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Press release from GlobeNewswire (a Nasdaq OMX company)

Meritage Homes Reports Profitable Second Quarter 2011 and Increased Sales Orders

Friday, July 29, 2011

Meritage Homes Reports Profitable Second Quarter 2011 and Increased Sales Orders04:45 EDT Friday, July 29, 2011SCOTTSDALE, Ariz., July 29, 2011 (GLOBE NEWSWIRE) -- Meritage Homes Corporation (NYSE:MTH), a leading U.S. homebuilder, today announced second quarter results for the period ended June 30, 2011.Summary Operating Results (unaudited)(Dollars in thousands, except per share amounts)    Three Months Ended June 30,Six Months Ended June 30,  20112010%Chg20112010%Chg Homes closed (units) 856 1,207 -29% 1,534 2,015 -24% Home closing revenue $220,131 $291,405 -24% $397,620 $491,987 -19% Sales orders (units) 910 900 1% 1,750 1,964 -11% Sales order value $236,014 $228,627 3% $456,626 $497,095 -8% Ending backlog (units)       994 1,044 -5% Ending backlog value   $260,822 $292,643 -11% Net income/(loss) – incl. impairments  $562 $4,166 -87%  $ (6,097) $6,826 n/a Adjusted pre-tax income/(loss)* -- excl. impairments and loss on early extinguishment of debt $1,337 $8,149 -84%  $ (4,443) $11,472 n/a Diluted EPS (including impairments) $0.02 $0.13 -85%  $ (0.19) $0.21 n/a   * See non-GAAP reconciliations of net income/(loss) to adjusted pre-tax income/(loss) on "Operating Results" statement.ADDITIONAL SECOND QUARTER SELECTED RESULTS: Home closing gross margin of 18.0% in 2011 compared to 18.2% in 2010 and 17.1% in the first quarter of 2011; adjusted gross margin excluding impairments was 18.3% in both years Highest sales orders since the first quarter of 2010, when the federal homebuyer tax credit was still in place Average sales prices increased 7% on closings over 2010, and 2% on orders over 2010 G&A expenses decreased 10% to $15M from $17M in 2010 Total cash and securities of $377M at June 30, 2011 Net debt to capital ratio of 31.5% at June 30, 2011MANAGEMENT COMMENTS "We were pleased to achieve a small profit in the second quarter despite lower closings and revenue this year compared to last year, with nearly identical margins," said Steven J. Hilton, chairman and chief executive officer of Meritage Homes. "Successful execution of our strategies -- to acquire well-located communities, design and build more energy efficient homes, and offer unmatched value to our customers -- have helped offset the impact of weak market conditions. "Year over year sales comparisons turned positive in May and June as anticipated, ending the difficult comparisons caused by the federal home buyer tax credit that expired in April last year. We believe this trend will continue and our second half results in 2011 should compare favorably to last year." Mr. Hilton continued, "Our goal is to be profitable in 2011 for the second consecutive year coming out of this recession, and we believe that we are well positioned to accomplish that goal, based on the performance we're achieving in our newer communities, combined with diligent cost control. However, the market is still challenging and we have to work hard for every sale. I commend our people for achieving the results we reported this quarter and continually striving for further improvements."NET EARNINGS Meritage reported net income of $562,000 or $0.02 per diluted share for the second quarter of 2011, compared to $4.2 million or $0.13 per diluted share for the second quarter of 2010, which included a $3.5 million loss on early extinguishment of debt. Total asset impairment charges were $590,000 and $304,000 in the second quarters of 2011 and 2010, respectively. Excluding those items, adjusted pre-tax income for the second quarter was $1.3 million in 2011 compared to $8.1 million in 2010. Homebuilding gross margin was 18.0% in the second quarter of 2011, compared to 18.2% a year earlier. Second quarter adjusted gross margin excluding impairments was 18.3% in both the 2011 and 2010 quarters. Home closing revenue was 