Contacts: | Brent Anderson, VP Investor Relations | ||
(972) 580-6360 (office) | |||
investors@meritagehomes.com |
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||
2016 | 2015 | % Chg | 2016 | 2015 | % Chg | |||||||||||||||||
Homes closed (units) | 1,800 | 1,712 | 5 | % | 5,238 | 4,603 | 14 | % | ||||||||||||||
Home closing revenue | $ | 735,870 | $ | 661,884 | 11 | % | $ | 2,127,332 | $ | 1,770,184 | 20 | % | ||||||||||
Average sales price - closings | $ | 409 | $ | 387 | 6 | % | $ | 406 | $ | 385 | 6 | % | ||||||||||
Home orders (units) | 1,737 | 1,567 | 11 | % | 5,797 | 5,532 | 5 | % | ||||||||||||||
Home order value | $ | 715,562 | $ | 629,977 | 14 | % | $ | 2,365,508 | $ | 2,188,604 | 8 | % | ||||||||||
Average sales price - orders | $ | 412 | $ | 402 | 2 | % | $ | 408 | $ | 396 | 3 | % | ||||||||||
Ending backlog (units) | 3,251 | 3,043 | 7 | % | ||||||||||||||||||
Ending backlog value | $ | 1,375,857 | $ | 1,264,872 | 9 | % | ||||||||||||||||
Average sales price - backlog | $ | 423 | $ | 416 | 2 | % | ||||||||||||||||
Net earnings | $ | 36,887 | $ | 30,308 | 22 | % | $ | 97,734 | $ | 75,841 | 29 | % | ||||||||||
Diluted EPS | $ | 0.88 | $ | 0.73 | 21 | % | $ | 2.33 | $ | 1.83 | 27 | % |
• | Net earnings for the third quarter of 2016 were $36.9 million or $0.88 per diluted share, 22% higher than the $30.3 million or $0.73 per diluted share reported for the third quarter of 2015, primarily reflecting higher home closing revenue offsetting lower home closing gross margins in the 2016 quarter. |
• | Home closing revenue increased 11% over the third quarter of 2015, combining a 5% increase in home closings with a 6% increase in the average price of homes closed during the quarter. The rise in average closing price was driven primarily by increased closings and higher average prices in the West region. Central region home closing revenue grew 9% on a 5% increase in closings over the prior year. Closings grew 10% in the East region, partially offset by a 3% decline in average closing price, for a 6% increase in home closing revenue. |
• | Home closing gross margin of 17.8% in the third quarter of 2016 declined from 19.0% in the third quarter of 2015, though it improved sequentially from 17.3% in the second quarter of 2016. Margins have been compressed in 2016 primarily due to limited pricing power to offset increased land and construction costs. |
• | Selling, general and administrative expenses were 11.4% of third quarter 2016 total closing revenue, compared to 11.5% in the prior year. |
• | Interest expense decreased by $4.0 million to $0.2 million in the third quarter of 2016, as more interest incurred was capitalized to assets under development. |
• | Other income/(expense) increased by a net $5.4 million in the third quarter of 2016 compared to 2015, reflecting a $4.1 million adverse legal ruling in 2015, while the 2016 quarter included additional income from municipalities related to reimbursable property development expenditures. |
• | The effective tax rate was 31.4% in the third quarter of 2016, compared to 35.1% in the third quarter of 2015, reflecting the benefit from federal energy tax credits on Meritage’s highly energy efficient homes. The benefit was recognized in the third quarter of 2016 compared to the fourth quarter of 2015, following the legislative extension of energy tax credits. |
