Contacts: | Brent Anderson, VP Investor Relations | |||
(972) 580-6360 (office) | ||||
investors@meritagehomes.com |
Three Months Ended December 31, | Twelve Months Ended December 31, | ||||||||||||||||||||
2017 | 2016 | % Chg | 2017 | 2016 | % Chg | ||||||||||||||||
Homes closed (units) | 2,253 | 2,117 | 6 | % | 7,709 | 7,355 | 5 | % | |||||||||||||
Home closing revenue | $ | 923,370 | $ | 876,094 | 5 | % | $ | 3,186,775 | $ | 3,003,426 | 6 | % | |||||||||
Average sales price - closings | $ | 410 | $ | 414 | (1 | )% | $ | 413 | $ | 408 | 1 | % | |||||||||
Home orders (units) | 1,795 | 1,493 | 20 | % | 7,957 | 7,290 | 9 | % | |||||||||||||
Home order value | $ | 760,340 | $ | 635,995 | 20 | % | $ | 3,296,788 | $ | 3,001,503 | 10 | % | |||||||||
Average sales price - orders | $ | 424 | $ | 426 | (1 | )% | $ | 414 | $ | 412 | 1 | % | |||||||||
Ending backlog (units) | 2,875 | 2,627 | 9 | % | |||||||||||||||||
Ending backlog value | $ | 1,245,771 | $ | 1,135,758 | 10 | % | |||||||||||||||
Average sales price - backlog | $ | 433 | $ | 432 | — | % | |||||||||||||||
Earnings before income taxes | $ | 84,090 | $ | 76,337 | 10 | % | $ | 247,519 | $ | 218,060 | 14 | % | |||||||||
Net earnings | $ | 35,553 | $ | 51,807 | (31 | )% | $ | 143,255 | $ | 149,541 | (4 | )% | |||||||||
Diluted EPS | $ | 0.87 | $ | 1.22 | (29 | )% | $ | 3.41 | $ | 3.55 | (4 | )% |
• | Pre-tax earnings increased 10% over the prior year to $84.1 million for the fourth quarter of 2017, from $76.3 million in the fourth quarter of 2016. The earnings growth primarily reflects higher home closing revenue and gross margins, supplemented by cost controls and overhead leverage. |
• | Fourth quarter 2017 effective tax rate was 57.7%, compared to 32.1% in 2016. The higher rate in 2017 includes a $19.7 million charge in the fourth quarter of 2017 associated with a revaluation of the Company's deferred tax asset, reflecting the impact of a lower corporate tax rate enacted by the Tax Cuts and Jobs Act in December 2017 and effective beginning in 2018, as well as the expiration of energy tax credits which benefited the Company's effective tax rate in 2016. |
• | As a result of these changes in tax regulations, fourth quarter net earnings were $35.6 million ($0.87 per diluted share) in 2017, compared to $51.8 million ($1.22 per diluted share) in 2016. |
• | Home closing revenue increased 5% over the prior year on 6% higher closing volume. Despite general increases in market prices of homes over 2016, average closing prices for the Company were 1% lower in the fourth quarter of 2017, as a higher percentage of home closings were lower-priced entry-level homes, consistent with the Company’s strategic focus. Texas, Arizona and Florida, which have the greatest concentration of entry-level communities, drove nearly all the increases in closings and revenue. |
• | Home closing gross margin increased to 18.2% for the fourth quarter of 2017, compared to 17.9% in the fourth quarter of 2016 and 18.1% in the third quarter of 2017, due to better margins in new communities as well as management of direct costs in an inflationary environment. |
• | Selling, general and administrative expenses totaled 10.4% of home closing revenue compared to 10.5% in the fourth quarter of 2016, reflecting continued cost controls and slightly greater overhead leverage on higher home closing revenue. |
