SOURCE: Meritage Homes Corp.

April 24, 2013 08:00 ET

Meritage Homes Reports Results for the First Quarter of 2013 Including 35% Growth in Orders, 65% Increase in Revenue and Diluted EPS of $0.32

SCOTTSDALE, AZ--(Marketwired - Apr 24, 2013) -  Meritage Homes Corporation (NYSE: MTH), a leading U.S. homebuilder, today announced first quarter results for the period ended March 31, 2013.

   
Summary Operating Results (unaudited)  
(Dollars in thousands, except per share amounts)  
   
    Three Months Ended March 31,  
    2013   2012     %Chg  
Homes closed (units)     1,052     759     39 %
Home closing revenue   $ 330,710   $ 204,022     62 %
Average sales price - closings   $ 314   $ 269     17 %
Home orders (units)     1,547     1,144     35 %
Home order value   $ 520,403   $ 308,329     69 %
Average sales price - orders   $ 336   $ 270     25 %
Ending backlog (units)     1,967     1,300     51 %
Ending backlog value   $ 668,959   $ 353,161     89 %
Average sales price - backlog   $ 340   $ 272     25 %
Net income/(loss)   $ 12,041   $ (4,754 )   n/m  
Diluted EPS   $ 0.32   $ (0.15 )   n/m  
                     

MANAGEMENT COMMENTS

"We continued to achieve significant gains in virtually every key metric we had targeted and across all of our states during the first quarter of 2013," said Steven J. Hilton, chairman and chief executive officer of Meritage Homes. "We grew our first quarter orders, closings, backlog, average prices, revenue, gross margin and pretax margin significantly over the prior year, with most of those metrics reaching heights we haven't seen for many years. I believe our strong performance is due to sound strategies and operational execution, as well as healthier market conditions evident during this spring selling season.

"Housing demand is greater than the supply of homes available for sale in many of the areas where we operate, causing home prices to increase," Mr. Hilton explained. "To meet the higher demand, we opened 24 new communities during the first quarter and also grew our active community count to its highest point in almost four years. In addition, our 9.5 orders per average community for the quarter was a 27% increase over 2012 even as we raised prices in many communities. As a result, we received orders for 35% more homes for a 69% increase in total order value compared to the first quarter of 2012. We are pricing our homes and limiting the number of lots we're releasing for sale in some communities to better manage our order volumes relative to our production capacity, and to maximize our profit from those communities."

STRONG GROWTH

  • Meritage ended the quarter with 168 active communities, up from 150 at March 31, 2012, and 158 at the end of 2012.
  • Meritage has established a solid position in its new Carolinas market since opening at the end of 2011, and ended the first quarter of 2013 with 11 actively selling communities, up from four at March 31, 2012.
  • Orders per average community increased to 9.5 for the first quarter of 2013 from 7.5 in the prior year period.
  • Order cancellation rate declined in the first quarter to 11% in 2013, compared to 15% in the first quarter of 2012.
  • Closings and revenue, orders and order value, and ending backlog increased in every state over the first quarter of 2012. California led in most areas with a 172% increase in closing revenue, a 113% increase in total order value, and the company's highest average prices and orders per community for the first quarter of 2013.
  • Average sales prices for home orders reached their highest point since the fourth quarter of 2005, largely reflective of the continuing shift in orders toward the states where Meritage's average home prices are highest, in California, Colorado, the Carolinas and Florida. Those four states made up 45% of the company's first quarter 2013 orders and 55% of the total order value, increasing from 37% of total orders and 45% of total order value in the first quarter last year.

