Contacts: | Brent Anderson, VP Investor Relations | ||
(972) 580-6360 (office) | |||
investors@meritagehomes.com |
Three Months Ended December 31, | Twelve Months Ended December 31, | |||||||||||||||||||||
2016 | 2015 | % Chg | 2016 | 2015 | % Chg | |||||||||||||||||
Homes closed (units) | 2,117 | 1,919 | 10 | % | 7,355 | 6,522 | 13 | % | ||||||||||||||
Home closing revenue | $ | 876,094 | $ | 761,372 | 15 | % | $ | 3,003,426 | $ | 2,531,556 | 19 | % | ||||||||||
Average sales price - closings | $ | 414 | $ | 397 | 4 | % | $ | 408 | $ | 388 | 5 | % | ||||||||||
Home orders (units) | 1,493 | 1,568 | (5 | )% | 7,290 | 7,100 | 3 | % | ||||||||||||||
Home order value | $ | 635,995 | $ | 634,181 | — | % | $ | 3,001,503 | $ | 2,822,785 | 6 | % | ||||||||||
Average sales price - orders | $ | 426 | $ | 404 | 5 | % | $ | 412 | $ | 398 | 4 | % | ||||||||||
Ending backlog (units) | 2,627 | 2,692 | (2 | )% | ||||||||||||||||||
Ending backlog value | $ | 1,135,758 | $ | 1,137,681 | — | % | ||||||||||||||||
Average sales price - backlog | $ | 432 | $ | 423 | 2 | % | ||||||||||||||||
Net earnings | $ | 51,807 | $ | 52,897 | (2 | )% | $ | 149,541 | $ | 128,738 | 16 | % | ||||||||||
Diluted EPS | $ | 1.22 | $ | 1.26 | (3 | )% | $ | 3.55 | $ | 3.09 | 15 | % |
• | Net earnings for the fourth quarter of 2016 were $51.8 million or $1.22 per diluted share, compared to $52.9 million or $1.26 per diluted share reported for the fourth quarter of 2015. A 15% increase in home closing revenue was partially offset by higher construction labor, land and development costs, as well as lower land |
• | Home closing revenue increased to $876.1 million for the fourth quarter of 2016, compared to $761.4 million for the fourth quarter of 2015, reflecting a 10% increase in home closings and a 4% increase in the average price of homes closed during the quarter. The regions that posted the best year-over-year increases in home closing revenue were the East region (notably Georgia, Tennessee and the Carolinas), delivering a 22% revenue increase on 20% greater closings, and the West region (notably Arizona and Colorado), where home closing revenue was up 14% over the fourth quarter of 2015. Texas home closing revenue rose 9% primarily due to an 8% increase in average closing price. |
• | Home closing gross margin of 17.9% in the fourth quarter of 2016 was the highest quarterly margin in 2016, benefiting from cost efficiencies related to higher closings and revenue. It was lower than last year’s fourth quarter margin of 19.3%, primarily due to the impact of cost inflation in land and construction. |
• | Selling, general and administrative expenses of 10.5% were flat with the prior year’s fourth quarter, and improved sequentially from the third quarter’s 11.7% due to the leverage from higher closing revenue, as well as management cost controls. |
• | Nearly 100% of interest incurred was capitalized to additional assets under development, resulting in a negligible amount of interest expense in the fourth quarter of 2016, compared to $4.0 million in the prior year. |
• | The fourth quarter effective tax rate was 32.1% in 2016, compared to 30.5% in the fourth quarter of 2015, due to the timing of recognition of federal energy tax credits on Meritage’s highly energy efficient homes. The benefit was recognized throughout 2016 instead of being fully recognized in the fourth quarter, as it was in 2015 following the legislative extension of tax credits. |
