SOURCE: Meritage Homes Corporation

Meritage Homes Corporation

April 28, 2016 08:00 ET

Meritage Homes Reports First Quarter 2016 Diluted EPS of $0.50, a 28% Increase in Net Earnings, With a 15% Increase in Home Closing Revenue and a 21% Increase in Ending Backlog Value

SCOTTSDALE, AZ--(Marketwired - April 28, 2016) - Meritage Homes Corporation (NYSE: MTH), a leading U.S. homebuilder, announced today first quarter results for the period ended March 31, 2016.

 
Summary Operating Results (unaudited)
(Dollars in thousands, except per share amounts)
     
    Three Months Ended March 31,
    2016   2015   %Chg
Homes closed (units)     1,488     1,335   11 %
Home closing revenue   $ 595,617   $ 517,273   15 %
Average sales price - closings   $ 400   $ 387   3 %
Home orders (units)     1,987     1,979   0 %
Home order value   $ 804,600   $ 782,812   3 %
Average sales price - orders   $ 405   $ 396   2 %
Ending backlog (units)     3,191     2,758   16 %
Ending backlog value   $ 1,346,664   $ 1,111,991   21 %
Average sales price - backlog   $ 422   $ 403   5 %
Net earnings   $ 20,969   $ 16,400   28 %
Diluted EPS   $ 0.50   $ 0.40   25 %
                   

MANAGEMENT COMMENTS

"We were pleased with our results for the first quarter, including first quarter net earnings growth of 28%, which reflected an 11% increase in home closings, a 15% increase in home closing revenue, improved overhead leverage and tax credits earned for our energy efficient homes," said Steven J. Hilton, chairman and chief executive officer of Meritage Homes. "Based on our first quarter closings volume, we are confident we'll achieve our projected 7,000-7,500 total closings in 2016, driving substantial revenue and earnings growth for the year.

"The housing market has remained healthy and we continue to experience solid demand overall," said Mr. Hilton. "Orders of 1,987 homes in the first quarter of 2016 were in line with last year's first quarter due to the early sell-out of some very successful communities, a slower sales pace in Houston and an intentional metering of order flow in northern California and Colorado.

"Our East region delivered 10% order growth over the first quarter of 2015, as we continue to expand and develop that region. We also grew our total orders in Texas by 6%, despite rising home prices in most Texas markets and the impact of weak energy prices on the Houston market. First quarter orders in the West region were down 11% from last year, as demand eased after a year of strong growth in 2015, though our West region sales pace remained the highest in the company.

"We are still facing the challenges of high land and labor costs, although the rate of inflation has slowed," Mr. Hilton explained, "Part of our strategy to address those challenges is to develop communities with higher densities at lower price points, which we are doing across many of our markets, targeting the same or better net margins.

He continued, "Based on the demand we are experiencing on the ground and in line with our market research, we continue to invest in new communities, putting approximately 2,400 new lots under control during the first quarter and ending the quarter with approximately 28,400 total lots owned or controlled."

Mr. Hilton concluded, "Considering our increased home closing revenue during our first quarter and a 21% higher ending backlog value at the end of the quarter, we are confident that we'll achieve revenue and earnings growth in 2016, despite the margin compression we've experienced over the last year. We were pleased that Moody's Investors Service recently upgraded their corporate ratings for Meritage Homes' notes due to positive momentum in our financial performance over the past several quarters."

