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 Order Growth of 46% and Revenue Growth of 48% for the Fourth Quarter 2012

Thursday, January 31, 2013

Meritage Homes Reports Strong Order Growth of 46% and Revenue Growth of 48% for the Fourth Quarter 201204:00 EST Thursday, January 31, 2013SCOTTSDALE, Ariz., Jan. 31, 2013 (GLOBE NEWSWIRE) -- Meritage Homes Corporation (NYSE:MTH), a leading U.S. homebuilder, today announced fourth quarter results for the period ended December 31, 2012.Summary Operating Results (unaudited)(Dollars in thousands, except per share amounts)                Three Months Ended December 31,Twelve Months Ended December 31,  20122011%Chg20122011%Chg Homes closed (units) 1,240 894 39% 4,238 3,268 30% Home closing revenue  $ 364,118  $ 245,730 48%  $ 1,184,360  $ 860,884 38% Average sales price - closings  $ 294  $ 275 7%  $ 279  $ 263 6% Home orders (units) 1,094 749 46% 4,795 3,405 41% Home order value  $ 353,862  $ 206,061 72%  $ 1,414,772  $ 907,922 56% Average sales price - orders  $ 323  $ 275 18%  $ 295  $ 267 11% Ending backlog (units)       1,472 915 61% Ending backlog value       $ 479,266 $ 248,854 93% Average sales price - backlog       $ 326 $ 272 20% Net income/(loss) $ 95,128 $ (11,774) n/m  $ 105,163 $ (21,106) n/m Diluted EPS $ 2.49 $ (0.36) n/m $ 3.00 $ (0.65) n/mManagement comments "We finished 2012 with another quarter of strong growth in orders, as year-over-year sales remained brisk through the end of the year, lessening the typical seasonal slowdown we would expect for the fourth quarter," said Steven J. Hilton, chairman and chief executive officer of Meritage Homes. "We increased sales by ensuring that we had well-located land for new communities in high-demand areas, designing and introducing exciting new plans into most of our markets, and successfully demonstrating the benefits of our industry-leading energy efficient homes, which enabled us to capitalize on the general resurgence in new home demand throughout the year. "Our strong order growth throughout 2012 drove Meritage's total orders for the year to their highest point since 2007, and translated into the highest annual pre-tax income we've generated since 2006," said Mr. Hilton. "Net income of $95 million for the fourth quarter of 2012 was driven by increased home closings and revenue, greater leverage of overhead expenses, lower interest expense and a $71.5 million net tax benefit. We earned $0.63 per diluted share for the quarter even before taking into account the net tax benefit from the reversal of most of our valuation allowance against our deferred tax assets. We expect to use the deferred tax asset to offset future income taxes." Mr. Hilton continued, "While 2012 was the second year of growth in U.S. new home sales since they bottomed in 2010, and the highest number of new homes were started since 2007, the absolute level of starts is still far below the historical average, indicating abundant opportunity for continued growth. "Based on our expectations for additional growth, we invested approximately $480 million in land and development during the year, including the purchase of approximately 9,000 lots. We ended the year with about 20,800 total lots under control, up from about 16,700 lots at the end of 2011. Additionally, we have significantly higher backlog, total assets and stockholders' equity than we had at the end of 2011, with sufficient liquidity to grow as the housing market continues to recover."Fourth quarter 2012 operating results compared to 2011 Net income increased $106.9 million over 2011 to $95.1 million ($2.49 per diluted share) in the fourth quarter of 2012, compared to an $11.8 million loss ($0.36 per diluted share) in the prior year. 2012 results included $0.4 million of impairments and a net tax benefit of $71.5 million due to the reversal of most of the remaining deferred tax asset valuation allowance. Prior year results included $13.0 million of real estate-related impairments, primarily due to