24% lower than the prior year, resulting from a 29% decline in closings, partially offset by a 7% increase in average closing prices. The decline in closings was consistent with the 30% lower orders in beginning backlog compared to the prior year, when the federal home buyer tax credit was in place through April 2010. Meritage closed 91% of homes in beginning backlog during the second quarter of 2011, compared to 89% in the second quarter of 2010. General and administrative expenses decreased 10% to $15.0 million in the second quarter of 2011 from $16.7 million in the prior year. Commissions and selling expenses decreased 13% year over year. Total SG&A expenses represented 15.4% of total revenue in the second quarter of 2011, compared to 13.2% in the prior year. The increase was primarily due to additional marketing programs and lower revenue in 2011.SALES ORDERS Net sales orders increased 1% over the prior year and 8% sequentially over the first quarter of 2011. Year over year comparisons were difficult for the first month this quarter, considering the pull-forward of demand into April of 2010 to capture the federal home buyer tax credit. May and June comparisons were easier. Second quarter orders totaled 910 in 2011, compared to 900 in 2010 and 840 in the first quarter this year. Cancellations in the second quarter 2011 were at their lowest rate in two years – 15% of gross orders, compared to 20% in 2010. Average sales per community improved to 6.4 in the second quarter of 2011, over 6.1 in the prior year and 5.8 in the first quarter this year. The strongest gains were in Colorado and Florida, which achieved absorption rates of 8.2 and 10.7 sales per community in the second quarter of 2011, respectively. The company's average sales price on orders for the second quarter was 2% higher in 2011 than 2010, yielding a 3% increase in the total value of orders when combined with the 1% increase in sales volume. Total actively selling communities increased slightly during the quarter, ending at 145 on June 30, 2011 compared to 141 at the beginning of the quarter, as Meritage opened 28 new communities while selling out of 24 communities. At June 30, 2010, Meritage had 148 actively selling communities. Backlog increased 6% during the second quarter to 994 homes with a total value of $261 million at June 30, 2011, compared to $245 million at March 31, 2011 and $293 million in the prior year on June 30, 2010.YEAR TO DATE RESULTS Meritage reported a net loss of $6.1 million or ($0.19) per diluted share for the first six months of 2011, compared to net income of $6.8 million or $0.21 per diluted share for the first half of 2010, due to the loss reported in the first quarter of 2011. Home closings and closing revenue declined 24% and 19% respectively, compared to the first six months of 2010. Gross margins were 17.6% in 2011 compared to 18.5% in 2010, or 17.9% compared to 18.6% excluding impairment charges. Year-to-date orders were 11% lower in 2011 than 2010, with total order value 8% lower year over year, after a 3% increase in average sales prices for the first half of 2011 over 2010.BALANCE SHEET Meritage ended the quarter with $377 million in cash and cash equivalents, restricted cash and securities. Net debt to total capital ratio was 31.5% at June 30, 2011, compared to of 24.8% at June 30, 2010. After contracting for approximately 1,200 lots during the second quarter of 2011, Meritage controls approximately 15,800 total lots, equivalent to a 4.9 year supply based on trailing twelve months closings.CONFERENCE CALL Management will host a conference call to discuss these results on Friday, July 29, 2011 at 10:00 a.m. Eastern Time (7:00 a.m. Pacific Time.) The call will be webcast by Business-to-Investor, Inc. (B2i), with an accompanying slideshow on the "Investor Relations" page of the Company's web site at http://investors.meritagehomes.com. For telephone participants, the dial-in number is 877-317-6789 with a passcode of "Meritage". Participants are encouraged to