OPERATING LEVERAGE

  • Net income increased by $16.8 million for the first quarter to $12.0 million or $0.32 per diluted share, from a loss of $4.8 million or ($0.15) per share in the first quarter of 2012, primarily due to higher home closing revenue and gross margins, supplemented by leveraging overhead expenses.
  • Home closing revenue increased 62% over the prior year as a result of 39% more closings and a 17% increase in the average price of homes closed during the quarter.
  • Home closing gross margin increased to 19.5% in the first quarter of 2013, from 17.2% in the first quarter of 2012 and 18.9% in the fourth quarter of 2012.
  • Commissions and other sales costs in the first quarter decreased as a percentage of home closing revenue to 7.8% in 2013 from 9.3% in 2012.
  • General and administrative expenses declined to 5.9% of first quarter revenue in 2013, from 7.2% in 2012, as revenue grew at nearly twice the rate of increase in general and administrative expenses.
  • Interest expense declined to 1.5% of first quarter revenue in 2013 compared to 3.6% in 2012.
  • As a result, first quarter pre-tax margin increased 710 bps to 4.9% in 2013 from (2.2%) in 2012, or $16.5 million in 2013 pre-tax income compared to a pre-tax loss of $4.6 million in 2012.

BALANCE SHEET STRENGTH

  • Meritage replenished its land pipeline by spending approximately $75 million on land acquisition and development in the first quarter of 2013, and added approximately 1,600 lots under contract during the quarter.
  • Total lot supply at the end of the quarter was approximately 21,000, compared to approximately 17,200 a year earlier. Based on trailing twelve months closings, the March 31, 2013 balance represents a 4.6 year supply of lots.
  • In March, Meritage issued $175 million of 4.50% senior notes due 2018, in anticipation of retiring $100 million of 7.731% notes due 2017, thereby securing $75 million of additional capital for growth with minimal added interest expense. Of the $100 million 7.731% issue, $17 million was retired in the first quarter and the remaining $83 million balance was retired in the second quarter of 2013.
  • The company ended the first quarter of 2013 with $453 million in cash and cash equivalents, restricted cash and securities, an increase of $176 million over the March 31, 2012 total of $277 million. Net debt to total capital ratio decreased to 37.6% at March 31, 2013, from 40.4% at March 31, 2012.

SUMMARY

"We believe job growth in most of our markets has increased demand for homes, and the limited supply of available resale homes has driven more prospective home buyers to new construction. Existing homeowners are also choosing to take advantage of historically low interest rates and very affordable prices to trade up, increasing the demand for new homes in already constrained markets," said Mr. Hilton. "We expect increasing prices to help regulate orders to some degree, but we believe the homebuilding market is poised for continued growth for years to come, and Meritage is well positioned to capture much of that growth.

"Based on our projections for opening new communities, coupled with a modest increase in average sales per community and higher average sales prices, we are projecting approximately a 40-45% year-over-year increase in home closing revenue for each of the three remaining quarters of 2013. Assuming some additional improvement in margins -- which are being somewhat constrained by rising construction costs -- and the operating leverage demonstrated in our first quarter results, we would anticipate earnings per diluted share in the range of $2.20-$2.45 for the year, representing a 350%-400% increase in pretax earnings."

CONFERENCE CALL

Management will host a conference call today to discuss the Company's first quarter results at 10:30 a.m. Eastern time (7:30 a.m. Pacific 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 Pre-registration link: http://services.choruscall.com/DiamondPassRegistration/register?confirmationNumber=10027059&linkSecurityString=213bae13e1

Telephone participants who are unable to pre-register may dial in to 888-317-6016 on the day of the call.

A replay of the call will be available for fifteen days, beginning at 12:30 p.m. ET on April 24, 2013 on the website noted above, or by dialing 877-344-7529, and referencing conference number 10027059. For more information, visit meritagehomes.com.

