Investor Relations

Press Release

Meritage Homes completes 2016 with a 16% increase in full year net earnings, ending with fourth quarter diluted EPS of $1.22 on 15% growth in home closing revenue

Company Release - 2/1/2017 8:00 AM ET

SCOTTSDALE, Ariz., Feb. 01, 2017 (GLOBE NEWSWIRE) -- Meritage Homes Corporation (NYSE:MTH), a leading U.S. homebuilder, reported fourth quarter and full year results for the year ended December 31, 2016.

Summary Operating Results (unaudited)
(Dollars in thousands, except per share amounts)
 
  Three Months Ended December 31, Twelve Months Ended December 31,
  2016 2015 % Chg 2016 2015 % Chg
Homes closed (units) 2,117  1,919  10% 7,355  6,522  13%
Home closing revenue $876,094  $761,372  15% $3,003,426  $2,531,556  19%
Average sales price - closings $414  $397  4% $408  $388  5%
Home orders (units) 1,493  1,568  (5)% 7,290  7,100  3%
Home order value $635,995  $634,181  % $3,001,503  $2,822,785  6%
Average sales price - orders $426  $404  5% $412  $398  4%
Ending backlog (units)       2,627  2,692  (2)%
Ending backlog value       $1,135,758  $1,137,681  %
Average sales price - backlog       $432  $423  2%
Net earnings $51,807  $52,897  (2)% $149,541  $128,738  16%
Diluted EPS $1.22  $1.26  (3)% $3.55  $3.09  15%
                       

MANAGEMENT COMMENTS

“We delivered solid closings, revenue and earnings growth in 2016, maintained a strong balance sheet and executed our strategy for future growth,” said Steven J. Hilton, chairman and chief executive officer of Meritage Homes.

“We generated a 16% increase in net earnings with 19% growth in home closing revenue, and controlled our overhead costs to help offset the negative impact from higher land, development and construction labor costs. We delivered 7,355 homes during the year -- a 13% increase over 2015 -- and surpassed the historic milestone of 100,000 home closings, a proud achievement for Meritage.

“Our fourth quarter results contributed significantly to the gains we achieved for the full year. We grew home closing revenue by 15%, delivering nearly the same level of earnings as we did in the fourth quarter of 2015 despite lower home closing margin in the fourth quarter of 2016.”

Mr. Hilton continued, “Our ending community count was down year over year as some community openings were delayed, which impacted our order volumes for the fourth quarter and full year 2016. We expect that to translate to slightly lower year-over-year order volume for the first quarter of 2017. However, we expect to open these communities in the first half of the year and are projecting significant year-over-year growth in the second half of 2017, resulting in new home deliveries of approximately 7,500-7,900 for the full year and total closing revenue of $3.1-3.3 billion.

“We anticipate gross margins will be in line with 2016 due to continued cost pressures. However, we are projecting a 6-12% increase in pre-tax earnings through a combination of cost management and additional operating leverage from our anticipated top-line growth.

“We are successfully shifting our community offerings to fully embrace the growing number of first-time home buyers and are well on our way to achieving our target of 35-40% of our communities being aimed at this market segment by the end of 2018,” stated Mr. Hilton. “We believe this strategy will provide value to both our customers and shareholders over the long term.”

FOURTH QUARTER RESULTS

  • Net earnings for the fourth quarter of 2016 were $51.8 million or $1.22 per diluted share, compared to $52.9 million or $1.26 per diluted share reported for the fourth quarter of 2015. A 15% increase in home closing revenue was partially offset by higher construction labor, land and development costs, as well as lower land closing profit, resulting in a 4% increase in total closing gross profit. A higher effective tax rate reduced net earnings in the fourth quarter of 2016 compared to 2015.
     
  • Home closing revenue increased to $876.1 million for the fourth quarter of 2016, compared to $761.4 million for the fourth quarter of 2015, reflecting a 10% increase in home closings and a 4% increase in the average price of homes closed during the quarter. The regions that posted the best year-over-year increases in home closing revenue were the East region (notably Georgia, Tennessee and the Carolinas), delivering a 22% revenue increase on 20% greater closings, and the West region (notably Arizona and Colorado), where home closing revenue was up 14% over the fourth quarter of 2015. Texas home closing revenue rose 9% primarily due to an 8% increase in average closing price.
     
  • Home closing gross margin of 17.9% in the fourth quarter of 2016 was the highest quarterly margin in 2016, benefiting from cost efficiencies related to higher closings and revenue. It was lower than last year’s fourth quarter margin of 19.3%, primarily due to the impact of cost inflation in land and construction.
     
  • Selling, general and administrative expenses of 10.5% were flat with the prior year’s fourth quarter, and improved sequentially from the third quarter’s 11.7% due to the leverage from higher closing revenue, as well as management cost controls.
     
  • Nearly 100% of interest incurred was capitalized to additional assets under development, resulting in a negligible amount of interest expense in the fourth quarter of 2016, compared to $4.0 million in the prior year.
     
  • The fourth quarter effective tax rate was 32.1% in 2016, compared to 30.5% in the fourth quarter of 2015, due to the timing of recognition of federal energy tax credits on Meritage’s highly energy efficient homes. The benefit was recognized throughout 2016 instead of being fully recognized in the fourth quarter, as it was in 2015 following the legislative extension of tax credits.
     
  • Total order value for the quarter was consistent with the fourth quarter of 2015, as a 5% increase in average sales price offset a 5% decline in orders, while absorptions per community were consistent with the prior year’s fourth quarter.
     
  • Orders and order value increased in the West region, primarily due to strong demand in Arizona and Colorado, as well as in the Central region, primarily due to growth in community count to meet demand. Order volumes in the East region were 27% lower than the prior year’s fourth quarter, primarily due to a 16% decline in average community count, from 100 in 2015 to 84 in 2016.
     