FIRST QUARTER RESULTS

  • Net earnings of $21.0 million ($0.50 per diluted share) for the first quarter of 2016, compared to prior year net earnings of $16.4 million ($0.40 per diluted share), primarily reflects higher home closing revenues, greater overhead leverage and the benefit of energy tax credits that reduced the company's effective tax rate.
  • Home closing revenue increased 15% due to an 11% increase in home closings combined with a 3% increase in average price over the prior year period. The West region (California, Colorado and Arizona) led with a 26% increase in home closing revenue over the first quarter of 2015, followed by 11% growth in the East region (Florida, Georgia, the Carolinas and Tennessee) and 5% in the Central region (Texas).
  • Home closing gross margin was 17.4% for the first quarter of 2016 compared to 18.5% in the first quarter of 2015, primarily reflecting higher land and labor costs, as well as a high volume of closings from a limited number of under-performing communities within Arizona and southern California, where management is strategically working through its remaining inventory.
  • Commissions and other sales costs totaled 7.8% of home closing revenue in the first quarter of 2016, compared to 8.0% in the first quarter of 2015, reflecting greater leverage of non-commission selling expenses.
  • General and administrative expenses for the first quarter of 2016 also benefited from improved leverage on higher revenue, and decreased 70 basis points to 5.0% of total closing revenue in 2016, compared to 5.7% in 2015.
  • First quarter effective tax rate declined to 27% in 2016 from 35% in the first quarter of 2015 and management's projected 32% for the full year, due to energy tax credits captured on energy-efficient homes closed in prior periods. The lower than expected tax rate had a net impact of approximately $0.03 per diluted share.
  • First quarter 2016 orders for homes were consistent with 2015 and total order value increased 3% year over year. The total value of homes ordered increased 17% in Texas and 7% in the East, partially offset by a 7% decline in the West. The largest increases outside of Texas came from Georgia, with a 45% increase in total order value, North Carolina, with a 25% increase and South Carolina, with a 16% increase in total order value, while Florida and California were off by 15% from the first quarter of 2015 due to successful early closeouts of high-absorption communities.
  • Total active community count was 243 at March 31, 2016, a 6% increase over the 229 reported as of March 31, 2015. Average orders per community were 8.0 for the first quarter of 2016, compared to 8.6 in 2015.

BALANCE SHEET

  • Cash and cash equivalents at March 31, 2016, totaled $172.2 million, compared to $262.2 million at December 31, 2015, primarily reflecting investments in real estate to replace lots and position the company for future growth.
  • Real estate assets increased by $120.9 million for the first quarter, ending at $2.22 billion at March 31, 2016, compared to $2.10 billion at December 31, 2015.
  • Meritage ended the first quarter of 2016 with approximately 28,400 total lots under control, compared to approximately 29,300 total lots at March 31, 2015 and 27,800 at year-end 2015.
  • Net debt-to-capital ratio at March 31, 2016 was 42.4%, compared to 40.4% at December 31, 2015, due to the use of cash for land and development, and a growing inventory of homes under construction during the first quarter of 2016.

CONFERENCE CALL

Management will host a conference call today to discuss the Company's results at 10:30 a.m. Eastern Time (7:30 a.m. Arizona Time). The call will be webcast with an accompanying slideshow available on the "Investor Relations" page of the Company's web site at http://investors.meritagehomes.com. Telephone participants may avoid any delays by pre-registering for the call using the following link to receive a special dial-in number and PIN.

Conference Call registration link: http://dpregister.com/10083245.

Telephone participants who are unable to pre-register may dial in to 866-226-4948 on the day of the call. International dial-in number is 1-412-902-4125 or 1-855-669-9657 for Canada.

A replay of the call will be available until May 12, 2016, beginning at approximately 12:30 p.m. ET on April 28 on the website noted above, or by dialing 877-344-7529, 1-412-317-0088 for international or 1-855-669-9658 for Canada, and referencing conference number 10083245.

 
Meritage Homes Corporation and Subsidiaries
Consolidated Income Statements
(Unaudited)
(In thousands, except per share data)
     
    Three Months Ended March 31,
    2016   2015
Homebuilding:        
  Home closing revenue   $ 595,617     $ 517,273  
  Land closing revenue     2,149       1,439  
    Total closing revenue     597,766       518,712  
  Cost of home closings     (492,270 )     (421,786 )
  Cost of land closings     (1,700 )     (1,285 )
    Total cost of closings     (493,970 )     (423,071 )
  Home closing gross profit     103,347       95,487  
  Land closing gross profit     449       154  
    Total closing gross profit     103,796       95,641  
Financial Services:                
  Revenue     2,500       2,535  
  Expense     (1,246 )     (1,299 )
  Earnings from financial services unconsolidated entities and other, net     2,792       2,544  
    Financial services profit     4,046       3,780  
Commissions and other sales costs     (46,177 )     (41,612 )
General and administrative expenses     (29,618 )     (29,650 )
Loss from other unconsolidated entities, net     (157 )     (123 )
Interest expense     (3,288 )     (3,154 )
Other income/(loss), net     283       415  
Earnings before income taxes     28,885       25,297  
Provision for income taxes     (7,916 )     (8,897 )
Net earnings   $ 20,969     $ 16,400  
                 