• | Total order value for the quarter was consistent with the fourth quarter of 2015, as a 5% increase in average sales price offset a 5% decline in orders, while absorptions per community were consistent with the prior year’s fourth quarter. |
• | Orders and order value increased in the West region, primarily due to strong demand in Arizona and Colorado, as well as in the Central region, primarily due to growth in community count to meet demand. Order volumes in the East region were 27% lower than the prior year’s fourth quarter, primarily due to a 16% decline in average community count, from 100 in 2015 to 84 in 2016. |
• | Ending community count at December 31, 2016 was 243, compared to 254 at December 31, 2015, but up sequentially from 237 at September 30, 2016. Various delays pushed the opening dates for a number of communities into 2017, which are expected to occur in the first half of the year. |
• | Net earnings were up 16% year over year to $149.5 million ($3.55 per fully diluted share) for the full year of 2016, compared to $128.7 million ($3.09 per fully diluted share) for 2015. The earnings increase was primarily due to 19% growth in home closing revenue, combined with a 14% increase in financial services profit, improved overhead leverage, reduced interest expense and increased other income, partially offset by lower home closing gross margin and land closing profit compared to 2015. |
• | Meritage closed 13% more homes in 2016 than in 2015, at an average sales price of $408,000 compared to $388,000 in 2015. The combination of higher closing volume and prices drove the increase in annual home closing revenue. |
• | Overhead leverage improved by 60 bps as total selling, general and administrative expenses declined to 11.3% in 2016 from 11.9% in 2015. The improvement reflects a revised commission structure and cost controls implemented by management during 2016. |
• | Interest expense for the full year decreased to $5.2 million in 2016 compared to $16.0 million in 2015, as most interest incurred was capitalized to higher real estate assets under development. |
• | Home closing gross margin in 2016 was 17.6%, compared to 19.0% for 2015, reflecting higher costs with limited pricing power to offset them, as well as the close-out of several high-margin communities. |
• | The company ended the fourth quarter of 2016 with $131.7 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. $15.0 million was drawn on the revolving credit facility at year-end 2016 with no comparable balance outstanding at December 31, 2015. |
• | Real estate assets increased to $2.42 billion at December 31, 2016, compared to $2.10 billion at December 31, 2015, primarily due to increases in the balances of finished home sites and home sites under development, as well as unsold homes. |
• | Net debt-to-capital ratio at December 31, 2016 was 41.2%, compared to 40.4% at December 31, 2015, reflecting the investment of cash into inventory of homes and land under development. |
• | Total lot supply at the end of the quarter was approximately 29,800, a 7% increase over approximately 27,800 lots at December 31, 2015, representing approximately four years’ supply of lots based on trailing twelve months closings on both dates. |
