The Globe and Mail

Go to the Globe and Mail homepage

Jump to main navigationJump to main content

Globe Investor

News Sources

Take control of your investments with the latest investing news and analysis

Press release from GlobeNewswire (a Nasdaq OMX company)

Meritage Homes Reports Strong Earnings Growth in the Second Quarter of 2012

Thursday, July 26, 2012

Meritage Homes Reports Strong Earnings Growth in the Second Quarter of 201205:00 EDT Thursday, July 26, 2012SCOTTSDALE, Ariz., July 26, 2012 (GLOBE NEWSWIRE) -- Meritage Homes Corporation (NYSE:MTH), a leading U.S. homebuilder, today announced second quarter results for the period ended June 30, 2012.Summary Operating Results (unaudited)(Dollars in thousands, except per share amounts)    Three Months Ended June 30,Six Months Ended June 30,  20122011%Chg20122011%Chg Homes closed (units)  1,042 856 22%  1,801  1,534  17% Home closing revenue $ 281,340 $ 220,131  28% $ 485,362 $ 397,620  22% Home orders (units)  1,353  910  49%  2,497  1,750  43% Home order value $  385,829 $ 236,014  63% $ 694,158 $ 456,626  52% Ending backlog (units)        1,611  994  62% Ending backlog value       $ 457,650 $ 260,822  75% Net income/(loss) $ 8,005 $ 562  1,324% $ 3,251 $ (6,097)  n/m Diluted EPS $ 0.24 $ 0.02  1,100% $ 0.10 $ (0.19)  n/m Adjusted income/(loss) before income taxes* $ 9,477 $ 1,337  609% $ 5,196 $ (4,443)  n/m * See non-GAAP reconciliations of net income/(loss) to adjusted pre-tax income/(loss) on "Operating Results" statement.SECOND QUARTER 2012 SELECTED HIGHLIGHTS: Net income of $8.0M, which includes a $5.8M loss on early extinguishment of debt in May 2012, $0.9M of impairments and a tax benefit of $5.2M, primarily from reversal of a portion of a valuation allowance recorded against a deferred state tax asset in Florida Highest home orders and total order value since the second quarter of 2008 Absorptions increased to 9.0 orders per community for the quarter, up from 6.4 per community in 2011 Home closing gross margin of 18.5% in 2012 compared to 18.0% in 2011 G&A expense as a percentage of revenue improved by 90 basis points, commissions and other sales costs improved by 40 basis points, and interest expense improved by 120 basis points over the prior year's second quarter Ended with 17,586 total lots under control and total cash and securities of $205M at June 30, 2012, after adding 2,133 new lots during the quarterMANAGEMENT COMMENTS "The housing market continued to improve during the second quarter of 2012, and June represented our eighth straight month of year-over-year increases in order volume, capping off our highest quarter for orders in four years," said Steven J. Hilton, chairman and chief executive officer of Meritage Homes. "We improved over last year on our key operating metrics this quarter, increasing closings, average sales prices, revenue, orders, backlog, gross margin and net earnings. Our employees did a fantastic job of capitalizing on improving market conditions, and our strong backlog supports our belief that we will close over 4,000 homes this year. "We also took steps to further strengthen our balance sheet and position Meritage for additional growth," continued Mr. Hilton. "We refinanced approximately $300 million of long-term debt in April to push out our earliest maturity to 2017, and successfully completed a well-received follow-on stock offering earlier this month. The stock offering provided $87 million of cash that we plan to use for growth, including the purchase of land and opening of more communities as the market recovers. Investors demonstrated confidence in our strategy, including our expansion into more Southeast markets like Raleigh, Charlotte and Tampa."NET EARNINGS Meritage reported net income of $8.0 million or $0.24 per diluted share for the second quarter of 2012, compared to $562,000 or $0.02 per diluted share for the second quarter of 2011. The 2012 results included a $5.8 million loss on early extinguishment of debt and $863,000 of impairments, compared to $590,000 of impairments in the second quarter of 2011. Net income also included a $5.2 million tax benefit primarily due to the reversal of most of a valuation allowance previously recorded against the company's deferred state tax asset in Florida. Excluding those items, adjusted pre-tax income for the