Investor Relations

Press Release

Meritage Homes reports third quarter 2016 diluted EPS of $0.88 on a 22% increase in net earnings, with 11% growth in home closing revenue and home orders

Company Release - 10/27/2016 7:30 AM ET

SCOTTSDALE, Ariz., Oct. 27, 2016 (GLOBE NEWSWIRE) -- Meritage Homes Corporation (NYSE:MTH), a leading U.S. homebuilder, announced today third quarter results for the period ended September 30, 2016.

 
Summary Operating Results (unaudited)
(Dollars in thousands, except per share amounts)
 
  Three Months Ended September 30, Nine Months Ended September 30,
  2016 2015 % Chg 2016 2015 % Chg
Homes closed (units) 1,800  1,712  5% 5,238  4,603  14%
Home closing revenue $735,870  $661,884  11% $2,127,332  $1,770,184  20%
Average sales price - closings $409  $387  6% $406  $385  6%
Home orders (units) 1,737  1,567  11% 5,797  5,532  5%
Home order value $715,562  $629,977  14% $2,365,508  $2,188,604  8%
Average sales price - orders $412  $402  2% $408  $396  3%
Ending backlog (units)       3,251  3,043  7%
Ending backlog value       $1,375,857  $1,264,872  9%
Average sales price - backlog       $423  $416  2%
Net earnings $36,887  $30,308  22% $97,734  $75,841  29%
Diluted EPS $0.88  $0.73  21% $2.33  $1.83  27%
                       

MANAGEMENT COMMENTS

“We delivered another quarter of strong earnings growth as we continued to execute on our strategic plan,” said Steven J. Hilton, chairman and chief executive officer of Meritage Homes. “Earnings growth was driven primarily by increased home closing revenue on higher closing volumes. We delivered 1,800 homes during the quarter and celebrated the closing of our 100,000th home in October. We have expanded and diversified strategically over the past 31 years, and continue to have significant opportunities for growth.

“I am very pleased with the initial success we’re having in our ‘entry-level plus’ communities, including the first of our new LiVE.NOW.™ homes, which we unveiled earlier this month,” said Mr. Hilton. “We are offering homes that are a cut above traditional entry-level homes and include Meritage’s signature energy efficiency, designed to appeal to more discerning first-time buyers. Many of those are Millennials, who represent millions of additional household formations over the next decade or more, and additional growth potential for Meritage. Our enhanced product offering provides a broader range of affordably-priced homes to address pent-up demand, which we expect will produce top-line growth and operational efficiencies over time to drive additional earnings.”

He added, “We are benefitting from the numerous operational changes we made last year in our latest expansion markets and are experiencing higher absorptions in Georgia, North Carolina and Tennessee, which should lead to better returns and improved operating leverage for our company. As a result of those changes and stronger demand, we achieved a 14% increase in our orders per average community over last year’s third quarter, which drove our 11% order growth during the quarter," continued Mr. Hilton. “We believe the economic drivers of the housing market, including job growth, increased household formations and low interest rates, point to continued growth for well-positioned homebuilders.

“Based on our results for the first three quarters of the year and our positive outlook for the market, we have refined our projections for 2016 full year orders, closings, revenue and diluted earnings per share: We expect 7,300-7,500 orders and 7,300-7,500 home closings for full year home closing revenue of $2.9-3.1 billion in 2016. With a projected home closing gross margin of approximately 17.5% for the year, we expect to deliver full year diluted EPS of $3.40-3.60 for 2016.”

