $131.3 million | 42% | | Diluted EPS | $5.06 | $3.54 | 43% | Management Commentary Management attributed the record-breaking quarter to strong market demand and a successful spec-building strategy, enabling a 138% backlog conversion rate while maintaining a strong balance sheet and returning capital to shareholders - Executive Chairman Steven J. Hilton noted that the company capitalized on strong market conditions and housing needs from various demographics, leading to the highest quarterly sales orders[7] - CEO Phillippe Lord highlighted the success of the spec building strategy, which resulted in a record backlog conversion rate of 138% and nearly 50% of deliveries coming from intra-quarter sales[7] - In Q1 2024, the company spent $430 million on land acquisition and development, added nearly 6,300 net new lots, and returned $83 million to shareholders via repurchases and dividends[7] Detailed Quarterly Performance Analysis The company's Q1 2024 performance saw increased home orders and revenue, improved gross margin, and a strong financial position with significant cash and low leverage, supported by strategic land investments and capital returns Operating Results Home orders grew 14% year-over-year to 3,991 units, driving a 16% rise in home closing revenue to $1.5 billion, with gross margin expanding to 25.8% and net earnings increasing 42% to $186.0 million - Home orders increased 14% year-over-year to 3,991, primarily due to a 17% increase in average absorption pace to 4.9 per month[9] - Home closing gross margin improved by 340 bps to 25.8% from 22.4% in Q1 2023, due to reduced rate lock financing incentives and lower direct costs[9] - SG&A expenses were 10.4% of home closing revenue, nearly flat compared to 10.3% in the prior year[11] - Net earnings rose 42% to $186.0 million ($5.06 per diluted share) from $131.3 million ($3.54 per diluted share) in Q1 2023[11] Balance Sheet, Liquidity, and Capital Allocation The company ended Q1 2024 with strong liquidity, holding $905.3 million in cash and maintaining a low net debt-to-capital ratio of 2.0%, while investing $430.4 million in land and returning $83.1 million to shareholders - Ended Q1 2024 with $905.3 million in cash and cash equivalents[11] - Land acquisition and development spend totaled $430.4 million, a significant increase from $310.1 million in Q1 2023, with total lots owned or controlled growing to approximately 66,400[11] - Debt-to-capital and net debt-to-capital ratios were 17.5% and 2.0%, respectively, as of March 31, 2024[11] - Returned capital to shareholders by increasing the quarterly dividend to $0.75 per share and repurchasing 362,419 shares for $55.9 million[11] Full Year 2024 Guidance Meritage Homes updated its full-year 2024 guidance, projecting home closings between 14,500 and 15,000 units, revenue of $6.0 to $6.2 billion, a gross margin of 24.5-25.0%, and diluted EPS of $19.20 to $20.70 Full Year 2024 Guidance | Metric | Full Year 2024 Projection | | :--- | :--- | | Home closing volume | 14,500-15,000 units | | Home closing revenue | $6.0-6.2 billion | | Home closing gross margin | 24.5-25.0% | | Effective tax rate | Approximately 22.5% | | Diluted EPS | $19.20-20.70 | Consolidated Financial Statements This section presents the unaudited consolidated financial statements for Q1 2024, showing a 42% increase in net earnings to $186.0 million, total assets of $6.5 billion, and $81.9 million in cash from operations Consolidated Income Statement For Q1 2024, home closing revenue increased 16% to $1.47 billion, driving a 34% rise in gross profit to $378.0 million, with net earnings growing 42% to $186.0 million and diluted EPS up 43% to $5.06 Q1 2024 Income Statement Highlights (in thousands) | Line Item | Q1 2024 | Q1 2023 | % Change | | :--- | :--- | :--- | :--- | | Home closing revenue | $1,466,096 thousand | $1,261,923 thousand | 16% | | Total closing gross profit | $377,965 thousand | $283,901 thousand | 33% | | Earnings before income taxes | $234,015 thousand | $165,303 thousand | 42% | | Net earnings | $186,016 thousand | $131,301 thousand | 42% | Q1 2024 Earnings Per Share | Metric | Q1 2024 | Q1 