second quarter was $9.5 million in 2012 compared to $1.3 million in 2011. Adjusted pre-tax margin increased by 280 basis points to 3.4% from 0.6% in the second quarters of 2012 and 2011, respectively. Home closing gross margin rose to 18.5% in the second quarter of 2012, from 18.0% in the prior year and 17.2% in the first quarter of 2012. Margins increased due to sales price increases and construction overhead leverage, partially offset by increases in various cost components. Home closing revenue was 28% higher than the prior year, combining a 22% increase in closings with a 5% increase in average closing prices. California and Florida led with 80% and 81% growth in closing revenue over 2011, followed by Arizona and Colorado, with 57% and 44% growth, respectively. Higher average closing prices reflected the combination of price increases in many communities due to improved demand and a mix shift toward higher-priced homes. Higher closing revenue resulted in greater leverage of fixed costs. Commissions and selling expenses decreased by 40 basis points year over year, to 8.2% of home closing revenue in the second quarter of 2012 from 8.6% of home closing revenue in prior year. General and administrative expenses decreased by 90 basis points year over year, to 5.9% from 6.8% of total revenue. Interest expense decreased by $1.2 million or 120 basis points from the prior year, as a greater portion of interest incurred was capitalized to assets under development.HOME ORDERS Demand continued to be strong during the second quarter of 2012. Net order value increased 63% over the prior year, due to 49% growth in orders and a 10% increase in average prices in the second quarter of 2012 compared to 2011. Net orders also increased by 18% sequentially to 1,353 in the second quarter of 2012 from 1,144 in the first quarter, resulting in the highest level of quarterly orders for Meritage since the second quarter of 2008. As demand accelerated in 2012, Meritage's average orders per community improved 41% to 9.0 in the second quarter of 2012, from 6.4 in the prior year and 7.5 in the first quarter this year. Cancellations also fell to 13% of gross orders in the second quarter of 2012 from 15% in both the second quarter of 2011 and the first quarter of 2012. California showed the strongest demand, with nearly three times the number of orders in the second quarter of 2012 as compared to 2011, and a 28% increase in actively selling communities. Average sales prices increased 11% year over year in California, resulting in a 229% increase in total order value over the prior year. Arizona achieved a 61% increase in orders despite slightly fewer communities open in 2012. Net orders in Florida grew 47% while Colorado grew 24% year over year, and Meritage recorded its first orders in Tampa during the second quarter of 2012. In its third quarter since opening its first communities for sale, Meritage's new North Carolina operations turned in 40 orders from five active communities in the second quarter of 2012. Meritage opened a total of 19 new communities during the second quarter while selling out of 18 communities, ending the quarter with 151 actively selling communities at June 30, 2012, up from 150 at the start of the quarter and 145 at June 30, 2011.YEAR TO DATE RESULTS With second quarter net income more than offsetting 2012's first quarter loss, Meritage reported year-to-date net income of $3.3 million or $0.10 per diluted share, a significant improvement over the first half of 2011's net loss of $6.1 million or $0.19 per diluted share. Year-to-date net income also included a $5.0 million tax benefit. Excluding the $5.8 million loss on early extinguishment of debt in 2012, about $1.2 million of impairments in both years, and before the partial reversal of a valuation allowance previously recorded against Florida's deferred state tax asset, Meritage produced adjusted pretax income of $5.2 million for the first six months of 2012, compared to an adjusted pretax loss of $4.4 million for the same period in 2011. Home closings and closing revenue for the first half of 2012 increased 17% and 22% respectively, compared to the first six months of 2011, including a 4% increase in average closing prices. Year-to-date home closing gross margins improved by 30 basis points to 17.9% in 2012 compared