the wind down of operations in Las Vegas, and a $0.8 million loss from the sale of Meritage's only two golf courses. Home closing revenue increased 48% due to a 39% increase in home closings and a 7% increase in average price over the prior year period. California, Texas and Florida accounted for the largest portion of the increase in total closing revenue. California more than doubled its fourth quarter closing revenue with a 117% increase over 2011. Home orders increased 46%, and when combined with an 18% increase in average selling price that was primarily mix-driven, resulted in a 72% increase in total order value over the fourth quarter of 2011. The fourth quarter of 2012 was Meritage's seventh consecutive quarter of year-over-year growth in home orders, and the total of 1,094 homes ordered was higher than any fourth quarter since 2006. Average sales price for the fourth quarter increased to $323,000 from $275,000 in 2011. Orders per average community during the fourth quarter increased 43% over the prior year to 7.0 from 4.9 in 2011, and reached their highest fourth quarter level since 2005. California achieved the highest orders per community for the quarter at 13.9; Colorado averaged 9.8; and Florida, 8.2. Cancellation rate decreased to 13% in the fourth quarter of 2012, compared to 19% in the fourth quarter of 2011, reflecting a high quality backlog and greater confidence among buyers, supported by increasing prices and expectations of further home value appreciation. Ending backlog of orders was up 61% over the prior year, and the total value of orders in backlog was up 93%, aided by a 20% increase in the average sales price per home. Home closing gross profit increased 74% over the prior year, and home closing gross margin increased to 18.9% in the fourth quarter of 2012 compared to 16.0% in the fourth quarter of 2011. Margins increased primarily due to lower impairments and sales price increases, although sales price increases were largely offset by increases in various cost components. Excluding impairments from cost of sales, adjusted gross margins in the fourth quarter were 19.0% in 2012 and 18.8% in 2011, and slightly higher sequentially than 18.7% in the third quarter of 2012. Commissions and selling expenses decreased by 120 basis points from the prior year, to 7.4% of home closing revenue in the fourth quarter of 2012, compared to 8.6% of home closing revenue in the fourth quarter of 2011, as higher closing revenue resulted in greater leverage of the fixed components within selling costs. General and administrative expenses for the fourth quarter of 2012 decreased by 230 basis points to 4.9% of total revenue in 2012, compared to 7.2% of total revenue in 2011. Interest expense decreased to $5.5 million or 1.5% of revenue in the fourth quarter of 2012, compared to $7.4 million or 3.0% of revenue in the fourth quarter of 2011. A greater portion of interest incurred was capitalized to assets under development, and interest expense leverage improved with increased revenue.Full year 2012 operating results compared to 2011 Net income of $105.2 million for the full year of 2012 included a $5.8 million loss on early extinguishment of debt and $2.0 million of impairments, in addition to an $8.7 million charge related to litigation accruals and a $76.3 million net tax benefit primarily due to the reversal of most of the deferred tax asset valuation allowance. By comparison, the $21.1 million loss for the full year of 2011 included $16.2 million of asset impairments, primarily due to $9.2 million of charges related to the wind down of the company's operations in Las Vegas, and a tax provision of $0.7 million. Home closings and closing revenue increased 30% and 38%, respectively, for 2012 as compared to 2011. 