dial in five minutes before the call begins. A replay of the call will be available after 12:00 p.m. ET, July 29, 2011 on the website noted above, or by dialing 877-344-7529, and referencing Encore passcode 451964. For more information, visit meritagehomes.com.Meritage Homes Corporation and SubsidiariesOperating Results(Unaudited)(In thousands, except per share data)            Three Months Ended Six Months Ended  June 30,  June 30,      2011201020112010Operating results          Home closing revenue $220,131 $291,405 $397,620 $491,987 Land closing revenue -- -- 100 1,222  Total closing revenue 220,131 291,405 397,720 493,209 Home closing gross profit  39,587 52,896 69,967 90,894 Land closing gross profit  -- -- 9 258  Total closing gross profit  39,587 52,896 69,976 91,152 Commissions and other sales costs (18,853) (21,606) (34,168) (38,828) General and administrative expenses  (14,990) (16,729) (30,116) (31,422) Interest expense (7,496) (8,553) (15,519) (16,848) Loss on extinguishment of debt -- (3,454) -- (3,454) Other income, net 2,499 1,837 4,130 6,572 Income/(loss) before income taxes 747 4,391 (5,697) 7,172 Provision for income taxes (185) (225) (400) (346) Net income/(loss) $562 $4,166  $ (6,097) $6,826          Income/(loss) per share         Basic:         Income/(loss) per share $0.02 $0.13  $ (0.19) $0.21 Weighted average shares outstanding 32,395 32,077 32,328 32,009 Diluted:          Income/(loss) per share $0.02 $0.13  $ (0.19) $0.21  Weighted average shares outstanding 32,638 32,287 32,328 32,258          Non-GAAP Reconciliations:         Home closing gross profit  $39,587 $52,896 $69,967 $90,894 Add: Real estate-related impairments 590 304 1,254 846 Adjusted home closing gross profit $40,177 $53,200 $71,221 $91,740 Income/(loss) before income taxes $747 $4,391  $ (5,697) $7,172 Add: Real estate-related and joint venture (JV) impairments  590 304 1,254 846  Loss on early extinguishment of debt -- 3,454 -- 3,454 Adjusted pre-tax income/(loss) $1,337 $8,149  $ (4,443) $11,472  Meritage Homes Corporation and SubsidiariesCondensed Consolidated Balance Sheets(In thousands)(unaudited)        June 30, 2011December 31, 2010Assets:     Cash and cash equivalents $167,568 $103,953 Investments and securities 199,215 299,345 Restricted cash 10,270 9,344 Other receivables 16,080 20,835 Real estate (1) 776,228 738,928 Investments in unconsolidated entities 10,939 10,987 Deposits on real estate under option or contract 11,810 10,359 Other assets 33,659 31,187  Total assets $1,225,769 $1,224,938      Liabilities and Equity:     Accounts payable, accrued liabilities,      Home sale deposits and other      liabilities  $120,877  $119,163 Senior notes 480,220 479,905 Senior subordinated notes 125,875 125,875  Total liabilities 726,972 724,943  Total stockholders' equity 498,797 499,995  Total liabilities and equity $1,225,769 $1,224,938      (1) Real estate – Allocated costs:     Homes under contract under construction $109,836 $96,844 Unsold homes, completed and under construction 82,790 86,869 Model homes 43,999 36,966 Finished home sites and home sites under development 474,007 454,718 Land held for development or sale 65,596 63,531  Total allocated costs $776,228 $738,928  Supplemental Information and Non-GAAP Financial Disclosures (In thousands – unaudited):   Three Months Ended June 30, Six Months Ended June 30,   2011 2010 2011 2010 Interest amortized to cost of sales and interest expense $9,952 $11,983 $20,171 $23,496           Depreciation and amortization 1,817 2,081 3,573 4,028               June 30, 2011 December 31, 2010 June 30, 2010 Notes payable and other borrowings   $606,095 $605,780 $605,466 Less: cash and cash equivalents, restricted cash, and investments and securities    (377,053)  (412,642)  (442,101) Net debt   229,042 1,931,388 163,365 Stockholders' equity   498,797 4,999,956 496,256 Total capital   $727,839 $693,133 $659,621 Net debt-to-capital   31.5% 27.9% 24.8%  Meritage Homes Corporation and SubsidiariesCondensed Consolidated