to 17.6% in 2011. Year-to-date net orders increased 43% in 2012 over 2011, and combined with a 7% increase in average sales prices to increase total order value by 52% year over year. Total orders in backlog increased sequentially by 24% during the second quarter to 1,611 homes with a total value of $458 million at June 30, 2012, which represented a 62% year over year increase in orders and a 75% increase in total order value over the second quarter of 2011. With this large backlog entering into the second half of 2012, management expects to show continued revenue and earnings growth in 2012, and to be profitable for the full year.BALANCE SHEET Meritage ended the quarter with $205 million in cash and cash equivalents, restricted cash and securities, after putting 2,133 new lots under control during the second quarter. The company controlled a total of 17,586 lots as of June 30, 2012, net of 1,476 lots put into production for homes started during the quarter. Based on trailing twelve months closings of 3,535 homes, this is equivalent to a 5.0 year supply of lots. Net debt to total capital ratio rose to 44.1% at June 30, 2012 from 31.5% at June 30, 2011. Subsequent to the end of the second quarter, the company issued 2,645,000 shares through a follow-on stock offering in July. Net proceeds from the offering were $87.1 million, increasing the company's liquidity. Pro forma net debt to capital would have been 34.3% as of June 30, 2012 including this additional cash and equity. The company closed on an unsecured revolving credit facility earlier this week with commitments from four banks for a total of $125 million that can be used to provide short-term working capital as order volumes grow.CONFERENCE CALL Management will host a conference call to discuss these results on Thursday, July 26, 2012 at 10:30 a.m. Eastern Time (7:30 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 and the conference number is 10015970. Participants are encouraged to dial in five minutes before the call begins. A replay of the call will be available for fifteen days, beginning at 12:00 p.m. ET on July 26, 2012 on the website noted above, or by dialing 877-344-7529, and referencing conference number 10015970. 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, 2012201120122011Operating results       Home closing revenue $281,340 $220,131 $485,362 $397,620 Land closing revenue 755 -- 1,083 100 Total closing revenue 282,095 220,131 486,445 397,720           Home closing gross profit  51,946 39,587 87,059 69,967 Land closing gross (loss)/profit  (380) -- (257) 9 Total closing gross profit  51,566 39,587 86,802 69,976           Commissions and other sales costs (23,118) (18,853) (42,095) (34,168) General and administrative expenses  (16,516) (14,990) (31,237) (30,116) Interest expense (6,338) (7,496) (13,709) (15,519) Loss on extinguishment of debt (5,772) -- (5,772) -- Other income, net 3,020 2,499 4,279 4,130 Income/(loss) before income taxes 2,842 747 (1,732) (5,697) Benefit from/(provision for) income taxes 5,163 (185) 4,983 (400) Net income/(loss) $8,005 $562 $3,251 ($6,097)      Income/(loss) per share     Basic:         Income/(loss) per share $0.24 $0.02 $0.10 ($0.19) Weighted average shares outstanding 32,755 32,395 32,694 32,328 Diluted:         Income/(loss) per share $0.24 $0.02 $0.10 ($0.19) Weighted average shares outstanding 33,104 32,638 33,086 32,328          Non-GAAP Reconciliations:     Home closing gross profit  $51,946 $39,587 $87,059 $69,967 Add: Real estate-related impairments 194 590 487 1,254 Adjusted home closing gross profit $52,140 $40,177 $87,546 $71,221           Income/(loss) before income taxes $2,842 $747  ($1,732) ($5,697)     Add Real estate-related impairments:   Terminated lot options and land sales 669 2 752 2 Impaired Projects 194 588 404 1,252 Loss on early extinguishment of debt 5,772 -- 5,772 -- Adjusted income/(loss) before income taxes $9,477 $1,337 $5,196 ($4,443)    Meritage Homes Corporation and SubsidiariesCondensed Consolidated Balance Sheets(In thousands)(unaudited)    June 30, 2012December 31, 2011Assets:     Cash and cash equivalents $81,826 $173,612 Investments and securities 103,753 147,429 Restricted cash 19,108 12,146 Other receivables 15,778 14,932 Real estate (1) 955,233 815,425 Investments in unconsolidated entities 12,180 11,088 