THIRD QUARTER RESULTS

  • Net earnings for the third quarter of 2016 were $36.9 million or $0.88 per diluted share, 22% higher than the $30.3 million or $0.73 per diluted share reported for the third quarter of 2015, primarily reflecting higher home closing revenue offsetting lower home closing gross margins in the 2016 quarter.
  • Home closing revenue increased 11% over the third quarter of 2015, combining a 5% increase in home closings with a 6% increase in the average price of homes closed during the quarter. The rise in average closing price was driven primarily by increased closings and higher average prices in the West region. Central region home closing revenue grew 9% on a 5% increase in closings over the prior year. Closings grew 10% in the East region, partially offset by a 3% decline in average closing price, for a 6% increase in home closing revenue.
  • Home closing gross margin of 17.8% in the third quarter of 2016 declined from 19.0% in the third quarter of 2015, though it improved sequentially from 17.3% in the second quarter of 2016. Margins have been compressed in 2016 primarily due to limited pricing power to offset increased land and construction costs.
  • Selling, general and administrative expenses were 11.4% of third quarter 2016 total closing revenue, compared to 11.5% in the prior year.
  • Interest expense decreased by $4.0 million to $0.2 million in the third quarter of 2016, as more interest incurred was capitalized to assets under development.
  • Other income/(expense) increased by a net $5.4 million in the third quarter of 2016 compared to 2015, reflecting a $4.1 million adverse legal ruling in 2015, while the 2016 quarter included additional income from municipalities related to reimbursable property development expenditures.
  • The effective tax rate was 31.4% in the third quarter of 2016, compared to 35.1% in the third quarter of 2015, reflecting the benefit from federal energy tax credits on Meritage’s highly energy efficient homes. The benefit was recognized in the third quarter of 2016 compared to the fourth quarter of 2015, following the legislative extension of energy tax credits.
  • Total order value grew 14% to $715.6 million in the third quarter of 2016, compared to $630.0 million in the third quarter of the prior year. Total orders increased 11% due to a 14% increase in orders per average community, despite a lower community count in the third quarter of 2016 than in 2015. Orders per average community were 7.3 in the third quarter of 2016 compared to 6.4 in the prior year. Average sales prices also rose 2% over 2015’s third quarter.  
  • Ending community count at September 30, 2016 was 237, compared to 250 at September 30, 2015, with a 2% decline in average active communities for the third quarter of 2016 compared to 2015.
  • September 30th ending backlog value was 9% higher in 2016 than in 2015, combining 7% more units in backlog with a 2% increase in the average price of orders in backlog.

YEAR TO DATE RESULTS

  • Net earnings were $97.7 million or $2.33 per fully diluted share for the first nine months of 2016, compared to $75.8 million or $1.83 per diluted share for the first nine months of 2015, a 29% increase in net earnings and 27% increase in fully diluted EPS. The increased earnings were primarily the result of a 20% increase in 2016 year-to-date home closing revenue and greater overhead leverage, partially offset by lower home closing gross margins.
  • Home closings for the first three quarters of the year increased 14% over 2015, and average closing prices increased 6% for the same period.
  • Year-to-date home closing gross margin in 2016 was 17.5%, compared to 18.9% for 2015, reflecting limited pricing power relative to increased land and construction costs, as well as immature markets within the East region.
  • Total commissions and selling expenses declined to 7.3% of year-to-date 2016 home closing revenue from 7.6% in 2015. General and administrative expenses declined to 4.3% of total closing revenue in 2016 compared to 4.8% in 2015.
  • Interest expense for the first nine months of the year decreased to $5.1 million in 2016 compared to $12.0 million in 2015, as more interest was capitalized to assets under development.

BALANCE SHEET

  • The company ended the third quarter of 2016 with $107.9 million in cash and cash equivalents, compared to $262.2 million at December 31, 2015. The decrease in cash was primarily due to investments in real estate inventory as a result of organic growth. The company had $25 million drawn on its revolving credit facility at quarter-end, which was repaid in early October.
  • Real estate assets increased to $2.43 billion at September 30, 2016, compared to $2.10 billion at December 31, 2015, as the balance of homes under contract under construction increased $176 million, accounting for most of the increase.
  • Net debt-to-capital ratio at September 30 was 43.0%, consistent with June 30, 2016 at 42.6%, and up from 40.4% at December 31, 2015 due to the use of cash to replenish the company’s land pipeline, as well as a growing inventory of homes under construction during 2016.
  • Total lot supply at the end of the quarter was approximately 28,800, compared to approximately 29,000 at September 30, 2015 and 27,800 at year-end 2015. Based on trailing twelve months closings, total lots at September 30, 2016 represented approximately a 4.0 year supply of lots.

CONFERENCE CALL

Management will host a conference call today to discuss the Company's results at 12:30 p.m. Eastern Time (9:30 a.m. Arizona Time). The call will be webcast with an accompanying slideshow available on the "Investor Relations" page of the Company's web site at http://investors.meritagehomes.com. Telephone participants may avoid any delays by pre-registering for the call using the following link to receive a special dial-in number and PIN.

Conference call registration link: http://dpregister.com/10092994.