Statement of Cash Flows (In thousands)(unaudited)            Three Months Ended June 30,Six Months Ended June 30,  2011201020112010          Operating results                   Net income/(loss) $562 $4,166  $ (6,097) $6,826 Loss on early extinguishment of debt -- 3,454 -- 3,454 Real-estate related impairments 590 304 1,254 846 Equity in earnings from JVs and distributions of JV earnings - net 240 230 520 767 Decrease/(increase) in real estate and deposits, net (20,432) 8,362 (39,693) (42,620) Other operating activities 10,868 (1,608) 11,281 89,572Net cash (used in)/ provided by operating activities (8,172) 14,908 (32,735) 58,845          Cash provided by/(used in) investing activities 71,952 (95,715) 94,552 (147,638)           Proceeds from issuance of new debt -- 195,134 -- 195,134 Debt issuance costs -- (2,969) -- (2,969) Repayments of senior notes -- (197,543) -- (197,543) Proceeds from issuance of common stock, net 280 174 1,798 1,509Net cash provided by /(used in) financing activities 280 (5,204) 1,798 (3,869)          Net increase/(decrease) in cash 64,060 (86,011) 63,615 (92,662)Beginning cash and cash equivalents 103,508 242,680 103,953 249,331Ending cash and cash equivalents (1) $167,568 $156,669 $167,568 $156,669           (1)  Ending cash and cash equivalents as of June 30, 2011 and June 30, 2010 excludes investments and securities and restricted cash totaling $209.5 million and $285.4 million, respectively.  Meritage Homes Corporation and SubsidiariesOperating Data(Dollars in thousands) (unaudited)            For the Three Months Ended June 30,  20112010  HomesValueHomesValue           Homes Closed:          California  83 $28,051 106 $33,610 Nevada  15 3,159 26 4,905West Region 98 31,210 132 38,515           Arizona  154 34,949 213 43,808 Texas  475 115,605 725 173,570 Colorado  58 18,628 41 11,492Central Region 687 169,182 979 228,870           Florida  71 19,739 96 24,020East Region 71 19,739 96 24,020 Total  856 $220,131 1,207 $291,405           Homes Ordered:          California  94 $30,564 111 $37,413 Nevada  22 4,868 23 4,627West Region 116 35,432 134 42,040           Arizona  161 41,566 171 39,521 Texas  445 104,447 455 108,090 Colorado  70 22,448 38 11,757Central Region 676 168,461 664 159,368           Florida  118 32,121 102 27,219East Region 118 32,121 102 27,219 Total  910 $236,014 900 $228,627  Meritage Homes Corporation and SubsidiariesOperating Data(Dollars in thousands) (unaudited)            For the Six Months Ended June 30,  20112010  HomesValueHomesValue           Homes Closed:          California  145 $49,222 211 $70,695 Nevada  30 6,138 48 9,224West Region 175 55,360 259 79,919           Arizona  281 66,916 381 77,760 Texas  829 200,415 1,153 274,929 Colorado  107 34,257 71 20,113Central Region 1,217 301,588 1,605 372,802           Florida  142 40,672 151 39,266East Region 142 40,672 151 39,266 Total  1,534 $397,620 2,015 $491,987           Homes Ordered:          California  172 $57,713 226 $78,542 Nevada  41 8,890 48 9,372West Region 213 66,603 274 87,914           Arizona  310 75,908 404 87,529 Texas  891 214,128 1,028 247,998 Colorado  141 44,630 79 24,300Central Region 1,342 334,666 1,511 359,827           Florida  195 55,357 179 49,354East Region 195 55,357 179 49,354 Total  1,750 $456,626 1,964 $497,095           Order Backlog:          California  72 $23,786 104 $42,169 Nevada  23 5,121 14 2,819West Region 95 28,907 118 44,988           Arizona  154 40,972 170 41,879 Texas  525 125,320 590 154,633 Colorado  86 27,337 47 15,643Central Region 765 193,629 807 212,155           Florida  134 38,286 119 35,500East Region 134 38,286 119 35,500 Total  994 $260,822 1,044 $292,643  Meritage Homes Corporation and SubsidiariesOperating Data (unaudited)            Second Quarter 2011Second Quarter 2010   Beg. End Beg. EndActive Communities:          California 14 18 9 12 Nevada 4 3 5 5West Region 18 21 14 17           Arizona  32 35 32 33 Texas  73 68 83 78 Colorado  9 8 7 7Central Region 114 111 122 118           Florida  