Deposits on real estate under option or contract 14,759 15,208 Other assets 41,201 31,538  Total assets $1,243,838 $1,221,378      Liabilities and Equity:   Accounts payable, accrued liabilities, home sale deposits and other liabilities $151,126 $126,057 Senior notes 496,229 480,534 Senior subordinated notes 99,825 125,875  Total liabilities 747,180 732,466  Total stockholders' equity 496,658 488,912  Total liabilities and equity $1,243,838 $1,221,378    (1) Real estate – Allocated costs: Homes under contract under construction $188,006 $101,445 Unsold homes, completed and under construction 95,027 97,246 Model homes 52,655 49,892 Finished home sites and home sites under development 494,782 441,242 Land held for development 54,472 55,143 Land held for sale 29,733 29,908 Communities in mothball status 40,558 40,549  Total allocated costs $955,233 $815,425    Supplemental Information and Non-GAAP Financial Disclosures (In thousands – unaudited):         Three Months Ended June 30, Six Months Ended June 30,   2012 2011 2012 2011 Interest amortized to cost of sales and interest expense $9,390 $9,952 $19,139 $20,171           Depreciation and amortization 1,921 1,817 3,614 3,573             Pro forma (2) June 30, 2012 June 30, 2012 December 31, 2011 June 30, 2011 Notes payable and other borrowings $596,054 $596,054 $606,409 $606,095 Less: cash and cash equivalents, restricted cash, and investments and securities (291,755) (204,687) (333,187) (377,053) Net debt 304,299 391,367 273,222 229,042 Stockholders' equity 583,726 496,658 488,912 498,797 Total capital $888,025 $888,025 $762,134 $727,839           Net debt-to-capital 34.3% 44.1% 35.8% 31.5%           (2) Proforma June 30, 2012 includes $87.1M net cash proceeds from the issuance of stock in a follow-on offering completed in July 2012.    Meritage Homes Corporation and SubsidiariesCondensed Consolidated Statement of Cash Flows (In thousands)(unaudited)      Three Months Ended June 30,Six Months Ended June 30, 2012201120122011     Operating results                 Net income/(loss) $8,005 $562 $3,251 ($6,097) Loss on early extinguishment of debt 5,772 -- 5,772 -- Real-estate related impairments 863 590 1,156 1,254 Deferred tax valuation benefit (7,705) -- (7,705) -- Equity in earnings from JVs and distributions of JV earnings - net (485) 240 (656) 520 Increase in real estate and deposits, net (87,615) (20,432) (140,238) (39,693) Other operating activities 31,620 10,868 33,513 11,281Net cash used in operating activities (49,545) (8,172) (104,907) (32,735)          Net cash provided by investing activities 61,015 71,952 32,313 94,552           Proceeds from issuance of new debt 300,000 -- 300,000 -- Debt issuance costs (5,334) -- (5,334) -- Repayments of senior notes (315,080) -- (315,080) -- Proceeds from issuance of common stock, net 167 280 1,222 1,798Net cash (used in)/ provided by financing activities (20,247) 280 (19,192) 1,798          Net (decrease)/increase in cash (8,777) 64,060 (91,786) 63,615Beginning cash and cash equivalents 90,603 103,508 173,612 103,953Ending cash and cash equivalents (3) $81,826 $167,568 $81,826 $167,568   (3) Ending cash and cash equivalents as of June 30, 2012 and June 30, 2011 excludes investments and securities and restricted cash totaling $122.9 million and $209.5 million, respectively.    Meritage Homes Corporation and SubsidiariesOperating Data(Dollars in thousands)(unaudited)            For the Three Months Ended June 30,  20122011  HomesValueHomesValue          Homes Closed:        California  148 $50,521 83 $28,051 Nevada  11 2,093 15 3,159West Region 159 52,614 98 31,210           Arizona  208 54,772 154 34,949 Texas  439 101,744 475 115,605 Colorado  80 26,877 58 18,628Central Region 727 183,393 687 169,182           North Carolina 26 9,507 -- -- Florida  130 35,826 71 19,739East Region 156 45,333 71 19,739           Total  1,042 $281,340 856 $220,131          Homes Ordered:        California  279 $100,432 94 $30,564 Nevada  31 5,615 22 4,868West Region 310 106,047 116 35,432           Arizona  260 70,331 161 41,566 Texas  482 117,028 445 104,447 Colorado  87 28,774 70 22,448Central Region 829 216,133 676 168,461           North Carolina 40 14,053 -- -- Florida  174 49,596 118 32,121East Region 214 63,649 118 32,121 Total  1,353 $385,829 910 $236,014      Meritage Homes