Earnings per share:                
  Basic                
    Earnings per share   $ 0.53     $ 0.42  
    Weighted average shares outstanding     39,839       39,390  
  Diluted                
    Earnings per share   $ 0.50     $ 0.40  
    Weighted average shares outstanding     42,363       41,948  
                 
 
Meritage Homes Corporation and Subsidiaries
Consolidated Balance Sheets
(In thousands)
(unaudited)
         
    March 31, 2016   December 31, 2015
Assets:        
  Cash and cash equivalents   $ 172,175   $ 262,208
  Other receivables     60,491     57,296
  Real estate (1)     2,219,169     2,098,302
  Deposits on real estate under option or contract     91,991     87,839
  Investments in unconsolidated entities     10,592     11,370
  Property and equipment, net     34,544     33,970
  Deferred tax asset     58,989     59,147
  Prepaids, other assets and goodwill     66,562     69,645
    Total assets   $ 2,714,513   $ 2,679,777
Liabilities:            
  Accounts payable   $ 122,289   $ 106,440
  Accrued liabilities     145,883     161,163
  Home sale deposits     42,639     36,197
  Loans payable and other borrowings     25,734     23,867
  Senior and convertible senior notes, net     1,093,659     1,093,173
      Total liabilities     1,430,204     1,420,840
Stockholders' Equity:            
  Preferred stock     -     -
  Common stock     400     397
  Additional paid-in capital     563,892     559,492
  Retained earnings     720,017     699,048
      Total stockholders' equity     1,284,309     1,258,937
    Total liabilities and stockholders' equity   $ 2,714,513   $ 2,679,777
             
(1) Real estate - Allocated costs:            
  Homes under contract under construction   $ 580,194   $ 456,138
  Unsold homes, completed and under construction     269,353     307,425
  Model homes     138,109     138,546
  Finished home sites and home sites under development     1,231,513     1,196,193
    Total real estate   $ 2,219,169   $ 2,098,302
             
 
Supplemental Information and Non-GAAP Financial Disclosures (Dollars in thousands - unaudited):
     
    Three Months Ended March 31,
    2016   2015
Depreciation and amortization   $ 3,402     $ 3,211  
                 
Summary of Capitalized Interest:                
Capitalized interest, beginning of period   $ 61,202     $ 54,060  
Interest incurred     17,559       15,282  
Interest expensed     (3,288 )     (3,154 )
Interest amortized to cost of home and land closings     (11,347 )     (9,345 )
Capitalized interest, end of period   $ 64,126     $ 56,843  
                 
      March 31, 2016       December 31, 2015  
Notes payable and other borrowings   $ 1,119,393     $ 1,117,040  
Stockholders' equity     1,284,309       1,258,937  
Total capital     2,403,702       2,375,977  
Debt-to-capital     46.6 %     47.0 %
Notes payable and other borrowings   $ 1,119,393     $ 1,117,040  
  Less: cash and cash equivalents     (172,175 )     (262,208 )
Net debt     947,218       854,832  
Stockholders' equity     1,284,309       1,258,937  
Total net capital   $ 2,231,527     $ 2,113,769  
Net debt-to-capital     42.4 %     40.4 %
                 
 
Meritage Homes Corporation and Subsidiaries
Consolidated Statements of Cash Flows
(In thousands) (unaudited)
     