• | Total order value grew 14% to $715.6 million in the third quarter of 2016, compared to $630.0 million in the third quarter of the prior year. Total orders increased 11% due to a 14% increase in orders per average community, despite a lower community count in the third quarter of 2016 than in 2015. Orders per average community were 7.3 in the third quarter of 2016 compared to 6.4 in the prior year. Average sales prices also rose 2% over 2015’s third quarter. |
• | Ending community count at September 30, 2016 was 237, compared to 250 at September 30, 2015, with a 2% decline in average active communities for the third quarter of 2016 compared to 2015. |
• | September 30th ending backlog value was 9% higher in 2016 than in 2015, combining 7% more units in backlog with a 2% increase in the average price of orders in backlog. |
• | Net earnings were $97.7 million or $2.33 per fully diluted share for the first nine months of 2016, compared to $75.8 million or $1.83 per diluted share for the first nine months of 2015, a 29% increase in net earnings and 27% increase in fully diluted EPS. The increased earnings were primarily the result of a 20% increase in 2016 year-to-date home closing revenue and greater overhead leverage, partially offset by lower home closing gross margins. |
• | Home closings for the first three quarters of the year increased 14% over 2015, and average closing prices increased 6% for the same period. |
• | Year-to-date home closing gross margin in 2016 was 17.5%, compared to 18.9% for 2015, reflecting limited pricing power relative to increased land and construction costs, as well as immature markets within the East region. |
• | Total commissions and selling expenses declined to 7.3% of year-to-date 2016 home closing revenue from 7.6% in 2015. General and administrative expenses declined to 4.3% of total closing revenue in 2016 compared to 4.8% in 2015. |
• | Interest expense for the first nine months of the year decreased to $5.1 million in 2016 compared to $12.0 million in 2015, as more interest was capitalized to assets under development. |
• | The company ended the third quarter of 2016 with $107.9 million in cash and cash equivalents, compared to $262.2 million at December 31, 2015. The decrease in cash was primarily due to investments in real estate inventory as a result of organic growth. The company had $25 million drawn on its revolving credit facility at quarter-end, which was repaid in early October. |
• | Real estate assets increased to $2.43 billion at September 30, 2016, compared to $2.10 billion at December 31, 2015, as the balance of homes under contract under construction increased $176 million, accounting for most of the increase. |
• | Net debt-to-capital ratio at September 30 was 43.0%, consistent with June 30, 2016 at 42.6%, and up from 40.4% at December 31, 2015 due to the use of cash to replenish the company’s land pipeline, as well as a growing inventory of homes under construction during 2016. |
• | Total lot supply at the end of the quarter was approximately 28,800, compared to approximately 29,000 at September 30, 2015 and 27,800 at year-end 2015. Based on trailing twelve months closings, total lots at September 30, 2016 represented approximately a 4.0 year supply of lots. |