Corporation and SubsidiariesOperating Data(Dollars in thousands)(unaudited)            For the Six Months Ended June 30,  20122011  HomesValueHomesValue          Homes Closed:        California  245 $83,827 145 $49,222 Nevada  17 3,289 30 6,138West Region 262 87,116 175 55,360           Arizona  350 93,671 281 66,916 Texas  756 173,395 829 200,415 Colorado  144 48,177 107 34,257Central Region 1,250 315,243 1,217 301,588           North Carolina 44 16,054 -- -- Florida  245 66,949 142 40,672East Region 289 83,003 142 40,672           Total  1,801 $485,362 1,534 $397,620          Homes Ordered:        California  466 $163,079 172 $57,713 Nevada  39 7,071 41 8,890West Region 505 170,150 213 66,603           Arizona  509 129,943 310 75,908 Texas  945 225,891 891 214,128 Colorado  178 59,087 141 44,630Central Region 1,632 414,921 1,342 334,666           North Carolina 73 26,132 -- -- Florida  287 82,955 195 55,357East Region 360 109,087 195 55,357 Total  2,497 $694,158 1,750 $456,626          Order Backlog:        California  303 $106,900 72 $23,786 Nevada  27 4,858 23 5,121West Region 330 111,758 95 28,907           Arizona  317 81,504 154 40,972 Texas  585 145,990 525 125,320 Colorado  104 34,403 86 27,337Central Region 1,006 261,897 765 193,629           North Carolina 53 18,694 -- -- Florida  222 65,301 134 38,286East Region 275 83,995 134 38,286           Total  1,611 $457,650 994 $260,822      Meritage Homes Corporation and SubsidiariesOperating Data (unaudited)        Three Months Ended  June 30, 2012June 30, 2011    Beg. End Beg. EndActive Communities:        California 21 20 14 18 Nevada   2 2 4 3West Region 23 22 18 21             Arizona    32 32 32 35 Texas    67 68 73 68 Colorado    8 8 9 8Central Region 107 108 114 111             North Carolina 4 5 -- -- Florida    16 16 9 13East Region 20 21 9 13             Total    150 151 141 145                     Six Months Ended  June 30, 2012June 30, 2011   Beg. End Beg. EndActive Communities:        California 20 20 14 18 Nevada   2 2 4 3West Region 22 22 18 21             Arizona    37 32 32 35 Texas    67 68 82 68 Colorado    10 8 9 8Central Region 114 108 123 111             North Carolina 3 5 -- -- Florida    18 16 10 13East Region 21 21 10 13             Total    157 151 151 145About Meritage Homes Corporation Meritage Homes is the ninth-largest public homebuilder in the United States based on homes closed in 2011. 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, 2012, the company had 151 actively selling communities in 15 metropolitan areas, including Northern California, East Bay/Central Valley and Southern California, Houston, Dallas/Ft. Worth, Austin, San Antonio, Phoenix/Scottsdale, Tucson, Las Vegas, Denver, Orlando, Tampa and Raleigh-Durham. In 2012, Meritage also announced its entry into the Charlotte market. Meritage is an industry leader in innovation and energy efficiency. Meritage was the first national homebuilder to be 100 percent ENERGY STAR® qualified in every home it builds, and far exceeds ENERGY STAR standards in most of its communities. 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. For more information, visit meritagehomes.com. The Meritage Homes Corporation logo is available at http://www.globenewswire.com/newsroom/prs/?pkgid=2624 This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements include those regarding the Company's expected 2012 closings, revenue and earnings growth, its profitability in 2012, future growth opportunities and the potential uses of proceeds from the offering of its common stock, all of which are subject to significant risks and uncertainties. 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 economic conditions; 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; availability of materials and labor and resulting inflation in the cost 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; the availability of finished lots and undeveloped land; 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; our lack of geographic diversification; 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; 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, 2011 and most recent 10-Q under the caption "Risk Factors," which can be found on our website.CONTACT: Brent Anderson, VP Investor Relations (972) 580-6360 (office) Brent.Anderson@meritagehomes.com