   
Meritage Homes Corporation and Subsidiaries  
Operating Results  
(Unaudited)  
(In thousands, except per share data)  
   
      Three Months Ended March 31,  
      2013     2012  
Homebuilding:                
  Home closing revenue   $ 330,710     $ 204,022  
  Land closing revenue     5,725       328  
    Total closing revenue     336,435       204,350  
  Cost of home closings     (266,350 )     (168,909 )
  Cost of land closings     (5,550 )     (205 )
    Total cost of closings     (271,900 )     (169,114 )
  Home closing gross profit     64,360       35,113  
  Land closing gross profit     175       123  
    Total closing gross profit     64,535       35,236  
Financial Services:                
  Revenue     842       --  
  Expense     (573 )     (25 )
  Earnings from financial services unconsolidated entities and other, net     2,787       1,606  
      Financial services profit     3,056       1,581  
Commissions and other sales costs     (25,879 )     (18,977 )
General and administrative expenses     (19,724 )     (14,721 )
Loss from other unconsolidated entities, net     (155 )     (183 )
Interest expense     (5,128 )     (7,371 )
Other income/(expense), net     470       (139 )
Loss on early extinguishment of debt     (700 )     --  
Income/(loss) before income taxes     16,475       (4,574 )
Provision for income taxes     (4,434 )     (180 )
Net income/(loss)   $ 12,041     $ (4,754 )
                 
Income/(loss) per share:                
  Basic                
        Income/(loss) per share   $ 0.34     $ (0.15 )
        Weighted average shares outstanding     35,798       32,634  
  Diluted                
        Income/(loss) per share   $ 0.32     $ (0.15 )
        Weighted average shares outstanding     38,440       32,634  
                         
                         
                         
Meritage Homes Corporation and Subsidiaries
Condensed Consolidated Balance Sheets
(In thousands)
(unaudited)
 
    March 31, 2013   December 31, 2012
Assets:            
  Cash and cash equivalents   $ 325,021   $ 170,457
  Investments and securities     88,901     86,074
  Restricted cash     38,938     38,938
  Other receivables     23,885     20,290
  Real estate (1)     1,152,139     1,113,187
  Deposits on real estate under option or contract     11,321     14,351
  Investments in unconsolidated entities     10,949     12,085
  Property and equipment, net     16,352     15,718
  Deferred tax asset     74,407     77,974
  Prepaid expenses and other assets     29,072     26,488
    Total assets   $ 1,770,985   $ 1,575,562
Liabilities:            
  Accounts payable   $ 60,283   $ 49,801
  Accrued liabilities     100,102     96,377
  Home sale deposits     17,744     12,377
  Senior, senior subordinated, convertible senior notes and other borrowings     881,219     722,797
      Total liabilities     1,059,348     881,352
Stockholders' Equity:            
  Preferred stock, par value $0.01. Authorized 10,000,000 shares; none issued and outstanding at March 31, 2013 and December 31, 2012     --     --
  Common stock, par value $0.01. Authorized 125,000,000 shares; issued 36,010,224 and 35,613,351 shares at March 31, 2013 and December 31, 2012, respectively     360     356
  Additional paid-in capital     395,631     390,249
  Retained earnings     315,646     303,605
      Total stockholders' equity     711,637     694,210
    Total liabilities and stockholders' equity   $ 1,770,985   $ 1,575,562
             
(1)Real estate - Allocated costs:            
  Homes under contract under construction   $ 247,682   $ 192,948
  Unsold homes, completed and under construction     105,094     107,466
  Model homes     64,783     62,411
  Finished home sites and home sites under development     617,507     634,106
  Land held for development     57,081     56,118
  Land held for sale     22,430     21,650
  Communities in mothball status     37,562     38,488
      Total real estate   $ 1,152,139   $ 1,113,187
                   
                   
                   
Supplemental Information and Non-GAAP Financial Disclosures (In thousands - unaudited):  
   
    Three Months Ended March 31,  
    2013     2012  
Depreciation and amortization   $ 2,158     $ 1,693  
                 
Summary of Capitalized Interest:                
Capitalized interest, beginning of period   $ 21,600     $ 14,810  
Interest incurred     12,726       10,847  
Interest expensed     (5,128 )     (7,371 )
Interest amortized to cost of home, land closings and impairments     (5,000 )     (2,378 )
Capitalized interest, end of period   $ 24,198     $ 15,908  
                 