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2016 | 2015 | 2016 | 2015 | |||||||||||||
Homebuilding: | ||||||||||||||||
Home closing revenue | $ | 735,870 | $ | 661,884 | $ | 2,127,332 | $ | 1,770,184 | ||||||||
Land closing revenue | 16,987 | 8,072 | 21,187 | 16,285 | ||||||||||||
Total closing revenue | 752,857 | 669,956 | 2,148,519 | 1,786,469 | ||||||||||||
Cost of home closings | (604,891 | ) | (536,267 | ) | (1,755,260 | ) | (1,434,843 | ) | ||||||||
Cost of land closings | (16,092 | ) | (7,445 | ) | (19,485 | ) | (14,992 | ) | ||||||||
Total cost of closings | (620,983 | ) | (543,712 | ) | (1,774,745 | ) | (1,449,835 | ) | ||||||||
Home closing gross profit | 130,979 | 125,617 | 372,072 | 335,341 | ||||||||||||
Land closing gross profit | 895 | 627 | 1,702 | 1,293 | ||||||||||||
Total closing gross profit | 131,874 | 126,244 | 373,774 | 336,634 | ||||||||||||
Financial Services: | ||||||||||||||||
Revenue | 3,139 | 3,000 | 9,115 | 8,276 | ||||||||||||
Expense | (1,398 | ) | (1,253 | ) | (4,152 | ) | (3,914 | ) | ||||||||
Earnings from financial services unconsolidated entities and other, net | 4,215 | 3,854 | 10,802 | 9,155 | ||||||||||||
Financial services profit | 5,956 | 5,601 | 15,765 | 13,517 | ||||||||||||
Commissions and other sales costs | (52,478 | ) | (48,097 | ) | (155,034 | ) | (134,876 | ) | ||||||||
General and administrative expenses | (33,258 | ) | (28,774 | ) | (91,774 | ) | (86,074 | ) | ||||||||
Earnings/(loss) from other unconsolidated entities, net | 440 | (123 | ) | 856 | (415 | ) | ||||||||||
Interest expense | (167 | ) | (4,187 | ) | (5,127 | ) | (11,962 | ) | ||||||||
Other income/(expense), net | 1,435 | (3,996 | ) | 3,263 | (3,445 | ) | ||||||||||
Earnings before income taxes | 53,802 | 46,668 | 141,723 | 113,379 | ||||||||||||
Provision for income taxes | (16,915 | ) | (16,360 | ) | (43,989 | ) | (37,538 | ) | ||||||||
Net earnings | $ | 36,887 | $ | 30,308 | $ | 97,734 | $ | 75,841 | ||||||||
Earnings per share: | ||||||||||||||||
Basic | ||||||||||||||||
Earnings per share | $ | 0.92 | $ | 0.76 | $ | 2.45 | $ | 1.92 | ||||||||
Weighted average shares outstanding | 40,022 | 39,663 | 39,958 | 39,568 | ||||||||||||
Diluted | ||||||||||||||||
Earnings per share | $ | 0.88 | $ | 0.73 | $ | 2.33 | $ | 1.83 | ||||||||
Weighted average shares outstanding | 42,608 | 42,192 | 42,541 | 42,134 |
September 30, 2016 | December 31, 2015 | |||||||
Assets: | ||||||||
Cash and cash equivalents | $ | 107,915 | $ | 262,208 | ||||
Other receivables | 76,371 | 57,296 | ||||||
Real estate (1) | 2,429,014 | 2,098,302 | ||||||
Deposits on real estate under option or contract | 91,053 | 87,839 | ||||||
Investments in unconsolidated entities | 11,831 | 11,370 | ||||||
Property and equipment, net | 33,983 | 33,970 | ||||||
Deferred tax asset | 57,552 | 59,147 | ||||||
Prepaids, other assets and goodwill | 65,436 | 69,645 | ||||||
Total assets | $ | 2,873,155 | $ | 2,679,777 | ||||
Liabilities: | ||||||||
Accounts payable | $ | 148,260 | $ | 106,440 | ||||
Accrued liabilities | 180,687 | 161,163 | ||||||
Home sale deposits | 36,988 | 36,197 | ||||||
Loans payable and other borrowings | 45,183 | 23,867 | ||||||
Senior and convertible senior notes, net | 1,094,632 | 1,093,173 | ||||||
Total liabilities | 1,505,750 | 1,420,840 | ||||||