    Three Months Ended March 31,
    2016   2015
Cash flows from operating activities:        
  Net earnings   $ 20,969     $ 16,400  
  Adjustments to reconcile net earnings to net cash used in operating activities:                
    Depreciation and amortization     3,402       3,211  
    Stock-based compensation     4,758       4,630  
    Excess income tax provision/(benefit) from stock-based awards     516       (1,935 )
    Equity in earnings from unconsolidated entities     (2,635 )     (2,421 )
    Distribution of earnings from unconsolidated entities     3,477       3,035  
    Other     1,048       (490 )
  Changes in assets and liabilities:                
    Increase in real estate     (116,035 )     (58,906 )
    (Increase)/decrease in deposits on real estate under option or contract     (4,046 )     3,767  
    Increase in receivables, prepaids and other assets     (168 )     (5,695 )
    Increase/(decrease) in accounts payable and accrued liabilities     455       (3,179 )
    Increase in home sale deposits     6,442       3,392  
    Net cash used in operating activities     (81,817 )     (38,191 )
Cash flows from investing activities:                
  Investments in unconsolidated entities     (63 )     (104 )
  Purchases of property and equipment     (3,940 )     (4,589 )
  Proceeds from sales of property and equipment     35       44  
  Maturities of investments and securities     645       -  
  Payments to purchase investments and securities     (645 )     -  
    Net cash used in investing activities     (3,968 )     (4,649 )
Cash flows from financing activities:                
  Proceeds from Credit Facility, net     -       27,000  
  Repayment of loans payable and other borrowings     (3,893 )     (3,017 )
  Excess income tax (provision)/benefit from stock-based awards     (516 )     1,935  
  Proceeds from stock option exercises     161       2,834  
    Net cash (used in)/provided by financing activities     (4,248 )     28,752  
Net decrease in cash and cash equivalents     (90,033 )     (14,088 )
Beginning cash and cash equivalents     262,208       103,333  
Ending cash and cash equivalents   $ 172,175     $ 89,245  
                 
 
Meritage Homes Corporation and Subsidiaries
Operating Data
(Dollars in thousands) (unaudited)
                 
    Three Months Ended
    March 31, 2016   March 31, 2015
    Homes   Value   Homes   Value
Homes Closed:                
  Arizona   217   $ 74,999   186   $ 62,601
  California   207     120,720   153     86,423
  Colorado   138     65,327   128     57,854
  West Region   562     261,046   467     206,878
  Texas   465     159,971   440     152,587
  Central Region   465     159,971   440     152,587
  Florida   156     63,322   177     72,831
  Georgia   65     22,014   52     15,458
  North Carolina   118     50,377   89     34,975
  South Carolina   67     21,171   76     24,560
  Tennessee   55     17,716   34     9,984
  East Region   461     174,600   428     157,808
  Total   1,488   $ 595,617   1,335   $ 517,273
Homes Ordered:                    
  Arizona   259   $ 90,180   288   $ 90,591
  California   270     151,012   310     178,097
  Colorado   169     86,626   189     85,407
  West Region   698     327,818   787     354,095
  Texas   591     216,065   557     185,132
  Central Region   591     216,065   557     185,132
  Florida   227     92,594   248     108,857
  Georgia   105     35,195   77     24,218
  North Carolina   189     77,081   148     61,625
  South Carolina   107     34,221   96     29,528
  Tennessee   70     21,626   66     19,357
  East Region   698     260,717   635     243,585
  Total   1,987   $ 804,600   1,979   $ 782,812
                     
Order Backlog:                    
  Arizona   359   $ 133,087   294   $ 94,208
  California   352     214,438   369     215,637
  Colorado   363     183,450   329     149,186
  West Region   1,074     530,975   992     459,031
  Texas   1,068     406,288   975     341,586
  Central Region   1,068     406,288   975     341,586
  Florida   358     147,278   308     138,596
  Georgia   135     46,607   78     25,344
  North Carolina   331     138,182   244     94,818
  South Carolina   128     43,161   90     31,088
  Tennessee   97     34,173   71     21,528
  East Region   1,049     409,401   791     311,374
  Total   3,191   $ 1,346,664   2,758   $ 1,111,991
                     
 
Meritage Homes Corporation and Subsidiaries
Operating Data
(unaudited)
                 