    March 31, 2013     December 31, 2012  
Notes payable and other borrowings   $ 881,219     $ 722,797  
  Less: cash and cash equivalents, restricted cash, and investments and securities     (452,860 )     (295,469 )
Net debt     428,359       427,328  
Stockholders' equity     711,637       694,210  
Total capital   $ 1,139,996     $ 1,121,538  
Net debt-to-capital     37.6 %     38.1 %
                 
                 
                 
Meritage Homes Corporation and Subsidiaries  
Condensed Consolidated Statements of Cash Flows  
(In thousands)  
(unaudited)  
   
    Three Months Ended March 31,  
    2013     2012  
Cash flows from operating activities:                
  Net income/(loss)   $ 12,041     $ (4,754 )
  Adjustments to reconcile net income/(loss) to net cash provided by/(used in) operating activities:                
    Depreciation and amortization     2,158       1,693  
    Stock-based compensation     1,844       1,653  
    Loss on early extinguishment of debt     700       --  
    Excess income tax benefit from stock-based awards     (464 )     --  
    Equity in earnings from unconsolidated entities     (2,632 )     (1,423 )
    Distribution of earnings from unconsolidated entities     3,722       1,252  
    Other     3,632       313  
  Changes in assets and liabilities:                
    Increase in real estate     (38,876 )     (52,722 )
    Decrease in deposits on real estate under option or contract     3,030       99  
    (Increase)/decrease in receivables and prepaid expenses and other assets     (5,312 )     1,355  
    Increase/(decrease) in accounts payable and accrued liabilities     14,671       (5,210 )
    Increase in home sale deposits     5,367       2,382  
      Net cash used in operating activities     (119 )     (55,362 )
Cash flows from investing activities:                
  Investments in unconsolidated entities     (28 )     (130 )
  Distributions of capital from unconsolidated entities     74       --  
  Purchases of property and equipment     (2,704 )     (2,336 )
  Proceeds of sales from property and equipment     33       350  
  Maturities of investments and securities     43,999       50,000  
  Payments to purchase investments and securities     (46,826 )     (76,503 )
  Increase in restricted cash     --       (83 )
      Net cash used in investing activities     (5,452 )     (28,702 )
Cash flows from financing activities:                
  Repayments of senior subordinated notes     (17,264 )     --  
  Proceeds from issuance of new debt     175,000       --  
  Debt issuance costs     (1,143 )     --  
  Excess income tax benefit from stock-based awards     464       --  
  Proceeds from stock option exercises     3,078       1,055  
      Net cash provided by financing activities     160,135       1,055  
Net increase/(decrease) in cash     154,564       (83,009 )
Beginning cash and cash equivalents     170,457       173,612  
Ending cash and cash equivalents (2)   $ 325,021     $ 90,603  
                 

(2) Ending cash and cash equivalents as of March 31, 2013 and December 31, 2012 excludes investments and securities and restricted cash totaling $128 million and $125 million, respectively.

 
 
 
Meritage Homes Corporation and Subsidiaries
Operating Data
(Dollars in thousands)
(unaudited)
 
    Three Months Ended
    March 31, 2013   March 31, 2012
    Homes   Value   Homes   Value
Homes Closed:                    
  Arizona   192   $ 57,149   142   $ 38,899
  California   228     90,642   97     33,306
  Colorado   94     32,204   64     21,300
  Nevada   16     3,569   6     1,196
  West Region   530     183,564   309     94,701
  Texas   354     90,705   317     71,651
  Central Region   354     90,705   317     71,651
  Carolinas   40     14,215   18     6,547
  Florida   128     42,226   115     31,123
  East Region   168     56,441   133     37,670
  Total   1,052   $ 330,710   759   $ 204,022
Homes Ordered:                    
  Arizona   318   $ 97,708   249   $ 59,612
  California   314     133,631   187     62,647
  Colorado   141     56,795   91     30,313
  Nevada   23     5,506   8     1,456
  West Region   796     293,640   535     154,028
  Texas   503     131,130   463     108,863
  Central Region   503     131,130   463     108,863
  Carolinas   69     26,886   33     12,079
  Florida   179     68,747   113     33,359
  East Region   248     95,633   146     45,438
  Total   1,547   $ 520,403   1,144   $ 308,329
Order Backlog:                    
  Arizona   375   $ 121,375   265   $ 65,945
  California   401     167,577   172     56,989
  Colorado   189     74,680   97     32,506
  Nevada   21     5,042   7     1,336
  West Region   986     368,674   541     156,776
  Texas   649     172,742   542     130,706
  Central Region   649     172,742   542     130,706
  Carolinas   78     30,012   39     14,148
  Florida   254     97,531   178     51,531
  East Region   332     127,543   217     65,679
  Total   1,967   $ 668,959   1,300   $ 353,161
                       