Stockholders' Equity: | ||||||||
Preferred stock | — | — | ||||||
Common stock | 400 | 397 | ||||||
Additional paid-in capital | 570,223 | 559,492 | ||||||
Retained earnings | 796,782 | 699,048 | ||||||
Total stockholders’ equity | 1,367,405 | 1,258,937 | ||||||
Total liabilities and stockholders’ equity | $ | 2,873,155 | $ | 2,679,777 | ||||
(1) Real estate – Allocated costs: | ||||||||
Homes under contract under construction | $ | 632,454 | $ | 456,138 | ||||
Unsold homes, completed and under construction | 377,490 | 307,425 | ||||||
Model homes | 150,662 | 138,546 | ||||||
Finished home sites and home sites under development | 1,268,408 | 1,196,193 | ||||||
Total real estate | $ | 2,429,014 | $ | 2,098,302 |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2016 | 2015 | 2016 | 2015 | ||||||||||||
Depreciation and amortization | $ | 3,870 | $ | 3,565 | $ | 11,470 | $ | 10,294 | |||||||
Summary of Capitalized Interest: | |||||||||||||||
Capitalized interest, beginning of period | $ | 64,682 | $ | 58,870 | $ | 61,202 | $ | 54,060 | |||||||
Interest incurred | 17,372 | 17,857 | 52,644 | 49,665 | |||||||||||
Interest expensed | (167 | ) | (4,187 | ) | (5,127 | ) | (11,962 | ) | |||||||
Interest amortized to cost of home and land closings | (14,256 | ) | (11,144 | ) | (41,088 | ) | (30,367 | ) | |||||||
Capitalized interest, end of period | $ | 67,631 | $ | 61,396 | $ | 67,631 | $ | 61,396 | |||||||
September 30, 2016 | December 31, 2015 | ||||||||||||||
Notes payable and other borrowings | $ | 1,139,815 | $ | 1,117,040 | |||||||||||
Stockholders' equity | 1,367,405 | 1,258,937 | |||||||||||||
Total capital | 2,507,220 | 2,375,977 | |||||||||||||
Debt-to-capital | 45.5 | % | 47.0 | % | |||||||||||
Notes payable and other borrowings | $ | 1,139,815 | $ | 1,117,040 | |||||||||||
Less: cash and cash equivalents | $ | (107,915 | ) | $ | (262,208 | ) | |||||||||
Net debt | 1,031,900 | 854,832 | |||||||||||||
Stockholders’ equity | 1,367,405 | 1,258,937 | |||||||||||||
Total net capital | $ | 2,399,305 | $ | 2,113,769 | |||||||||||
Net debt-to-capital | 43.0 | % | 40.4 | % |
Nine Months Ended September 30, | ||||||||
2016 | 2015 | |||||||
Cash flows from operating activities: | ||||||||
Net earnings | $ | 97,734 | $ | 75,841 | ||||
Adjustments to reconcile net earnings to net cash used in operating activities: | ||||||||
Depreciation and amortization | 11,470 | 10,294 | ||||||
Stock-based compensation | 11,042 | 12,418 | ||||||
Excess income tax provision/(benefit) from stock-based awards | 540 | (2,040 | ) | |||||
Equity in earnings from unconsolidated entities | (11,658 | ) | (8,740 | ) | ||||
Distribution of earnings from unconsolidated entities | 11,439 | 9,446 | ||||||
Other | 4,942 | 1,246 | ||||||
Changes in assets and liabilities: | ||||||||
Increase in real estate | (318,490 | ) | (198,520 | ) | ||||
(Increase)/decrease in deposits on real estate under option or contract | (3,160 | ) | 2,719 | |||||
Increase in other receivables, prepaids and other assets | (14,201 | ) | (6,067 | ) | ||||
Increase in accounts payable and accrued liabilities | 61,206 | 39,949 | ||||||
Increase in home sale deposits | 791 | 10,208 | ||||||
Net cash used in operating activities | (148,345 | ) | (53,246 | ) | ||||
Cash flows from investing activities: | ||||||||