• | Total orders for the fourth quarter increased 20% year-over-year due to strong demand, evidenced by an 18% increase in absorptions and a 3% increase in average active communities over the fourth quarter of 2016. Orders increased 47% in the East region, 19% in Texas and 5% in the West region. Average active community count in the West was 11% lower year-over-year, while total active community count for the Company was relatively flat at 244 on December 31, 2017, compared to 243 at December 31, 2016. |
• | Pre-tax earnings increased 14% for the year to $247.5 million in 2017, from $218.1 million in 2016, primarily reflecting higher home closing revenue and improved overhead leverage. |
• | Net earnings of $143.3 million ($3.41 per diluted share) for the year 2017 compared to $149.5 million ($3.55 per diluted share) in 2016, reflecting the impact of higher tax expense in 2017 and the deferred tax asset revaluation. |
• | The 6% year-over-year increase in 2017 home closing revenue resulted from a 5% increase in home closings and a 1% increase in average closing prices over 2016. |
• | Higher home closing revenue led to a $33.3 million increase in home closing gross profit to $562.1 million in 2017, compared to $528.8 million in 2016. Home closing gross margin remained at 17.6% for the full year, as anticipated, with cost inflation offsetting the appreciation in average sales prices of homes closed in 2017. |
• | Total commissions and selling expenses improved by approximately 20 basis points to 7.0% of 2017 home closing revenue from 7.2% in 2016. In addition, total general and administrative expenses also declined approximately 20 basis points to 3.9% of home closing revenue in 2017, compared to 4.1% in 2016. |
• | Cash and cash equivalents at December 31, 2017, totaled $170.7 million, compared to $131.7 million at December 31, 2016, primarily reflecting net proceeds from a June 2017 debt issuance, partially offset by the use of cash to fund the purchase and development of lots, as well as additional homes under construction. Proceeds from the issuance of $300 million in new senior notes in June 2017 were primarily used to repay borrowings under the Company’s revolving credit facility and to retire all $126.5 million of the Company's 1.875% convertible senior notes. |
• | A total of $250.3 million was invested in land and development during the fourth quarter of 2017 to meet current demand and position the company for future growth. Total spending on land and development for the full year 2017 was $1.0 billion, compared to $900.7 million in 2016. |
• | Meritage ended 2017 with approximately 34,300 total lots owned or under control, compared to approximately 29,800 total lots at December 31, 2016. During the fourth quarter of 2017, the Company secured approximately 3,200 new lots to meet continued strong demand. Approximately 70% of the newly controlled lots added during the quarter were for entry-level communities. |
• | Debt-to-capital and net debt-to-capital ratios of 44.9% and 41.4%, respectively at December 31, 2017, were maintained within management's target ranges, consistent with 44.2% and 41.2%, respectively at December 31, 2016, even as the Company's total investment in homes and land under development grew commensurate with its current and future growth expectations. |
Three Months Ended December 31, | Twelve Months Ended December 31, | ||||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||||