2023 | % Change | | :--- | :--- | :--- | :--- | | Basic EPS | $5.12 | $3.58 | 43% | | Diluted EPS | $5.06 | $3.54 | 43% | Consolidated Balance Sheet As of March 31, 2024, Meritage Homes reported total assets of $6.49 billion, including $905.3 million in cash and $4.91 billion in real estate, with total liabilities at $1.77 billion and stockholders' equity at $4.72 billion Balance Sheet Highlights (in thousands) | Account | March 31, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Cash and cash equivalents | $905,298 thousand | $921,227 thousand | | Real estate | $4,914,512 thousand | $4,721,291 thousand | | Total assets | $6,489,305 thousand | $6,353,134 thousand | | Total liabilities | $1,768,732 thousand | $1,741,234 thousand | | Total stockholders' equity | $4,720,573 thousand | $4,611,900 thousand | | Total liabilities and stockholders' equity | $6,489,305 thousand | $6,353,134 thousand | Consolidated Statement of Cash Flows For Q1 2024, the company generated $81.9 million in cash from operations, but net cash used in financing activities, primarily share repurchases and dividends, led to a $15.9 million net decrease in cash for the quarter Q1 2024 Cash Flow Summary (in thousands) | Cash Flow Activity | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Net cash provided by operating activities | $81,930 thousand | $124,472 thousand | | Net cash used in investing activities | ($7,765) thousand | ($8,728) thousand | | Net cash used in financing activities | ($90,094) thousand | ($20,095) thousand | | Net (decrease)/increase in cash | ($15,929) thousand | $95,649 thousand | Segment and Supplemental Data This section details operational metrics by region, showing the East Region's strong performance in homes closed and ordered, and provides a reconciliation of the company's low 2.0% net debt-to-capital ratio Segment Operating Data In Q1 2024, the East Region led in homes closed and ordered, while the Central Region showed strong order growth, with total active communities remaining stable year-over-year Q1 2024 Homes Closed by Region | Region | Homes Closed | Value (in thousands) | | :--- | :--- | :--- | | West | 1,014 | $515,632 thousand | | Central | 1,167 | $427,565 thousand | | East | 1,326 | $522,899 thousand | | Total | 3,507 | $1,466,096 thousand | Q1 2024 Homes Ordered by Region | Region | Homes Ordered | Value (in thousands) | | :--- | :--- | :--- | | West | 1,170 | $580,805 thousand | | Central | 1,310 | $482,183 thousand | | East | 1,511 | $568,207 thousand | | Total | 3,991 | $1,631,195 thousand | Supplemental and Non-GAAP Information This section reconciles the non-GAAP net debt-to-capital ratio, showing a GAAP debt-to-capital ratio of 17.5% and a net debt-to-capital ratio of 2.0% as of March 31, 2024, reflecting the company's low net leverage Debt-to-Capital Ratios Reconciliation (in thousands) | Metric | March 31, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Total Debt | $1,001,570 thousand | $1,008,215 thousand | | Total Stockholders' Equity | $4,720,573 thousand | $4,611,900 thousand | | Total Capital | $5,722,143 thousand | $5,620,115 thousand | | Debt-to-capital | 17.5% | 17.9% | | Less: Cash | ($905,298) thousand | ($921,227) thousand | | Net Debt | $96,272 thousand | $86,988 thousand | | Net debt-to-capital (Non-GAAP) | 2.0% | 1.9% | Corporate Profile and Forward-Looking Statements Meritage Homes, the fifth-largest public homebuilder in the U.S., specializes in energy-efficient homes across ten states, with the report including a standard disclaimer on forward-looking statements and associated market risks - Meritage Homes is the fifth-largest public homebuilder in the U.S. (based on 2023 homes closed) and specializes in energy-efficient and affordable homes[31] - The company is an eleven-time recipient of the EPA's ENERGY STAR® Partner of the Year for Sustained Excellence Award, highlighting its leadership in energy-efficient homebuilding[32] - The press release contains forward-looking statements regarding 2024 guidance, which are subject to risks including interest rate increases, inflation, cancellation rates, and supply chain constraints[33][34]