Three Months Ended December 31, | Twelve Months Ended December 31, | |||||||||||||||
2016 | 2015 | 2016 | 2015 | |||||||||||||
Homebuilding: | ||||||||||||||||
Home closing revenue | $ | 876,094 | $ | 761,372 | $ | 3,003,426 | $ | 2,531,556 | ||||||||
Land closing revenue | 4,614 | 20,241 | 25,801 | 36,526 | ||||||||||||
Total closing revenue | 880,708 | 781,613 | 3,029,227 | 2,568,082 | ||||||||||||
Cost of home closings | (719,324 | ) | (614,794 | ) | (2,474,584 | ) | (2,049,637 | ) | ||||||||
Cost of land closings | (3,946 | ) | (14,744 | ) | (23,431 | ) | (29,736 | ) | ||||||||
Total cost of closings | (723,270 | ) | (629,538 | ) | (2,498,015 | ) | (2,079,373 | ) | ||||||||
Home closing gross profit | 156,770 | 146,578 | 528,842 | 481,919 | ||||||||||||
Land closing gross profit | 668 | 5,497 | 2,370 | 6,790 | ||||||||||||
Total closing gross profit | 157,438 | 152,075 | 531,212 | 488,709 | ||||||||||||
Financial Services: | ||||||||||||||||
Revenue | 3,392 | 3,101 | 12,507 | 11,377 | ||||||||||||
Expense | (1,435 | ) | (1,289 | ) | (5,587 | ) | (5,203 | ) | ||||||||
Earnings from financial services unconsolidated entities and other, net | 4,180 | 3,942 | 14,982 | 13,097 | ||||||||||||
Financial services profit | 6,137 | 5,754 | 21,902 | 19,271 | ||||||||||||
Commissions and other sales costs | (60,058 | ) | (53,542 | ) | (215,092 | ) | (188,418 | ) | ||||||||
General and administrative expenses | (32,029 | ) | (26,775 | ) | (123,803 | ) | (112,849 | ) | ||||||||
Earnings/(loss) from other unconsolidated entities, net | 3,204 | 77 | 4,060 | (338 | ) | |||||||||||
Interest expense | (45 | ) | (4,003 | ) | (5,172 | ) | (15,965 | ) | ||||||||
Other income/(expense), net | 1,690 | 2,499 | 4,953 | (946 | ) | |||||||||||
Earnings before income taxes | 76,337 | 76,085 | 218,060 | 189,464 | ||||||||||||
Provision for income taxes | (24,530 | ) | (23,188 | ) | (68,519 | ) | (60,726 | ) | ||||||||
Net earnings | $ | 51,807 | $ | 52,897 | $ | 149,541 | $ | 128,738 | ||||||||
Earnings per share: | ||||||||||||||||
Basic | ||||||||||||||||
Earnings per share | $ | 1.29 | $ | 1.33 | $ | 3.74 | $ | 3.25 | ||||||||
Weighted average shares outstanding | 40,028 | 39,667 | 39,976 | 39,593 | ||||||||||||
Diluted | ||||||||||||||||
Earnings per share | $ | 1.22 | $ | 1.26 | $ | 3.55 | $ | 3.09 | ||||||||
Weighted average shares outstanding | 42,667 | 42,214 | 42,585 | 42,164 |
December 31, 2016 | December 31, 2015 | |||||||
Assets: | ||||||||
Cash and cash equivalents | $ | 131,702 | $ | 262,208 | ||||
Other receivables | 70,355 | 57,296 | ||||||
Real estate (1) | 2,422,063 | 2,098,302 | ||||||
Deposits on real estate under option or contract | 85,556 | 87,839 | ||||||
Investments in unconsolidated entities | 17,097 | 11,370 | ||||||
Property and equipment, net | 33,202 | 33,970 | ||||||
Deferred tax asset | 53,320 | 59,147 | ||||||
Prepaids, other assets and goodwill | 75,396 | 69,645 | ||||||
Total assets | $ | 2,888,691 | $ | 2,679,777 | ||||
Liabilities: | ||||||||
Accounts payable | $ | 140,682 | $ | 106,440 | ||||
Accrued liabilities | 170,852 | 161,163 | ||||||
Home sale deposits | 28,348 | 36,197 | ||||||
Loans payable and other borrowings | 32,195 | 23,867 | ||||||
Senior and convertible senior notes, net | 1,095,119 | 1,093,173 | ||||||
Total liabilities | 1,467,196 | 1,420,840 | ||||||
Stockholders' Equity: | ||||||||
