Meritage Homes(MTH) - 2024 Q1 - Quarterly Report

Part I. Financial Information Financial Statements Q1 2024 unaudited financials show total assets at $6.49 billion, net earnings at $186.0 million, and operating cash flow at $81.9 million Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Total Assets | $6,489,305 | $6,353,134 | | Cash and cash equivalents | $905,298 | $921,227 | | Real estate | $4,914,512 | $4,721,291 | | Total Liabilities | $1,768,732 | $1,741,234 | | Senior notes, net | $994,966 | $994,689 | | Total Stockholders' Equity | $4,720,573 | $4,611,900 | Consolidated Income Statement Highlights (in thousands, except per share) | Metric | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Total closing revenue | $1,468,401 | $1,279,308 | | Total closing gross profit | $377,965 | $283,901 | | Net earnings | $186,016 | $131,301 | | Diluted EPS | $5.06 | $3.54 | Consolidated Statement of Cash Flows Highlights (in thousands) | Cash Flow Activity | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Net cash provided by operating activities | $81,930 | $124,472 | | Net cash used in investing activities | ($7,765) | ($8,728) | | Net cash used in financing activities | ($90,094) | ($20,095) | | Net (decrease)/increase in cash | ($15,929) | $95,649 | Notes to Unaudited Consolidated Financial Statements Notes detail accounting policies, real estate assets, debt, and segment performance, confirming debt compliance and no significant accounting changes - The company designs and builds single-family homes in ten states across three regions (West, Central, East) and operates a financial services segment offering title, mortgage, and insurance services[18] Real Estate Inventory Composition (in thousands) | Category | March 31, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Homes under contract under construction | $858,943 | $704,206 | | Unsold homes, completed and under construction | $1,304,633 | $1,260,855 | | Model homes | $118,958 | $118,252 | | Finished home sites and sites under development | $2,631,978 | $2,637,978 | | Total | $4,914,512 | $4,721,291 | Lots Under Option or Contract (as of March 31, 2024) | Contract Type | Number of Lots | Purchase Price (in thousands) | | :--- | :--- | :--- | | Committed (non-refundable deposits) | 20,653 | $1,042,376 | | Uncommitted (refundable deposits) | 34,722 | $1,513,780 | | Total | 55,375 | $2,556,156 | Segment Revenue and Operating Income (in thousands) | Segment | Q1 2024 Revenue | Q1 2024 Operating Income | | :--- | :--- | :--- | | West | $515,632 | $71,264 | | Central | $427,565 | $73,103 | | East | $525,204 | $94,277 | | Total Homebuilding | $1,468,401 | $238,644 | Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management reported strong Q1 2024 new home demand, record orders, 16.2% revenue growth to $1.5 billion, and improved gross margin to 25.8% Overview and Outlook Q1 2024 housing demand was strong across demographics, with the company's spec building strategy improving affordability and production efficiency - Strong demand for new homes in Q1 2024 was driven by demographic life events (Millennials, Gen Z, Baby Boomers) and a shortage of existing housing supply[88] - The company's spec building strategy provides quick move-in inventory, which is a highly desirable characteristic for its customers[88] - Supply chain disruptions have eased, leading to significant year-over-year improvements in production costs and cycle times in Q1 2024 compared to Q1 2023[89] Home Closing Revenue, Home Orders and Order Backlog Q1 2024 home closing revenue rose 16.2% to $1.47 billion, with record 3,991 orders, and backlog decreased 22.7% Home Closing Revenue Performance (Q1 2024 vs Q1 2023) | Metric | Q1 2024 | Q1 2023 | % Change | | :--- | :--- | :--- | :--- | | Dollars (thousands) | $1,466,096 | $1,261,923 | 16.2% | | Homes closed | 3,507 | 2,897 | 21.1% | | Average sales price (thousands) | $418.0 | $435.6 | (4.0)% | Home Orders Performance (Q1 2024 vs Q1 2023) | Metric | Q1 2024 | Q1 2023 | % Change | | :--- | :--- | :--- | :--- | | Dollars (thousands) | $1,631,195 | $1,506,893 | 8.2% | | Homes ordered | 3,991 | 3,487 | 14.5% | | Average sales price (thousands) | $408.7 | $432.1 | (5.4)% | - The cancellation rate improved significantly to 8% in Q1 2024 from 15% in Q1 2023, indicating strong buyer sentiment[91][99] Operating Results Q1 2024 home closing gross margin improved 340 bps to 25.8% across all regions, with financial services reporting a $0.7 million loss Home Closing Gross Profit