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

A replay of the call will be available through November 10, 2016, beginning at 2:30 p.m. ET on October 27, 2016 on the website noted above, or by dialing 877-344-7529, and referencing conference number 10092994. For more information, visit www.meritagehomes.com.

  
 Meritage Homes Corporation and Subsidiaries
 Consolidated Income Statements
 (In thousands, except per share data)
 (Unaudited)
  
  Three Months Ended
September 30,
 Nine Months Ended
September 30,
  2016 2015 2016 2015
Homebuilding:       
 Home closing revenue$735,870  $661,884  $2,127,332  $1,770,184 
 Land closing revenue16,987  8,072  21,187  16,285 
 Total closing revenue752,857  669,956  2,148,519  1,786,469 
 Cost of home closings(604,891) (536,267) (1,755,260) (1,434,843)
 Cost of land closings(16,092) (7,445) (19,485) (14,992)
 Total cost of closings(620,983) (543,712) (1,774,745) (1,449,835)
 Home closing gross profit130,979  125,617  372,072  335,341 
 Land closing gross profit895  627  1,702  1,293 
 Total closing gross profit131,874  126,244  373,774  336,634 
Financial Services:       
 Revenue3,139  3,000  9,115  8,276 
 Expense(1,398) (1,253) (4,152) (3,914)
 Earnings from financial services unconsolidated entities and other, net4,215  3,854  10,802  9,155 
 Financial services profit5,956  5,601  15,765  13,517 
Commissions and other sales costs(52,478) (48,097) (155,034) (134,876)
General and administrative expenses(33,258) (28,774) (91,774) (86,074)
Earnings/(loss) from other unconsolidated entities, net440  (123) 856  (415)
Interest expense(167) (4,187) (5,127) (11,962)
Other income/(expense), net1,435  (3,996) 3,263  (3,445)
Earnings before income taxes53,802  46,668  141,723  113,379 
Provision for income taxes(16,915) (16,360) (43,989) (37,538)
Net earnings$36,887  $30,308  $97,734  $75,841 
        
Earnings per share:       
 Basic       
 Earnings per share$0.92  $0.76  $2.45  $1.92 
 Weighted average shares outstanding40,022  39,663  39,958  39,568 
 Diluted       
 Earnings per share$0.88  $0.73  $2.33  $1.83 
 Weighted average shares outstanding42,608  42,192  42,541  42,134 


 
Meritage Homes Corporation and Subsidiaries
Consolidated Balance Sheets
(In thousands)
(Unaudited)
 
  September 30, 2016 December 31, 2015
Assets:    
Cash and cash equivalents $107,915  $262,208 
Other receivables 76,371  57,296 
Real estate (1) 2,429,014  2,098,302 
Deposits on real estate under option or contract 91,053  87,839 
Investments in unconsolidated entities 11,831  11,370 
Property and equipment, net 33,983  33,970 
Deferred tax asset 57,552  59,147 
Prepaids, other assets and goodwill 65,436  69,645 
Total assets $2,873,155  $2,679,777 
Liabilities:    
Accounts payable $148,260  $106,440 
Accrued liabilities 180,687  161,163 
Home sale deposits 36,988  36,197 
Loans payable and other borrowings 45,183  23,867 
Senior and convertible senior notes, net 1,094,632  1,093,173 
Total liabilities 1,505,750  1,420,840 
Stockholders' Equity:    
Preferred stock    
Common stock 400  397 
Additional paid-in capital 570,223  559,492 
Retained earnings 796,782  699,048 
Total stockholders’ equity 1,367,405  1,258,937 
Total liabilities and stockholders’ equity $2,873,155  $2,679,777 
 (1) Real estate – Allocated costs:    
Homes under contract under construction $632,454  $456,138 
Unsold homes, completed and under construction 377,490  307,425 
Model homes 150,662  138,546 
Finished home sites and home sites under development 1,268,408  1,196,193 
Total real estate $2,429,014  $2,098,302 


Supplemental Information and Non-GAAP Financial Disclosures (Dollars in thousands – unaudited):
 
 Three Months Ended
September 30,
 Nine Months Ended
September 30,
 2016 2015 2016 2015
Depreciation and amortization$3,870  $3,565  $11,470  $10,294 
        