Homebuilding: | |||||||||||||||||
Home closing revenue | $ | 923,370 | $ | 876,094 | $ | 3,186,775 | $ | 3,003,426 | |||||||||
Land closing revenue | 23,055 | 4,614 | 39,997 | 25,801 | |||||||||||||
Total closing revenue | 946,425 | 880,708 | 3,226,772 | 3,029,227 | |||||||||||||
Cost of home closings | (755,067 | ) | (719,324 | ) | (2,624,636 | ) | (2,474,584 | ) | |||||||||
Cost of land closings | (20,133 | ) | (3,946 | ) | (35,637 | ) | (23,431 | ) | |||||||||
Total cost of closings | (775,200 | ) | (723,270 | ) | (2,660,273 | ) | (2,498,015 | ) | |||||||||
Home closing gross profit | 168,303 | 156,770 | 562,139 | 528,842 | |||||||||||||
Land closing gross profit | 2,922 | 668 | 4,360 | 2,370 | |||||||||||||
Total closing gross profit | 171,225 | 157,438 | 566,499 | 531,212 | |||||||||||||
Financial Services: | |||||||||||||||||
Revenue | 4,061 | 3,392 | 14,203 | 12,507 | |||||||||||||
Expense | (1,552 | ) | (1,435 | ) | (6,006 | ) | (5,587 | ) | |||||||||
Earnings from financial services unconsolidated entities and other, net | 4,185 | 4,180 | 13,858 | 14,982 | |||||||||||||
Financial services profit | 6,694 | 6,137 | 22,055 | 21,902 | |||||||||||||
Commissions and other sales costs | (62,781 | ) | (60,058 | ) | (221,647 | ) | (215,092 | ) | |||||||||
General and administrative expenses | (33,192 | ) | (32,029 | ) | (124,041 | ) | (123,803 | ) | |||||||||
Earnings from other unconsolidated entities, net | 1,249 | 3,204 | 2,101 | 4,060 | |||||||||||||
Interest expense | (292 | ) | (45 | ) | (3,853 | ) | (5,172 | ) | |||||||||
Other income, net | 1,187 | 1,690 | 6,405 | 4,953 | |||||||||||||
Earnings before income taxes | 84,090 | 76,337 | 247,519 | 218,060 | |||||||||||||
Provision for income taxes | (48,537 | ) | (24,530 | ) | (104,264 | ) | (68,519 | ) | |||||||||
Net earnings | $ | 35,553 | $ | 51,807 | $ | 143,255 | $ | 149,541 | |||||||||
Earnings per share: | |||||||||||||||||
Basic | |||||||||||||||||
Earnings per share | $ | 0.88 | $ | 1.29 | $ | 3.56 | $ | 3.74 | |||||||||
Weighted average shares outstanding | 40,328 | 40,028 | 40,287 | 39,976 | |||||||||||||
Diluted | |||||||||||||||||
Earnings per share | $ | 0.87 | $ | 1.22 | $ | 3.41 | $ | 3.55 | |||||||||
Weighted average shares outstanding | 41,073 | 42,667 | 42,228 | 42,585 |
December 31, 2017 | December 31, 2016 | |||||||
Assets: | ||||||||
Cash and cash equivalents | $ | 170,746 | $ | 131,702 | ||||
Other receivables | 79,317 | 70,355 | ||||||
Real estate (1) | 2,731,380 | 2,422,063 | ||||||
Real estate not owned | 38,864 | — | ||||||
Deposits on real estate under option or contract | 59,945 | 85,556 | ||||||
Investments in unconsolidated entities | 17,068 | 17,097 | ||||||
Property and equipment, net | 33,631 | 33,202 | ||||||
Deferred tax asset | 35,162 | 53,320 | ||||||
Prepaids, other assets and goodwill | 85,145 | 75,396 | ||||||
Total assets | $ | 3,251,258 | $ | 2,888,691 | ||||
Liabilities: | ||||||||
Accounts payable | $ | 140,516 | $ | 140,682 | ||||
Accrued liabilities | 181,076 | 170,852 | ||||||
Home sale deposits | 34,059 | 28,348 | ||||||
Liabilities related to real estate not owned | 34,978 | — | ||||||
Loans payable and other borrowings | 17,354 | 32,195 | ||||||
Senior and convertible senior notes | 1,266,450 | 1,095,119 | ||||||
Total liabilities | 1,674,433 | 1,467,196 | ||||||
Stockholders' Equity: | ||||||||
Preferred stock | — | — | ||||||