Preferred stock | — | — | ||||||
Common stock | 400 | 397 | ||||||
Additional paid-in capital | 572,506 | 559,492 | ||||||
Retained earnings | 848,589 | 699,048 | ||||||
Total stockholders’ equity | 1,421,495 | 1,258,937 | ||||||
Total liabilities and stockholders’ equity | $ | 2,888,691 | $ | 2,679,777 | ||||
(1) Real estate – Allocated costs: | ||||||||
Homes under contract under construction | $ | 508,927 | $ | 456,138 | ||||
Unsold homes, completed and under construction | 431,725 | 307,425 | ||||||
Model homes | 147,406 | 138,546 | ||||||
Finished home sites and home sites under development | 1,334,005 | 1,196,193 | ||||||
Total real estate | $ | 2,422,063 | $ | 2,098,302 |
Three Months Ended December 31, | Twelve Months Ended December 31, | ||||||||||||||
2016 | 2015 | 2016 | 2015 | ||||||||||||
Depreciation and amortization | $ | 4,508 | $ | 3,947 | $ | 15,978 | $ | 14,241 | |||||||
Summary of Capitalized Interest: | |||||||||||||||
Capitalized interest, beginning of period | $ | 67,631 | $ | 61,396 | $ | 61,202 | $ | 54,060 | |||||||
Interest incurred | 17,704 | 17,877 | 70,348 | 67,542 | |||||||||||
Interest expensed | (45 | ) | (4,003 | ) | (5,172 | ) | (15,965 | ) | |||||||
Interest amortized to cost of home and land closings | (17,094 | ) | (14,068 | ) | (58,182 | ) | (44,435 | ) | |||||||
Capitalized interest, end of period | $ | 68,196 | $ | 61,202 | $ | 68,196 | $ | 61,202 | |||||||
December 31, 2016 | December 31, 2015 | ||||||||||||||
Notes payable and other borrowings | $ | 1,127,314 | $ | 1,117,040 | |||||||||||
Stockholders' equity | 1,421,495 | 1,258,937 | |||||||||||||
Total capital | 2,548,809 | 2,375,977 | |||||||||||||
Debt-to-capital | 44.2 | % | 47.0 | % | |||||||||||
Notes payable and other borrowings | $ | 1,127,314 | $ | 1,117,040 | |||||||||||
Less: cash and cash equivalents | $ | (131,702 | ) | $ | (262,208 | ) | |||||||||
Net debt | 995,612 | 854,832 | |||||||||||||
Stockholders’ equity | 1,421,495 | 1,258,937 | |||||||||||||
Total net capital | $ | 2,417,107 | $ | 2,113,769 | |||||||||||
Net debt-to-capital | 41.2 | % | 40.4 | % |
Twelve Months Ended December 31, | ||||||||
2016 | 2015 | |||||||
Cash flows from operating activities: | ||||||||
Net earnings | $ | 149,541 | $ | 128,738 | ||||
Adjustments to reconcile net earnings to net cash used in operating activities: | ||||||||
Depreciation and amortization | 15,978 | 14,241 | ||||||
Stock-based compensation | 13,741 | 15,781 | ||||||
Excess income tax provision/(benefit) from stock-based awards | 956 | (2,043 | ) | |||||
Equity in earnings from unconsolidated entities | (19,042 | ) | (12,759 | ) | ||||
Distribution of earnings from unconsolidated entities | 16,959 | 12,650 | ||||||
Other | 9,539 | 11,530 | ||||||
Changes in assets and liabilities: | ||||||||
Increase in real estate | (311,426 | ) | (209,407 | ) | ||||
Decrease in deposits on real estate under option or contract | 2,337 | 6,316 | ||||||
Increase in other receivables, prepaids and other assets | (17,513 | ) | (7,083 | ) | ||||
Increase in accounts payable and accrued liabilities | 43,377 | 31,883 | ||||||
(Decrease)/increase in home sale deposits | (7,849 | ) | 6,818 | |||||
Net cash used in operating activities | (103,402 | ) | (3,335 | ) | ||||
Cash flows from investing activities: | ||||||||
Investments in unconsolidated entities | (7,244 | ) | (481 | ) | ||||