    Three Months Ended
    March 31, 2016   March 31, 2015
    Ending   Average   Ending   Average
Active Communities:                
  Arizona   42   41.5   44   42.5
  California   24   24.0   21   22.5
  Colorado   14   15.0   16   16.5
  West Region   80   80.5   81   81.5
  Texas   70   71.0   61   60.0
  Central Region   70   71.0   61   60.0
  Florida   26   27.0   26   27.5
  Georgia   18   17.5   13   13.0
  North Carolina   24   25.0   23   22.0
  South Carolina   16   17.0   20   20.0
  Tennessee   9   9.0   5   5.0
  East Region   93   95.5   87   87.5
  Total   243   247.0   229   229.0
                 

About Meritage Homes Corporation

Meritage Homes is the seventh-largest public homebuilder in the United States, based on homes closed in 2015. Meritage builds and sells single-family homes for first-time, move-up, luxury and active adult buyers across the Western, Southern and Southeastern United States. Meritage builds in markets including: Sacramento, San Francisco Bay area, southern coastal and Inland Empire markets in California; Houston, Dallas-Ft. Worth, Austin and San Antonio, Texas; Phoenix/Scottsdale, Green Valley and Tucson, Arizona; Denver and Fort Collins, Colorado; Orlando, Tampa and southern Florida; Raleigh and Charlotte, North Carolina; Greenville-Spartanburg and York County, South Carolina; Nashville, Tennessee and Atlanta, Georgia.

Meritage has designed and built more than 90,000 homes in its 30-year history, and has a reputation for its distinctive style, quality construction, and positive customer experience. Meritage is the industry leader in energy-efficient homebuilding and has received the U.S. Environmental Protection Agency's ENERGY STAR Partner of the Year for Sustained Excellence Award in each of the last four years, for innovation and industry leadership in energy efficient homebuilding.

For more information, visit investors.meritagehomes.com.

This press release and the accompanying comments during our analyst call contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements include management's expectations with respect to future revenue and earnings growth, projected home closings and home closing revenue for the year 2016, and the Company's strategy to develop communities with higher densities, lower price points and similar net margins.

Such statements are based upon the current beliefs and expectations of Company management, and current market conditions, which are subject to significant risks and uncertainties. Actual results may differ from those set forth in the forward-looking statements. The Company makes no commitment, and disclaims any duty, to update or revise any forward-looking statements to reflect future events or changes in these expectations. Meritage's business is subject to a number of risks and uncertainties. As a result of those risks and uncertainties, the Company's stock and note prices may fluctuate dramatically. These risks and uncertainties include, but are not limited to, the following: the availability of finished lots and undeveloped land; interest rates and changes in the availability and pricing of residential mortgages; fluctuations in the availability and cost of labor; changes in tax laws that adversely impact us or our homebuyers; reversal of the current economic recovery; the ability of our potential buyers to sell their existing homes; cancellation rates; inflation in the cost of materials used to develop communities and construct homes; the adverse effect of slower order absorption rates; impairments of our real estate inventory; a change to the feasibility of projects under option or contract that could result in the write-down or write-off of option deposits; our potential exposure to natural disasters or severe weather conditions; competition; construction defect and home warranty claims; failures in health and safety performance; our success in prevailing on contested tax positions; our ability to obtain performance bonds in connection with our development work; the loss of key personnel; or our failure to comply with, laws and regulations; limitations of our geographic diversification; fluctuations in quarterly operating results; our level of indebtedness; our ability to obtain financing due to a downgrade of our credit ratings; our ability to successfully integrate acquired companies and achieve anticipated benefits from these acquisitions; our compliance with government regulations and the effect of legislative or other initiatives that seek to restrain growth of new housing construction or similar measures; legislation relating to energy and climate change; the replication of our "Green" technologies by our competitors; our exposure to information technology failures and security breaches; and other factors identified in documents filed by the Company with the Securities and Exchange Commission, including those set forth in our Form 10-K for the year ended December 31, 2015 and subsequent quarterly reports on Forms 10-Q under the caption "Risk Factors," which can be found on our website.

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