                       
                       
Meritage Homes Corporation and Subsidiaries
Operating Data
(unaudited)
 
    Three Months Ended
    March 31, 2013   March 31, 2012
    Beg.   End   Beg.   End
Active Communities:                
  Arizona   38   40   37   32
  California   17   15   20   21
  Colorado   12   11   10   8
  Nevada   1   --   2   2
  West Region   68   66   69   63
  Texas   65   69   67   67
  Central Region   65   69   67   67
  Carolinas   7   11   3   4
  Florida   18   22   18   16
  East Region   25   33   21   20
  Total   158   168   157   150
                   

About Meritage Homes Corporation

Meritage Homes is the ninth-largest public homebuilder in the United States, based on 4,238 homes closed in 2012. 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. As of March 31, 2013, the company had 168 actively selling communities in markets including Sacramento, San Francisco's East Bay, the Central Valley and Southern California; Houston, Dallas-Ft. Worth, Austin and San Antonio, Texas; Phoenix/Scottsdale and Tucson, Arizona; Las Vegas, Nevada; Denver, Colorado; Orlando and Tampa, Florida; Raleigh and Charlotte, North Carolina.

Meritage has designed and built more than 75,000 homes in its 27-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 in 2013 Meritage received the U.S. Environmental Protection Agency's ENERGY STAR Partner of the Year for Sustained Excellence Award, for its innovation and industry leadership in energy efficient homebuilding. Meritage was the first national homebuilder to be 100 percent ENERGY STAR® qualified in every home it builds, and far exceeds ENERGY STAR standards today.

For more information, visit meritagehomes.com.

This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements include management's expectations that increasing prices will help regulate demand for new homes and maximize profit from communities, that the homebuilding market is poised for years of continued growth, that Meritage is positioned to capture additional market growth, and management's projected revenue, pretax earnings and earnings per share for 2013.

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. The risks and uncertainties include but are not limited to the following: weakness in the homebuilding market resulting from an unexpected setback in the current economic recovery; the availability of finished lots and undeveloped land; interest rates and changes in the availability and pricing of residential mortgages; the availability and cost of materials and labor; adverse changes in tax laws that benefit our homebuyers; the ability of our potential buyers to sell their existing homes; cancellation rates and home prices in our markets; inflation in the cost of materials used to construct homes; the adverse effect of slower order absorption rates; potential write-downs or write-offs of assets, including pre-acquisition costs and deposits; our potential exposure to natural disasters; competition; the adverse impacts of cancellations resulting from small deposits relating to our sales contracts; construction defect and home warranty claims; our success in prevailing on contested tax positions; our ability to preserve our deferred tax assets and use them within the statutory time limits; delays and risks associated with land development; our ability to obtain performance bonds in connection with our development work; the liquidity of our joint ventures and the ability of our joint venture partners to meet their obligations to us and the joint venture; the loss of key personnel; changes in or our failure to comply with laws and regulations; our lack of geographic diversification; fluctuations in quarterly operating results; our financial leverage and level of indebtedness; our ability to take certain actions because of restrictions contained in the indentures for our senior and senior subordinated notes and our ability to raise additional capital when and if needed; our credit ratings; successful integration of future acquisitions; government regulations and legislative or other initiatives that seek to restrain growth or new housing construction or similar measures; acts of war; 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, 2012 under the caption "Risk Factors," which can be found on our website.

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