Distributions of capital from unconsolidated entities | 3,600 | — | ||||||
Purchases of property and equipment | (16,662 | ) | (16,092 | ) | ||||
Proceeds from sales of property and equipment | 200 | 86 | ||||||
Maturities/sales of investments and securities | 746 | 1,555 | ||||||
Payments to purchase investments and securities | (746 | ) | (1,555 | ) | ||||
Net cash used in investing activities | (20,106 | ) | (16,487 | ) | ||||
Cash flows from financing activities: | ||||||||
Proceeds from Credit Facility, net | 15,000 | — | ||||||
Repayment of loans payable and other borrowings | (21,274 | ) | (23,226 | ) | ||||
Proceeds from issuance of senior notes | — | 200,000 | ||||||
Debt issuance costs | — | (3,006 | ) | |||||
Excess income tax (provision)/benefit from stock-based awards | (956 | ) | 2,043 | |||||
Proceeds from stock option exercises | 232 | 2,886 | ||||||
Net cash (used in)/provided by financing activities | (6,998 | ) | 178,697 | |||||
Net (decrease)/increase in cash and cash equivalents | (130,506 | ) | 158,875 | |||||
Beginning cash and cash equivalents | 262,208 | 103,333 | ||||||
Ending cash and cash equivalents | $ | 131,702 | $ | 262,208 |
Three Months Ended December 31, | ||||||||||||||
2016 | 2015 | |||||||||||||
Homes | Value | Homes | Value | |||||||||||
Homes Closed: | ||||||||||||||
Arizona | 373 | $ | 126,628 | 291 | $ | 98,004 | ||||||||
California | 282 | 171,506 | 323 | 175,601 | ||||||||||
Colorado | 160 | 78,278 | 131 | 57,211 | ||||||||||
West Region | 815 | 376,412 | 745 | 330,816 | ||||||||||
Texas | 567 | 212,587 | 559 | 194,879 | ||||||||||
Central Region | 567 | 212,587 | 559 | 194,879 | ||||||||||
Florida | 276 | 116,253 | 254 | 106,520 | ||||||||||
Georgia | 108 | 37,263 | 72 | 23,735 | ||||||||||
North Carolina | 198 | 80,222 | 162 | 66,921 | ||||||||||
South Carolina | 97 | 32,274 | 83 | 24,217 | ||||||||||
Tennessee | 56 | 21,083 | 44 | 14,284 | ||||||||||
East Region | 735 | 287,095 | 615 | 235,677 | ||||||||||
Total | 2,117 | $ | 876,094 | 1,919 | $ | 761,372 | ||||||||
Homes Ordered: | ||||||||||||||
Arizona | 314 | $ | 105,397 | 253 | $ | 86,887 | ||||||||
California | 187 | 116,969 | 215 | 118,370 | ||||||||||
Colorado | 116 | 64,887 | 105 | 51,033 | ||||||||||
West Region | 617 | 287,253 | 573 | 256,290 | ||||||||||
Texas | 490 | 185,557 | 465 | 171,938 | ||||||||||
Central Region | 490 | 185,557 | 465 | 171,938 | ||||||||||
Florida | 159 | 71,559 | 200 | 80,929 | ||||||||||
Georgia | 28 | 11,682 | 73 | 25,704 | ||||||||||
North Carolina | 108 | 48,959 | 159 | 67,492 | ||||||||||
South Carolina | 60 | 19,253 | 65 | 20,071 | ||||||||||
Tennessee | 31 | 11,732 | 33 | 11,757 | ||||||||||
East Region | 386 | 163,185 | 530 | 205,953 | ||||||||||
Total | 1,493 | $ | 635,995 | 1,568 | $ | 634,181 |
Twelve Months Ended December 31, | ||||||||||||||
2016 | 2015 | |||||||||||||
Homes | Value | Homes | Value | |||||||||||
Homes Closed: | ||||||||||||||
Arizona | 1,122 | $ | 384,767 | 1,008 | $ | 325,371 | ||||||||
California | 1,020 | 590,340 | 888 | 478,174 | ||||||||||
Colorado | 634 | 310,191 | 495 | 224,125 | ||||||||||
West Region | 2,776 | 1,285,298 | 2,391 | 1,027,670 | ||||||||||
Texas | 2,130 | 778,964 | 2,025 | 705,318 | ||||||||||
Central Region | 2,130 | 778,964 | 2,025 | 705,318 | ||||||||||
Florida | 895 | 368,564 | 843 | 361,127 | ||||||||||