Common stock | 403 | 400 | ||||||
Additional paid-in capital | 584,578 | 572,506 | ||||||
Retained earnings | 991,844 | 848,589 | ||||||
Total stockholders’ equity | 1,576,825 | 1,421,495 | ||||||
Total liabilities and stockholders’ equity | $ | 3,251,258 | $ | 2,888,691 | ||||
(1) Real estate – Allocated costs: | ||||||||
Homes under contract under construction | $ | 566,474 | $ | 508,927 | ||||
Unsold homes, completed and under construction | 516,577 | 431,725 | ||||||
Model homes | 142,026 | 147,406 | ||||||
Finished home sites and home sites under development | 1,506,303 | 1,334,005 | ||||||
Total real estate | $ | 2,731,380 | $ | 2,422,063 |
Three Months Ended December 31, | Twelve Months Ended December 31, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Depreciation and amortization | $ | 4,633 | $ | 4,508 | $ | 16,704 | $ | 15,978 | |||||||
Summary of Capitalized Interest: | |||||||||||||||
Capitalized interest, beginning of period | $ | 76,773 | $ | 67,631 | $ | 68,196 | $ | 61,202 | |||||||
Interest incurred | 20,846 | 17,704 | 79,045 | 70,348 | |||||||||||
Interest expensed | (292 | ) | (45 | ) | (3,853 | ) | (5,172 | ) | |||||||
Interest amortized to cost of home and land closings | (18,763 | ) | (17,094 | ) | (64,824 | ) | (58,182 | ) | |||||||
Capitalized interest, end of period | $ | 78,564 | $ | 68,196 | $ | 78,564 | $ | 68,196 | |||||||
December 31, 2017 | December 31, 2016 | ||||||||||||||
Notes payable and other borrowings | $ | 1,283,804 | $ | 1,127,314 | |||||||||||
Stockholders' equity | 1,576,825 | 1,421,495 | |||||||||||||
Total capital | 2,860,629 | 2,548,809 | |||||||||||||
Debt-to-capital | 44.9 | % | 44.2 | % | |||||||||||
Notes payable and other borrowings | $ | 1,283,804 | $ | 1,127,314 | |||||||||||
Less: cash and cash equivalents | (170,746 | ) | (131,702 | ) | |||||||||||
Net debt | 1,113,058 | 995,612 | |||||||||||||
Stockholders’ equity | 1,576,825 | 1,421,495 | |||||||||||||
Total net capital | $ | 2,689,883 | $ | 2,417,107 | |||||||||||
Net debt-to-capital | 41.4 | % | 41.2 | % |
Twelve Months Ended December 31, | ||||||||
2017 | 2016 | |||||||
Cash flows from operating activities: | ||||||||
Net earnings | $ | 143,255 | $ | 149,541 | ||||
Adjustments to reconcile net earnings to net cash used in operating activities: | ||||||||
Depreciation and amortization | 16,704 | 15,978 | ||||||
Stock-based compensation | 12,056 | 13,741 | ||||||
Excess income tax provision from stock-based awards | — | 956 | ||||||
Equity in earnings from unconsolidated entities | (15,959 | ) | (19,042 | ) | ||||
Deferred tax asset revaluation | 19,687 | — | ||||||
Distribution of earnings from unconsolidated entities | 15,337 | 16,959 | ||||||
Other | 5,849 | 9,539 | ||||||
Changes in assets and liabilities: | ||||||||
Increase in real estate | (301,477 | ) | (311,426 | ) | ||||
Decrease in deposits on real estate under option or contract | 21,355 | 2,337 | ||||||
Increase in receivables, prepaids and other assets | (17,775 | ) | (17,513 | ) | ||||
Increase in accounts payable and accrued liabilities | 8,125 | 43,377 | ||||||
Increase/(decrease) in home sale deposits | 5,711 | (7,849 | ) | |||||
Net cash used in operating activities | (87,132 | ) | (103,402 | ) | ||||
Cash flows from investing activities: | ||||||||
Investments in unconsolidated entities | $ | (670 | ) | $ | (7,244 | ) | ||
Distributions of capital from unconsolidated entities | 1,338 | 3,600 | ||||||