Summary of Capitalized Interest:       
Capitalized interest, beginning of period$64,682  $58,870  $61,202  $54,060 
Interest incurred17,372  17,857  52,644  49,665 
Interest expensed(167) (4,187) (5,127) (11,962)
Interest amortized to cost of home and land closings(14,256) (11,144) (41,088) (30,367)
Capitalized interest, end of period$67,631  $61,396  $67,631  $61,396 
        
 September
30, 2016
 December
31, 2015
    
Notes payable and other borrowings$1,139,815  $1,117,040     
Stockholders' equity1,367,405  1,258,937     
Total capital2,507,220  2,375,977     
Debt-to-capital45.5% 47.0%    
Notes payable and other borrowings$1,139,815  1,117,040     
Less: cash and cash equivalents$(107,915) $(262,208)    
Net debt1,031,900  854,832     
Stockholders’ equity1,367,405  1,258,937     
Total net capital$2,399,305  $2,113,769     
Net debt-to-capital43.0% 40.4%    


 
Meritage Homes Corporation and Subsidiaries
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
 
  Nine Months Ended September 30,
  2016 2015
Cash flows from operating activities:    
Net earnings $97,734  $75,841 
Adjustments to reconcile net earnings to net cash used in operating activities:    
Depreciation and amortization 11,470  10,294 
Stock-based compensation 11,042  12,418 
Excess income tax provision/(benefit) from stock-based awards 540  (2,040)
Equity in earnings from unconsolidated entities (11,658) (8,740)
Distribution of earnings from unconsolidated entities 11,439  9,446 
Other 4,942  1,246 
Changes in assets and liabilities:    
Increase in real estate (318,490) (198,520)
(Increase)/decrease in deposits on real estate under option or contract (3,160) 2,719 
Increase in other receivables, prepaids and other assets (14,201) (6,067)
Increase in accounts payable and accrued liabilities 61,206  39,949 
Increase in home sale deposits 791  10,208 
Net cash used in operating activities (148,345) (53,246)
Cash flows from investing activities:    
Investments in unconsolidated entities (242) (300)
Purchases of property and equipment (12,256) (12,334)
Proceeds from sales of property and equipment 144  92 
Maturities/sales of investments and securities 645   
Payments to purchase investments and securities (645)  
Net cash used in investing activities (12,354) (12,542)
Cash flows from financing activities:    
Proceeds from Credit Facility, net 25,000   
Repayment of loans payable and other borrowings (18,286) (4,044)
Proceeds from issuance of senior notes   200,000 
Debt issuance costs   (3,013)
Excess income tax (provision)/benefit from stock-based awards (540) 2,040 
Proceeds from stock option exercises 232  2,881 
Net cash provided by financing activities 6,406  197,864 
Net (decrease)/increase in cash and cash equivalents (154,293) 132,076 
Beginning cash and cash equivalents 262,208  103,333 
Ending cash and cash equivalents $107,915  $235,409 



 
Meritage Homes Corporation and Subsidiaries
Operating Data
(Dollars in thousands)
(Unaudited)
         
  Three Months Ended September 30,
  2016 2015
  Homes Value Homes Value
Homes Closed:        
Arizona 253  $89,092  302  $92,888 
California 251  142,056  236  120,387 
Colorado 167  84,114  123  56,927 
West Region 671  315,262  661  270,202 
Texas 542  199,499  517  183,455 
Central Region 542  199,499  517  183,455 
Florida 206  85,647  202  90,285 
Georgia 83  27,477  62  20,663 
North Carolina 177  71,641  165  63,532 
South Carolina 76  22,658  80  25,812 
Tennessee 45  13,686  25  7,935 
East Region 587  221,109  534  208,227 
Total 1,800  $735,870  1,712  $661,884 
Homes Ordered:        
Arizona 345  $116,815  272  $96,867 
California 216  125,920  203  110,076 
Colorado 121  66,213  84  43,782 
West Region 682  308,948  559  250,725 
Texas 488  178,934  452  165,206 
Central Region 488  178,934  452  165,206 
Florida 208  95,946  227  94,114 
Georgia 85  28,841  67  23,143 
North Carolina 149  61,537  138  57,168 
South Carolina 71  22,434  88  26,766 
Tennessee 54  18,922  36  12,855 
East Region 567  227,680  556  214,046 
Total 1,737  $715,562  1,567  $629,977 