9 13 13 13East Region 9 13 13 13 Total  141 145 149 148            First Half 2011First Half 2010   Beg. End Beg. EndActive Communities:          California 14 18 7 12 Nevada 4 3 6 5West Region 18 21 13 17           Arizona  32 35 26 33 Texas  82 68 98 78 Colorado  9 8 6 7Central Region 123 111 130 118           Florida  10 13 10 13East Region 10 13 10 13 Total  151 145 153 148ABOUT MERITAGE HOMES CORPORATION Meritage Homes is the 9th-largest homebuilder in the United States based on homes closed. Meritage builds a variety of homes across the Southern and Western states to appeal to a wide range of buyers, including first-time, move-up, luxury and active adults. As of June 30, 2011, the company had 145 actively selling communities in 12 metropolitan areas, including Houston, Dallas/Ft. Worth, Austin, San Antonio, Phoenix/Scottsdale, Tucson, Las Vegas, Denver, Orlando and the East Bay/Central Valley and Southern California. Meritage recently announced its entry into the Raleigh-Durham market. In 2010, Meritage celebrated its 25th anniversary and launched a new Simply Smart Series™ of homes and a 99-day guaranteed completion program in certain communities, and is the first large national homebuilder to be 100 percent ENERGY STAR® qualified in every home started since January 1, 2010. Meritage has designed and built nearly 70,000 homes in its 25-year history, and has a reputation for its distinctive style, quality construction, and positive customer experience. Meritage Homes is listed on the NYSE under the symbol MTH. For more information about the Company, visit http://investors.meritagehomes.com Click here to join our email alert list: http://www.b2i.us/irpass.asp?BzID=1474&to=ea&s=0 The Meritage Homes Corporation logo is available at http://www.globenewswire.com/newsroom/prs/?pkgid=2624FORWARD-LOOKING STATEMENTS This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements include management's expectation that second half sales in 2011 should compare favorably to last year, and that the Company is well positioned to achieve its goal of being profitable in 2011. Such statements are based upon preliminary financial and operating data which are subject to finalization by management and review by Meritage's independent registered public accounting firm, as well as 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 the current economic downturn; interest rates and changes in the availability and pricing of residential mortgages; 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 sales absorption rates; potential write-downs or write-offs of assets, including pre-acquisition costs and deposits; our potential exposure to natural disasters; the liquidity of our joint ventures and the ability of our joint venture partners to meet their obligations to us and the joint venture; competition; the success of our strategies in the current homebuilding market and economic environment; 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; the impact of deferred tax valuation allowances and our ability to preserve our operating loss carryforwards; our ability to obtain performance bonds in connection with our development work; the loss of key personnel; our failure to comply with laws and regulations; the availability and cost of materials and labor; our lack of geographic diversification; inflation in the cost of materials used to construct homes; fluctuations in quarterly operating results; the Company's financial leverage and level of indebtedness; our ability to take certain actions because of restrictions contained in the indentures for the Company's 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; 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, 2010 under the caption "Risk Factors," and updated in our most recent Quarterly Report on Form 10-Q, all of which can be found on our website.CONTACT: Brent Anderson (972) 580-6360 (office) Brent.Anderson@meritagehomes.com Nancy Newton (602) 417-0684 (office) (602) 697-7785 (mobile) NNewton@c-k.com