Purchases of property and equipment | (18,096 | ) | (16,662 | ) | ||||
Proceeds from sales of property and equipment | 356 | 200 | ||||||
Maturities/sales of investments and securities | 1,402 | 746 | ||||||
Payments to purchase investments and securities | (1,402 | ) | (746 | ) | ||||
Net cash used in investing activities | (17,072 | ) | (20,106 | ) | ||||
Cash flows from financing activities: | ||||||||
(Repayments of)/proceeds from Credit Facility, net | $ | (15,000 | ) | $ | 15,000 | |||
Repayment of loans payable and other borrowings | (10,970 | ) | (21,274 | ) | ||||
Repurchase/redemption of convertible senior notes | (126,691 | ) | — | |||||
Proceeds from issuance of senior notes | 300,000 | — | ||||||
Payment of debt issuance costs | (4,091 | ) | — | |||||
Excess income tax provision from stock-based awards | — | (956 | ) | |||||
Proceeds from stock option exercises | — | 232 | ||||||
Net cash provided by/(used in) financing activities | 143,248 | (6,998 | ) | |||||
Net increase/(decrease) in cash and cash equivalents | 39,044 | (130,506 | ) | |||||
Beginning cash and cash equivalents | 131,702 | 262,208 | ||||||
Ending cash and cash equivalents | $ | 170,746 | $ | 131,702 |
Three Months Ended | ||||||||||||||
December 31, 2017 | December 31, 2016 | |||||||||||||
Homes | Value | Homes | Value | |||||||||||
Homes Closed: | ||||||||||||||
Arizona | 396 | $ | 132,596 | 373 | $ | 126,628 | ||||||||
California | 261 | 153,921 | 282 | 171,506 | ||||||||||
Colorado | 154 | 89,941 | 160 | 78,278 | ||||||||||
West Region | 811 | 376,458 | 815 | 376,412 | ||||||||||
Texas | 741 | 267,139 | 567 | 212,587 | ||||||||||
Central Region | 741 | 267,139 | 567 | 212,587 | ||||||||||
Florida | 296 | 127,880 | 276 | 116,253 | ||||||||||
Georgia | 89 | 29,830 | 108 | 37,263 | ||||||||||
North Carolina | 163 | 68,432 | 198 | 80,222 | ||||||||||
South Carolina | 90 | 29,857 | 97 | 32,274 | ||||||||||
Tennessee | 63 | 23,774 | 56 | 21,083 | ||||||||||
East Region | 701 | 279,773 | 735 | 287,095 | ||||||||||
Total | 2,253 | $ | 923,370 | 2,117 | $ | 876,094 | ||||||||
Homes Ordered: | ||||||||||||||
Arizona | 269 | $ | 93,143 | 314 | $ | 105,397 | ||||||||
California | 248 | 169,593 | 187 | 116,969 | ||||||||||
Colorado | 129 | 69,550 | 116 | 64,887 | ||||||||||
West Region | 646 | 332,286 | 617 | 287,253 | ||||||||||
Texas | 582 | 211,413 | 490 | 185,557 | ||||||||||
Central Region | 582 | 211,413 | 490 | 185,557 | ||||||||||
Florida | 216 | 90,611 | 159 | 71,559 | ||||||||||
Georgia | 102 | 33,407 | 28 | 11,682 | ||||||||||
North Carolina | 143 | 54,672 | 108 | 48,959 | ||||||||||
South Carolina | 66 | 22,911 | 60 | 19,253 | ||||||||||
Tennessee | 40 | 15,040 | 31 | 11,732 | ||||||||||
East Region | 567 | 216,641 | 386 | 163,185 | ||||||||||
Total | 1,795 | $ | 760,340 | 1,493 | $ | 635,995 |
Twelve Months Ended | ||||||||||||||
December 31, 2017 | December 31, 2016 | |||||||||||||
Homes | Value | Homes | Value | |||||||||||
Homes Closed: | ||||||||||||||
Arizona | 1,535 | $ | 515,410 | 1,122 | $ | 384,767 | ||||||||
California | 963 | 581,016 | 1,020 | 590,340 | ||||||||||
Colorado | 571 | 323,318 | 634 | 310,191 | ||||||||||
West Region | 3,069 | 1,419,744 | 2,776 | 1,285,298 | ||||||||||
Texas | 2,493 | 904,286 | 2,130 | 778,964 | ||||||||||
Central Region | 2,493 | 904,286 | 2,130 | 778,964 | ||||||||||
Florida | 814 | 353,554 | 895 | 368,564 | ||||||||||