         
  Nine Months Ended September 30,
  2016 2015
  Homes Value Homes Value
Homes Closed:        
Arizona 749  $258,139  717  $227,367 
California 738  418,834  565  302,573 
Colorado 474  231,913  364  166,914 
West Region 1,961  908,886  1,646  696,854 
Texas 1,563  566,377  1,466  510,439 
Central Region 1,563  566,377  1,466  510,439 
Florida 619  252,311  589  254,607 
Georgia 229  76,874  156  49,178 
North Carolina 474  198,525  389  148,721 
South Carolina 231  71,577  247  77,630 
Tennessee 161  52,782  110  32,755 
East Region 1,714  652,069  1,491  562,891 
Total 5,238  $2,127,332  4,603  $1,770,184 
Homes Ordered:        
Arizona 935  $322,807  880  $290,172 
California 775  442,863  750  419,987 
Colorado 459  237,237  454  213,610 
West Region 2,169  1,002,907  2,084  923,769 
Texas 1,629  597,947  1,644  574,533 
Central Region 1,629  597,947  1,644  574,533 
Florida 702  295,453  693  295,634 
Georgia 305  102,392  197  64,051 
North Carolina 497  205,562  467  191,460 
South Carolina 296  95,123  283  85,767 
Tennessee 199  66,124  164  53,390 
East Region 1,999  764,654  1,804  690,302 
Total 5,797  $2,365,508  5,532  $2,188,604 
         
Order Backlog:        
Arizona 503  $182,574  355  $129,023 
California 326  208,175  397  241,377 
Colorado 317  167,475  358  168,329 
West Region 1,146  558,224  1,110  538,729 
Texas 1,008  381,764  1,036  373,135 
Central Region 1,008  381,764  1,036  373,135 
Florida 370  161,148  341  143,597 
Georgia 171  58,944  94  31,457 
North Carolina 283  118,515  263  110,907 
South Carolina 153  53,657  106  34,257 
Tennessee 120  43,605  93  32,790 
East Region 1,097  435,869  897  353,008 
Total 3,251  $1,375,857  3,043  $1,264,872 



Meritage Homes Corporation and Subsidiaries
Operating Data
(Unaudited)
         
  Three Months Ended September 30,
  2016 2015
  Ending Average Ending Average
Active Communities:        
Arizona 40  41.5  41  42.0 
California 29  27.0  26  23.0 
Colorado 10  11.0  15  15.5 
West Region 79  79.5  82  80.5 
Texas 74  73.5  70  68.0 
Central Region 74  73.5  70  68.0 
Florida 26  26.0  31  30.5 
Georgia 17  17.0  17  16.5 
North Carolina 19  20.5  25  25.0 
South Carolina 15  15.5  17  18.5 
Tennessee 7  7.0  8  6.0 
East Region 84  86.0  98  96.5 
Total 237  239.0  250  245.0 


         
  Nine Months Ended September 30,
  2016 2015
  Ending Average Ending Average
Active Communities:        
Arizona 40  40.5  41  41.0 
California 29  26.5  26  25.0 
Colorado 10  13.0  15  16.0 
West Region 79  80.0  82  82.0 
Texas 74  73.0  70  64.5 
Central Region 74  73.0  70  64.5 
Florida 26  28.5  31  30.0 
Georgia 17  17.0  17  15.0 
North Carolina 19  22.5  25  23.0 
South Carolina 15  16.5  17  18.5 
Tennessee 7  8.0  8  6.5 
East Region 84  92.5  98  93.0 
Total 237  245.5  250  239.5 

About Meritage Homes Corporation

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

Meritage Homes has designed and built over 100,000 homes in its 31-year history, and has a reputation for its distinctive style, quality construction, and positive customer experience. Meritage Homes is the industry leader in energy-efficient homebuilding and has received the U.S. Environmental Protection Agency's ENERGY STAR Partner of the Year for Sustained Excellence Award every year since 2013 for innovation and industry leadership in energy efficient homebuilding. For more information, visit meritagehomes.com.

This press release and the accompanying comments during our analyst call contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements include management's expectations with respect to future growth, projected orders, home closings and home closing revenue, home closing gross margins and diluted earnings per share for the full year 2016.

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

Contacts: Brent Anderson, VP Investor Relations
(972) 580-6360 (office)
investors@meritagehomes.com

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Source: Meritage Homes Corporation