Georgia | 337 | 114,137 | 228 | 72,913 | ||||||||||
North Carolina | 672 | 278,747 | 551 | 215,642 | ||||||||||
South Carolina | 328 | 103,851 | 330 | 101,847 | ||||||||||
Tennessee | 217 | 73,865 | 154 | 47,039 | ||||||||||
East Region | 2,449 | 939,164 | 2,106 | 798,568 | ||||||||||
Total | 7,355 | $ | 3,003,426 | 6,522 | $ | 2,531,556 | ||||||||
Homes Ordered: | ||||||||||||||
Arizona | 1,249 | $ | 428,204 | 1,133 | $ | 377,059 | ||||||||
California | 962 | 559,832 | 965 | 538,357 | ||||||||||
Colorado | 575 | 302,124 | 559 | 264,643 | ||||||||||
West Region | 2,786 | 1,290,160 | 2,657 | 1,180,059 | ||||||||||
Texas | 2,119 | 783,504 | 2,109 | 746,471 | ||||||||||
Central Region | 2,119 | 783,504 | 2,109 | 746,471 | ||||||||||
Florida | 861 | 367,012 | 893 | 376,563 | ||||||||||
Georgia | 333 | 114,074 | 270 | 89,755 | ||||||||||
North Carolina | 605 | 254,521 | 626 | 258,952 | ||||||||||
South Carolina | 356 | 114,376 | 348 | 105,838 | ||||||||||
Tennessee | 230 | 77,856 | 197 | 65,147 | ||||||||||
East Region | 2,385 | 927,839 | 2,334 | 896,255 | ||||||||||
Total | 7,290 | $ | 3,001,503 | 7,100 | $ | 2,822,785 | ||||||||
Order Backlog: | ||||||||||||||
Arizona | 444 | $ | 161,343 | 317 | $ | 117,906 | ||||||||
California | 231 | 153,638 | 289 | 184,146 | ||||||||||
Colorado | 273 | 154,084 | 332 | 162,151 | ||||||||||
West Region | 948 | 469,065 | 938 | 464,203 | ||||||||||
Texas | 931 | 354,734 | 942 | 350,194 | ||||||||||
Central Region | 931 | 354,734 | 942 | 350,194 | ||||||||||
Florida | 253 | 116,454 | 287 | 118,006 | ||||||||||
Georgia | 91 | 33,363 | 95 | 33,426 | ||||||||||
North Carolina | 193 | 87,252 | 260 | 111,478 | ||||||||||
South Carolina | 116 | 40,636 | 88 | 30,111 | ||||||||||
Tennessee | 95 | 34,254 | 82 | 30,263 | ||||||||||
East Region | 748 | 311,959 | 812 | 323,284 | ||||||||||
Total | 2,627 | $ | 1,135,758 | 2,692 | $ | 1,137,681 |
Three Months Ended December 31, | ||||||||||||
2016 | 2015 | |||||||||||
Ending | Average | Ending | Average | |||||||||
Active Communities: | ||||||||||||
Arizona | 42 | 41.0 | 41 | 41.0 | ||||||||
California | 28 | 28.5 | 24 | 25.0 | ||||||||
Colorado | 10 | 10.0 | 16 | 15.5 | ||||||||
West Region | 80 | 79.5 | 81 | 81.5 | ||||||||
Texas | 80 | 77.0 | 72 | 71.0 | ||||||||
Central Region | 80 | 77.0 | 72 | 71.0 | ||||||||
Florida | 27 | 26.5 | 31 | 31.0 | ||||||||
Georgia | 17 | 17.0 | 17 | 17.0 | ||||||||
North Carolina | 17 | 18.0 | 26 | 25.5 | ||||||||
South Carolina | 15 | 15.0 | 18 | 17.5 | ||||||||
Tennessee | 7 | 7.0 | 9 | 8.5 | ||||||||
East Region | 83 | 83.5 | 101 | 99.5 | ||||||||
Total | 243 | 240.0 | 254 | 252.0 |
Twelve Months Ended December 31, | ||||||||||||
2016 | 2015 | |||||||||||
Ending | Average | Ending | Average | |||||||||
Active Communities: | ||||||||||||
Arizona | 42 | 41.5 | 41 | 41.0 | ||||||||
California | 28 | 26.0 | 24 | 24.0 | ||||||||
Colorado | 10 | 13.0 | 16 | 16.5 | ||||||||
West Region | 80 | 80.5 | 81 | 81.5 | ||||||||
Texas | 80 | 76.0 | 72 | 65.5 | ||||||||
Central Region | 80 | 76.0 | 72 | 65.5 | ||||||||
Florida | 27 | 29.0 | 31 | 30.0 | ||||||||
Georgia | 17 | 17.0 | 17 | 15.0 | ||||||||
North Carolina | 17 | 21.5 | 26 | 23.5 | ||||||||
South Carolina | 15 | 16.5 | 18 | 19.0 | ||||||||
Tennessee | 7 | 8.0 | 9 | 7.0 | ||||||||
East Region | 83 | 92.0 | 101 | 94.5 | ||||||||
Total | 243 | 248.5 | 254 | 241.5 |