2012 home closing gross margins improved by 130 basis points to 18.4%, primarily due to lower impairment charges, compared to 17.1% for 2011. Adjusted home closing gross margins excluding impairments were 18.5% in 2012 and 18.2% in 2011. Net orders for the year increased 41% in 2012 over 2011, and combined with an 11% increase in average sales prices, resulted in total order value increasing 56% year over year.Balance sheet Cash and cash equivalents, restricted cash and securities at December 31, 2012, totaled $295.5 million, compared to $333.2 million at December 31, 2011, as Meritage invested in additional inventory, as well as land and development, to support future growth in orders. During the fourth quarter of 2012, management determined that most of the deferred tax asset previously reserved was more likely than not to be used within the statutory time limits, and that $79.9 million of the company's deferred tax valuation allowance should accordingly be reversed. $8.4 million of the $79.9 million was used for federal and state taxes in the fourth quarter of 2012, resulting in a net tax benefit of $71.5 million for the quarter. At year-end, deferred tax assets totaled $78.0 million net of $8.7 million of valuation allowances. Real estate assets increased by $297.8 million for the year 2012, ending at $1.1 billion at December 31, 2012, compared to $815.4 million at December 31, 2011, funded by cash on hand and approximately $209 million of additional capital raised during the year. Meritage ended the quarter with approximately 20,800 total lots under control, of which 84% were owned, compared to approximately 16,700 at December 31, 2011, a net increase of approximately 4,100 lots during the year. Net debt-to-capital ratio at December 31, 2012 was 38.1%, compared to 35.8% at December 31, 2011.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. 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 10023382. 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 January 31, 2013 on the website noted above, or by dialing 877-344-7529, and referencing conference number 10023382. For more information, visit meritagehomes.com.Meritage Homes Corporation and SubsidiariesOperating Results(Unaudited)(In thousands, except per share data)                      Three Months Ended December 31,Twelve Months Ended December 31,  2012201120122011Operating results         Home closing revenue  $ 364,118  $ 245,730  $ 1,184,360  $ 860,884 Land closing revenue 468 260 9,314 360 Total closing revenue 364,586 245,990 1,193,674 861,244 Home closing gross profit 68,763 39,411 217,976 147,448 Land closing gross profit/(loss) 210 (6,222) 223 (6,340) Total closing gross profit 68,973 33,189 218,199 141,108 Commissions and other sales costs (26,883) (21,036) (94,833) (74,912) General and administrative expenses (17,739) (17,602) (68,185) (64,184) Interest expense (5,526) (7,363) (24,244) (30,399) Loss on extinguishment of debt — — (5,772) — Other income, net (1) 4,775 1,208 3,689 8,011 Income/(loss) before income taxes 23,600 (11,604) 28,854 (20,376) Benefit from/(provision for) income taxes 71,528 (170) 76,309 (730) Net income/(loss)  $ 95,128 $ (11,774)  $ 105,163 $ (21,106)Income/(loss) per share         Basic:         Income/(loss) per share  $ 2.67 $ (0.36)   $ 3.09  $ (0.65)  Weighted average shares outstanding 35,595 32,452 34,057 32,382 Diluted:         Income/(loss) per share  $ 2.49 $ (0.36)  $ 3.00 $ (0.65) Weighted average shares outstanding 38,308 32,452 35,172 32,382Non-GAAP Reconciliations:         Home closing gross profit  $ 68,763  $ 39,411  $ 217,976  $ 147,448 Add: Real estate-related impairments 436 6,696 1,340 8,870 Adjusted home closing gross profit  $ 69,199  $ 46,107  $ 219,316  $ 156,318 Income/(loss) before income taxes  $ 23,600 $ (11,604)  $ 28,854 $ (20,376) Add Real estate-related impairments:         Terminated lot options and land sales — 8,994 1,015 9,221 Impaired projects 436 4,029 994 6,103 Fixed asset impairment — 848 — 848 Increase in litigation reserve (1) — — 8,720 — Loss on early extinguishment of debt — — 5,772 — Adjusted income/(loss) before income taxes  $ 24,036  $ 2,267  $ 45,355 $ (4,204)           (1) Other income, net for the full year 2012 includes an $8.7 million charge to increase litigation reserves.  