Investments in unconsolidated entities | (242 | ) | (300 | ) | ||||
Purchases of property and equipment | (12,256 | ) | (12,334 | ) | ||||
Proceeds from sales of property and equipment | 144 | 92 | ||||||
Maturities/sales of investments and securities | 645 | — | ||||||
Payments to purchase investments and securities | (645 | ) | — | |||||
Net cash used in investing activities | (12,354 | ) | (12,542 | ) | ||||
Cash flows from financing activities: | ||||||||
Proceeds from Credit Facility, net | 25,000 | — | ||||||
Repayment of loans payable and other borrowings | (18,286 | ) | (4,044 | ) | ||||
Proceeds from issuance of senior notes | — | 200,000 | ||||||
Debt issuance costs | — | (3,013 | ) | |||||
Excess income tax (provision)/benefit from stock-based awards | (540 | ) | 2,040 | |||||
Proceeds from stock option exercises | 232 | 2,881 | ||||||
Net cash provided by financing activities | 6,406 | 197,864 | ||||||
Net (decrease)/increase in cash and cash equivalents | (154,293 | ) | 132,076 | |||||
Beginning cash and cash equivalents | 262,208 | 103,333 | ||||||
Ending cash and cash equivalents | $ | 107,915 | $ | 235,409 |
Three Months Ended September 30, | ||||||||||||||
2016 | 2015 | |||||||||||||
Homes | Value | Homes | Value | |||||||||||
Homes Closed: | ||||||||||||||
Arizona | 253 | $ | 89,092 | 302 | $ | 92,888 | ||||||||
California | 251 | 142,056 | 236 | 120,387 | ||||||||||
Colorado | 167 | 84,114 | 123 | 56,927 | ||||||||||
West Region | 671 | 315,262 | 661 | 270,202 | ||||||||||
Texas | 542 | 199,499 | 517 | 183,455 | ||||||||||
Central Region | 542 | 199,499 | 517 | 183,455 | ||||||||||
Florida | 206 | 85,647 | 202 | 90,285 | ||||||||||
Georgia | 83 | 27,477 | 62 | 20,663 | ||||||||||
North Carolina | 177 | 71,641 | 165 | 63,532 | ||||||||||
South Carolina | 76 | 22,658 | 80 | 25,812 | ||||||||||
Tennessee | 45 | 13,686 | 25 | 7,935 | ||||||||||
East Region | 587 | 221,109 | 534 | 208,227 | ||||||||||
Total | 1,800 | $ | 735,870 | 1,712 | $ | 661,884 | ||||||||
Homes Ordered: | ||||||||||||||
Arizona | 345 | $ | 116,815 | 272 | $ | 96,867 | ||||||||
California | 216 | 125,920 | 203 | 110,076 | ||||||||||
Colorado | 121 | 66,213 | 84 | 43,782 | ||||||||||
West Region | 682 | 308,948 | 559 | 250,725 | ||||||||||
Texas | 488 | 178,934 | 452 | 165,206 | ||||||||||
Central Region | 488 | 178,934 | 452 | 165,206 | ||||||||||
Florida | 208 | 95,946 | 227 | 94,114 | ||||||||||
Georgia | 85 | 28,841 | 67 | 23,143 | ||||||||||
North Carolina | 149 | 61,537 | 138 | 57,168 | ||||||||||
South Carolina | 71 | 22,434 | 88 | 26,766 | ||||||||||
Tennessee | 54 | 18,922 | 36 | 12,855 | ||||||||||
East Region | 567 | 227,680 | 556 | 214,046 | ||||||||||
Total | 1,737 | $ | 715,562 | 1,567 | $ | 629,977 |
Nine Months Ended September 30, | ||||||||||||||
2016 | 2015 | |||||||||||||
Homes | Value | Homes | Value | |||||||||||
Homes Closed: | ||||||||||||||
Arizona | 749 | $ | 258,139 | 717 | $ | 227,367 | ||||||||
California | 738 | 418,834 | 565 | 302,573 | ||||||||||
Colorado | 474 | 231,913 | 364 | 166,914 | ||||||||||
West Region | 1,961 | 908,886 | 1,646 | 696,854 | ||||||||||
Texas | 1,563 | 566,377 | 1,466 | 510,439 | ||||||||||
Central Region | 1,563 | 566,377 | 1,466 | 510,439 | ||||||||||
Florida | 619 | 252,311 | 589 | 254,607 | ||||||||||
Georgia | 229 | 76,874 | 156 | 49,178 | ||||||||||