Georgia | 312 | 104,690 | 337 | 114,137 | ||||||||||
North Carolina | 533 | 233,028 | 672 | 278,747 | ||||||||||
South Carolina | 307 | 104,942 | 328 | 103,851 | ||||||||||
Tennessee | 181 | 66,531 | 217 | 73,865 | ||||||||||
East Region | 2,147 | 862,745 | 2,449 | 939,164 | ||||||||||
Total | 7,709 | $ | 3,186,775 | 7,355 | $ | 3,003,426 | ||||||||
Homes Ordered: | ||||||||||||||
Arizona | 1,417 | $ | 473,602 | 1,249 | $ | 428,204 | ||||||||
California | 1,050 | 650,287 | 962 | 559,832 | ||||||||||
Colorado | 497 | 284,082 | 575 | 302,124 | ||||||||||
West Region | 2,964 | 1,407,971 | 2,786 | 1,290,160 | ||||||||||
Texas | 2,582 | 931,069 | 2,119 | 783,504 | ||||||||||
Central Region | 2,582 | 931,069 | 2,119 | 783,504 | ||||||||||
Florida | 1,007 | 433,365 | 861 | 367,012 | ||||||||||
Georgia | 372 | 121,713 | 333 | 114,074 | ||||||||||
North Carolina | 583 | 242,355 | 605 | 254,521 | ||||||||||
South Carolina | 290 | 99,738 | 356 | 114,376 | ||||||||||
Tennessee | 159 | 60,577 | 230 | 77,856 | ||||||||||
East Region | 2,411 | 957,748 | 2,385 | 927,839 | ||||||||||
Total | 7,957 | $ | 3,296,788 | 7,290 | $ | 3,001,503 | ||||||||
Order Backlog: | ||||||||||||||
Arizona | 326 | $ | 119,535 | 444 | $ | 161,343 | ||||||||
California | 318 | 222,909 | 231 | 153,638 | ||||||||||
Colorado | 199 | 114,848 | 273 | 154,084 | ||||||||||
West Region | 843 | 457,292 | 948 | 469,065 | ||||||||||
Texas | 1,020 | 381,517 | 931 | 354,734 | ||||||||||
Central Region | 1,020 | 381,517 | 931 | 354,734 | ||||||||||
Florida | 446 | 196,265 | 253 | 116,454 | ||||||||||
Georgia | 151 | 50,386 | 91 | 33,363 | ||||||||||
North Carolina | 243 | 96,579 | 193 | 87,252 | ||||||||||
South Carolina | 99 | 35,432 | 116 | 40,636 | ||||||||||
Tennessee | 73 | 28,300 | 95 | 34,254 | ||||||||||
East Region | 1,012 | 406,962 | 748 | 311,959 | ||||||||||
Total | 2,875 | $ | 1,245,771 | 2,627 | $ | 1,135,758 |
Three Months Ended | ||||||||||||
December 31, 2017 | December 31, 2016 | |||||||||||
Ending | Average | Ending | Average | |||||||||
Active Communities: | ||||||||||||
Arizona | 38 | 39.0 | 42 | 41.0 | ||||||||
California | 20 | 22.0 | 28 | 28.5 | ||||||||
Colorado | 11 | 10.0 | 10 | 10.0 | ||||||||
West Region | 69 | 71.0 | 80 | 79.5 | ||||||||
Texas | 92 | 92.5 | 80 | 77.0 | ||||||||
Central Region | 92 | 92.5 | 80 | 77.0 | ||||||||
Florida | 28 | 28.5 | 27 | 26.5 | ||||||||
Georgia | 19 | 18.0 | 17 | 17.0 | ||||||||
North Carolina | 17 | 17.5 | 17 | 18.0 | ||||||||
South Carolina | 13 | 13.5 | 15 | 15.0 | ||||||||
Tennessee | 6 | 6.0 | 7 | 7.0 | ||||||||
East Region | 83 | 83.5 | 83 | 83.5 | ||||||||
Total | 244 | 247.0 | 243 | 240.0 |
Twelve Months Ended | ||||||||||||
December 31, 2017 | December 31, 2016 | |||||||||||
Ending | Average | Ending | Average | |||||||||
Active Communities: | ||||||||||||
Arizona | 38 | 40.0 | 42 | 41.5 | ||||||||
California | 20 | 24.0 | 28 | 26.0 | ||||||||
Colorado | 11 | 10.5 | 10 | 13.0 | ||||||||
West Region | 69 | 74.5 | 80 | 80.5 | ||||||||
Texas | 92 | 86.0 | 80 | 76.0 | ||||||||
Central Region | 92 | 86.0 | 80 | 76.0 | ||||||||
Florida | 28 | 27.5 | 27 | 29.0 | ||||||||
Georgia | 19 | 18.0 | 17 | 17.0 | ||||||||
North Carolina | 17 | 17.0 | 17 | 21.5 | ||||||||
South Carolina | 13 | 14.0 | 15 | 16.5 | ||||||||
Tennessee | 6 | 6.5 | 7 | 8.0 | ||||||||
East Region | 83 | 83.0 | 83 | 92.0 | ||||||||
Total | 244 | 243.5 | 243 | 248.5 |