Meritage Homes Corporation and SubsidiariesCondensed Consolidated Balance Sheets(In thousands)(unaudited)              December 31, 2012December 31, 2011Assets:     Cash and cash equivalents  $ 170,457  $ 173,612 Investments and securities 86,074 147,429 Restricted cash 38,938 12,146 Other receivables 20,290 14,932  Real estate (2) 1,113,187 815,425 Deposits on real estate under option or contract 14,351 15,208 Investments in unconsolidated entities 12,085 11,088 Deferred tax assets, net 77,974 — Other assets 42,206 31,538 Total assets  $ 1,575,562  $ 1,221,378Liabilities and Equity:     Accounts payable, accrued liabilities, home sale deposits and other liabilities  $ 158,555  $ 126,057 Senior notes 496,472 480,534 Convertible senior notes 126,500 — Senior subordinated notes 99,825 125,875 Total liabilities 881,352 732,466 Total stockholders' equity 694,210 488,912 Total liabilities and equity  $ 1,575,562  $ 1,221,378(2)Real estate – Allocated costs:     Homes under contract under construction  $ 192,948  $ 101,445 Unsold homes, completed and under construction 107,466 97,246 Model homes 62,411 49,892 Finished home sites and home sites under development 634,106 441,242 Land held for development 56,118 55,143 Land held for sale 21,650 29,908 Communities in mothball status 38,488 40,549 Total allocated costs  $ 1,113,187  $ 815,425  Supplemental Information and Non-GAAP Financial Disclosures (In thousands – unaudited):                      Three Months Ended December 31,Twelve Months Ended December 31,  2012201120122011 Depreciation and amortization  $ 2,283  $ 1,911  $ 8,196  $ 7,178          Summary of Capitalized Interest:         Capitalized interest, beginning of period  $ 20,185  $ 14,115  $ 14,810  $ 11,679 Interest incurred 12,316 10,848 46,135 43,393 Interest expensed (5,526) (7,363) (24,244) (30,399) Interest amortized to cost of home, land closings and impairments (5,375) (2,790) (15,101) (9,863) Capitalized interest, end of period  $ 21,600  $ 14,810  $ 21,600  $ 14,810                20122011 Notes payable and other borrowings      $ 722,797  $ 606,409 Less: cash and cash equivalents, restricted cash, and investments and securities     (295,469) (333,187) Net debt     427,328 273,222 Stockholders' equity     694,210 488,912 Total capital      $ 1,121,538  $ 762,134 Net debt-to-capital     38.1% 35.8%  Meritage Homes Corporation and SubsidiariesCondensed Consolidated Statements of Cash Flows(In thousands)(unaudited)                      Three Months Ended December 31,Twelve Months Ended December 31,  2012201120122011Operating results         Net income/(loss)  $ 95,128 $ (11,774)  $ 105,163 $ (21,106) Loss on early extinguishment of debt — — 5,772 — Real-estate related impairments 436 13,023 2,009 15,324 Deferred tax valuation benefit (70,265) — (77,974) — Equity in earnings from JVs and distributions of JV earnings—net (77) (30) (585) 648 Increase in real estate and deposits, net (110,044) (31,851) (298,361) (95,697) Other operating activities (3,413) 7,709 43,489 26,695Net cash used in operating activities (88,235) (22,923) (220,487) (74,136)Net cash (used in)/provided by investing activities (46,900) 38,649 23,844 141,182 Proceeds from issuance of new debt — — 426,500 — Debt issuance costs 188 — (9,312) — Repayments of senior notes — — (315,080) — Net proceeds from issuance of common stock — — 87,113 — Proceeds from stock option exercises and other 355 782 4,267 2,613Net cash provided by financing activities 543 782 193,488 2,613Net (decrease)/increase in cash (134,592) 16,508 (3,155) 69,659Beginning cash and cash equivalents 305,049 157,104 173,612 103,953Ending cash and cash equivalents (3)  $ 170,457  $ 173,612  $ 170,457  $ 173,612           (3) Ending cash and cash equivalents as of December 31, 2012 and December 31, 2011 excludes investments and securities and restricted cash totaling $125 million and $160 million, respectively.  