North Carolina | 474 | 198,525 | 389 | 148,721 | ||||||||||
South Carolina | 231 | 71,577 | 247 | 77,630 | ||||||||||
Tennessee | 161 | 52,782 | 110 | 32,755 | ||||||||||
East Region | 1,714 | 652,069 | 1,491 | 562,891 | ||||||||||
Total | 5,238 | $ | 2,127,332 | 4,603 | $ | 1,770,184 | ||||||||
Homes Ordered: | ||||||||||||||
Arizona | 935 | $ | 322,807 | 880 | $ | 290,172 | ||||||||
California | 775 | 442,863 | 750 | 419,987 | ||||||||||
Colorado | 459 | 237,237 | 454 | 213,610 | ||||||||||
West Region | 2,169 | 1,002,907 | 2,084 | 923,769 | ||||||||||
Texas | 1,629 | 597,947 | 1,644 | 574,533 | ||||||||||
Central Region | 1,629 | 597,947 | 1,644 | 574,533 | ||||||||||
Florida | 702 | 295,453 | 693 | 295,634 | ||||||||||
Georgia | 305 | 102,392 | 197 | 64,051 | ||||||||||
North Carolina | 497 | 205,562 | 467 | 191,460 | ||||||||||
South Carolina | 296 | 95,123 | 283 | 85,767 | ||||||||||
Tennessee | 199 | 66,124 | 164 | 53,390 | ||||||||||
East Region | 1,999 | 764,654 | 1,804 | 690,302 | ||||||||||
Total | 5,797 | $ | 2,365,508 | 5,532 | $ | 2,188,604 | ||||||||
Order Backlog: | ||||||||||||||
Arizona | 503 | $ | 182,574 | 355 | $ | 129,023 | ||||||||
California | 326 | 208,175 | 397 | 241,377 | ||||||||||
Colorado | 317 | 167,475 | 358 | 168,329 | ||||||||||
West Region | 1,146 | 558,224 | 1,110 | 538,729 | ||||||||||
Texas | 1,008 | 381,764 | 1,036 | 373,135 | ||||||||||
Central Region | 1,008 | 381,764 | 1,036 | 373,135 | ||||||||||
Florida | 370 | 161,148 | 341 | 143,597 | ||||||||||
Georgia | 171 | 58,944 | 94 | 31,457 | ||||||||||
North Carolina | 283 | 118,515 | 263 | 110,907 | ||||||||||
South Carolina | 153 | 53,657 | 106 | 34,257 | ||||||||||
Tennessee | 120 | 43,605 | 93 | 32,790 | ||||||||||
East Region | 1,097 | 435,869 | 897 | 353,008 | ||||||||||
Total | 3,251 | $ | 1,375,857 | 3,043 | $ | 1,264,872 |
Three Months Ended September 30, | ||||||||||||
2016 | 2015 | |||||||||||
Ending | Average | Ending | Average | |||||||||
Active Communities: | ||||||||||||
Arizona | 40 | 41.5 | 41 | 42.0 | ||||||||
California | 29 | 27.0 | 26 | 23.0 | ||||||||
Colorado | 10 | 11.0 | 15 | 15.5 | ||||||||
West Region | 79 | 79.5 | 82 | 80.5 | ||||||||
Texas | 74 | 73.5 | 70 | 68.0 | ||||||||
Central Region | 74 | 73.5 | 70 | 68.0 | ||||||||
Florida | 26 | 26.0 | 31 | 30.5 | ||||||||
Georgia | 17 | 17.0 | 17 | 16.5 | ||||||||
North Carolina | 19 | 20.5 | 25 | 25.0 | ||||||||
South Carolina | 15 | 15.5 | 17 | 18.5 | ||||||||
Tennessee | 7 | 7.0 | 8 | 6.0 | ||||||||
East Region | 84 | 86.0 | 98 | 96.5 | ||||||||
Total | 237 | 239.0 | 250 | 245.0 |
Nine Months Ended September 30, | ||||||||||||
2016 | 2015 | |||||||||||
Ending | Average | Ending | Average | |||||||||
Active Communities: | ||||||||||||
Arizona | 40 | 40.5 | 41 | 41.0 | ||||||||
California | 29 | 26.5 | 26 | 25.0 | ||||||||
Colorado | 10 | 13.0 | 15 | 16.0 | ||||||||
West Region | 79 | 80.0 | 82 | 82.0 | ||||||||
Texas | 74 | 73.0 | 70 | 64.5 | ||||||||
Central Region | 74 | 73.0 | 70 | 64.5 | ||||||||
Florida | 26 | 28.5 | 31 | 30.0 | ||||||||
Georgia | 17 | 17.0 | 17 | 15.0 | ||||||||
North Carolina | 19 | 22.5 | 25 | 23.0 | ||||||||
South Carolina | 15 | 16.5 | 17 | 18.5 | ||||||||
Tennessee | 7 | 8.0 | 8 | 6.5 | ||||||||
East Region | 84 | 92.5 | 98 | 93.0 | ||||||||
Total | 237 | 245.5 | 250 | 239.5 |