by Region (Q1 2024 vs Q1 2023) | Region | Q1 2024 Margin | Q1 2023 Margin | Basis Point Change | | :--- | :--- | :--- | :--- | | Total | 25.8% | 22.4% | +340 bps | | West | 22.3% | 17.8% | +450 bps | | Central | 27.3% | 24.9% | +240 bps | | East | 28.0% | 24.5% | +350 bps | - The financial services segment reported a loss of $0.7 million in Q1 2024, compared to a $2.9 million profit in Q1 2023, primarily due to a $5.8 million charge for unused prepaid interest rate forward commitments[113] SG&A Expenses as a Percentage of Home Closing Revenue | Expense Category | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Commissions and other sales costs | 6.9% | 6.6% | | General and administrative expenses | 3.5% | 3.8% | Liquidity and Capital Resources The company maintains strong liquidity with $905.3 million cash and $765.3 million credit availability, a 17.5% debt-to-capital ratio - Primary uses of cash include land acquisition, home construction, operating expenses, share repurchases, and dividends. The company expects to meet short-term liquidity needs through cash on hand and operating cash flows[119][121] Key Leverage Ratios | Ratio | March 31, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Debt-to-capital | 17.5% | 17.9% | | Net debt-to-capital | 2.0% | 1.9% | - In Q1 2024, the company paid $27.2 million in dividends ($0.75 per share) and repurchased $55.9 million of its shares[131][135] Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate sensitivity, with $1.0 billion in fixed-rate debt mitigating some long-term exposure - The company's operations are sensitive to interest rates, as increases can adversely affect housing demand and the ability of homebuyers to secure financing[142] - The company's fixed-rate debt consists primarily of $1.0 billion in senior notes, which limits the impact of interest rate changes on existing long-term debt[141] - The company does not utilize derivative interest rate swap financial instruments for trading or speculative purposes[142] Controls and Procedures Management concluded that disclosure controls and procedures were effective as of March 31, 2024, with no material changes to internal controls - Based on an evaluation as of March 31, 2024, the CEO and CFO concluded that the company's disclosure controls and procedures were effective at a reasonable assurance level[143] - No changes in internal control over financial reporting occurred during the quarter that materially affected, or are reasonably likely to materially affect, these controls[145] Part II. Other Information Legal Proceedings The company is involved in routine legal proceedings, with management believing pending matters will not materially impact financial condition - The company is involved in routine legal and regulatory proceedings, such as construction defect claims, which are considered incidental to its business[82] - Management believes that no pending legal or warranty matters as of March 31, 2024, would have a material adverse impact, and reserves are deemed sufficient[82] Risk Factors No material changes to risk factors were reported from the Annual Report on Form 10-K for the year ended December 31, 2023 - There have been no material changes in the company's risk factors from those disclosed in the Annual Report on Form 10-K for the year ended December 31, 2023[148] Unregistered Sales of Equity Securities and Use of Proceeds The company repurchased 362,419 shares in Q1 2024, with $129.1 million remaining available under its authorized stock repurchase program Issuer Purchases of Equity Securities (Q1 2024) | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | Jan 2024 | 35,250 | $168.30 | | Feb 2024 | 327,169 | $152.83 | | Mar 2024 | 0 | N/A | | Total | 362,419 | N/A | - As of March 31, 2024, $129.1 million was still available for share repurchases under the authorized program[149] Other Information No director or officer adopted or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during Q1 2024 - No director or officer adopted or terminated a "Rule 10b5-1 trading arrangement" or "non-Rule 10b5-1 trading arrangement" during the first quarter of 2024[151] Exhibits This section lists all Form 10-Q exhibits, including CEO/CFO certifications and financial statements in Inline XBRL format - The report includes CEO and CFO certifications under Rule 13a-14(a)/15d-14(a) and Section 1350[152] - Financial statements and notes were formatted in Inline XBRL (Extensible Business Reporting Language) as part of the filing[152]