Meritage Homes Corporation and SubsidiariesOperating Data(Dollars in thousands)(unaudited)                      Three Months Ended  December 31, 2012December 31, 2011  HomesValueHomesValueHomes Closed:         Arizona 232  $ 67,910 176  $ 50,028 California 243 91,813 127 42,389 Colorado 65 20,991 83 27,338 Nevada 22 4,042 10 2,233West Region 562 184,756 396 121,988 Texas 465 113,206 391 92,742Central Region 465 113,206 391 92,742 Carolinas 33 11,375 — — Florida 180 54,781 107 31,000East Region 213 66,156 107 31,000 Total 1,240  $ 364,118 894  $ 245,730Homes Ordered:         Arizona 178  $ 56,426 128  $ 34,918 California 251 103,275 99 33,813 Colorado 98 35,391 55 18,279 Nevada 9 2,018 1 228West Region 536 197,110 283 87,238 Texas 389 97,458 341 80,279Central Region 389 97,458 341 80,279 Carolinas 33 11,772 24 8,616 Florida 136 47,522 101 29,928East Region 169 59,294 125 38,544 Total 1,094  $ 353,862 749  $ 206,061  Meritage Homes Corporation and SubsidiariesOperating Data(Dollars in thousands)(unaudited)                      Twelve Months Ended  December 31, 2012December 31, 2011  HomesValueHomesValueHomes Closed:         Arizona 825  $ 221,100 594  $ 150,258 California 732 264,388 355 120,319 Colorado 292 96,807 258 83,095 Nevada 61 11,444 59 12,593West Region 1,910 593,739 1,266 366,265 Texas 1,655 390,642 1,660 395,278Central Region 1,655 390,642 1,660 395,278 Carolinas 117 41,888 — — Florida 556 158,091 342 99,341East Region 673 199,979 342 99,341 Total 4,238  $ 1,184,360 3,268  $ 860,884Homes Ordered:         Arizona 916  $ 256,684 627  $ 163,510 California 965 361,328 392 132,672 Colorado 364 123,403 276 89,624 Nevada 70 13,473 52 11,300West Region 2,315 754,888 1,347 397,106 Texas 1,759 429,465 1,593 377,165Central Region 1,759 429,465 1,593 377,165 Carolinas 142 50,613 24 8,616 Florida 579 179,806 441 125,035East Region 721 230,419 465 133,651 Total 4,795  $ 1,414,772 3,405  $ 907,922Order Backlog:         Arizona 249  $ 80,816 158  $ 45,232 California 315 124,588 82 27,648 Colorado 142 50,089 70 23,493 Nevada 14 3,105 5 1,076West Region 720 258,598 315 97,449 Texas 500 132,317 396 93,494Central Region 500 132,317 396 93,494 Carolinas 49 17,341 24 8,616 Florida 203 71,010 180 49,295East Region 252 88,351 204 57,911 Total 1,472  $ 479,266 915  $ 248,854  Meritage Homes Corporation and SubsidiariesOperating Data(unaudited)                      Three Months Ended  December 31, 2012December 31, 2011   Beg. End Beg. EndActive Communities:         Arizona 34 38 37 37 California 19 17 22 20 Colorado 8 12 9 10 Nevada 2 1 3 2West Region 63 68 71 69 Texas 68 65 65 67Central Region 68 65 65 67 Carolinas 7 7 — 3 Florida 15 18 13 18East Region 22 25 13 21 Total 153 158 149 157                      Twelve Months Ended  December 31, 2012December 31, 2011   Beg. End Beg. EndActive Communities:         Arizona 37 38 32 37 California 20 17 14 20 Colorado 10 12 9 10 Nevada 2 1 4 2West Region 69 68 59 69 Texas 67 65 82 67Central Region 67 65 82 67 Carolinas 3 7 — 3 Florida 18 18 10 18East Region 21 25 10 21 Total 157 158 151 157About 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 December 31, 2012, the company had 158 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 expectations for a continued recovery in the homebuilding industry and for the company's additional growth, the sufficiency of its liquidity to support future growth, as well as the company's ability to use its deferred tax asset to offset future income taxes within the statutory periods, 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 an unexpected setback in the current economic recovery; 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 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; the uncertainty of litigation; our success in prevailing on contested tax positions; our ability to preserve our deferred tax assets and use them within the statutory time limits; 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; 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