  • Ending community count at December 31, 2016 was 243, compared to 254 at December 31, 2015, but up sequentially from 237 at September 30, 2016. Various delays pushed the opening dates for a number of communities into 2017, which are expected to occur in the first half of the year.

FULL YEAR RESULTS

  • Net earnings were up 16% year over year to $149.5 million ($3.55 per fully diluted share) for the full year of 2016, compared to $128.7 million ($3.09 per fully diluted share) for 2015. The earnings increase was primarily due to 19% growth in home closing revenue, combined with a 14% increase in financial services profit, improved overhead leverage, reduced interest expense and increased other income, partially offset by lower home closing gross margin and land closing profit compared to 2015.

  • Meritage closed 13% more homes in 2016 than in 2015, at an average sales price of $408,000 compared to $388,000 in 2015. The combination of higher closing volume and prices drove the increase in annual home closing revenue.

  • Overhead leverage improved by 60 bps as total selling, general and administrative expenses declined to 11.3% in 2016 from 11.9% in 2015. The improvement reflects a revised commission structure and cost controls implemented by management during 2016.

  • Interest expense for the full year decreased to $5.2 million in 2016 compared to $16.0 million in 2015, as most interest incurred was capitalized to higher real estate assets under development.

  • Home closing gross margin in 2016 was 17.6%, compared to 19.0% for 2015, reflecting higher costs with limited pricing power to offset them, as well as the close-out of several high-margin communities.

BALANCE SHEET

  • The company ended the fourth quarter of 2016 with $131.7 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. $15.0 million was drawn on the revolving credit facility at year-end 2016 with no comparable balance outstanding at December 31, 2015.

  • Real estate assets increased to $2.42 billion at December 31, 2016, compared to $2.10 billion at December 31, 2015, primarily due to increases in the balances of finished home sites and home sites under development, as well as unsold homes.

  • Net debt-to-capital ratio at December 31, 2016 was 41.2%, compared to 40.4% at December 31, 2015, reflecting the investment of cash into inventory of homes and land under development.

  • Total lot supply at the end of the quarter was approximately 29,800, a 7% increase over approximately 27,800 lots at December 31, 2015, representing approximately four years’ supply of lots based on trailing twelve months closings on both dates.

CONFERENCE CALL

Management will host a conference call today to discuss the Company's results at 10:00 a.m. Eastern Time (8:00 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/10097854

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 February 15, 2017, beginning at 12:00 p.m. Eastern Time on February 1, 2017 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
December 31,
 Twelve Months Ended
December 31,
  2016 2015 2016 2015
Homebuilding:       
 Home closing revenue$876,094  $761,372  $3,003,426  $2,531,556 
 Land closing revenue4,614  20,241  25,801  36,526 
 Total closing revenue880,708  781,613  3,029,227  2,568,082 
 Cost of home closings(719,324) (614,794) (2,474,584) (2,049,637)
 Cost of land closings(3,946) (14,744) (23,431) (29,736)
 Total cost of closings(723,270) (629,538) (2,498,015) (2,079,373)
 Home closing gross profit156,770  146,578  528,842  481,919 
 Land closing gross profit668  5,497  2,370  6,790 
 Total closing gross profit157,438  152,075  531,212  488,709 
Financial Services:       
 Revenue3,392  3,101  12,507  11,377 
 Expense(1,435) (1,289) (5,587) (5,203)
 Earnings from financial services unconsolidated entities and other, net4,180  3,942  14,982  13,097 
 Financial services profit6,137  5,754  21,902  19,271 
Commissions and other sales costs(60,058) (53,542) (215,092) (188,418)
General and administrative expenses(32,029) (26,775) (123,803) (112,849)
Earnings/(loss) from other unconsolidated entities, net3,204  77  4,060  (338)
Interest expense(45) (4,003) (5,172) (15,965)
Other income/(expense), net1,690  2,499  4,953  (946)
Earnings before income taxes76,337  76,085  218,060  189,464 
Provision for income taxes(24,530) (23,188) (68,519) (60,726)
Net earnings$51,807  $52,897  $149,541  $128,738 
        
Earnings per share:       
 Basic       
 Earnings per share$1.29  $1.33  $3.74  $3.25 
 Weighted average shares outstanding40,028  39,667  39,976  39,593 
 Diluted       
 Earnings per share$1.22  $1.26  $3.55  $3.09 
 Weighted average shares outstanding42,667  42,214  42,585  42,164 


Meritage Homes Corporation and Subsidiaries
 Consolidated Balance Sheets
(In thousands)
(Unaudited)
 
  December 31, 2016 December 31, 2015
Assets:    
Cash and cash equivalents $131,702  $262,208 
Other receivables 70,355  57,296 
Real estate (1) 2,422,063  2,098,302 
Deposits on real estate under option or contract 85,556  87,839 
Investments in unconsolidated entities 17,097  11,370 
Property and equipment, net 33,202  33,970 
Deferred tax asset 53,320  59,147 
Prepaids, other assets and goodwill 75,396  69,645 
Total assets $2,888,691  $2,679,777 
Liabilities:    
Accounts payable $140,682  $106,440 
Accrued liabilities 170,852  161,163 
Home sale deposits 28,348  36,197 
Loans payable and other borrowings 32,195  23,867 
Senior and convertible senior notes, net 1,095,119  1,093,173 
Total liabilities 1,467,196  1,420,840 
Stockholders' Equity:    
Preferred stock    
Common stock 400  397 
Additional paid-in capital 572,506  559,492 
Retained earnings 848,589  699,048 
Total stockholders’ equity 1,421,495  1,258,937 
Total liabilities and stockholders’ equity $2,888,691  $2,679,777 
     
(1) Real estate – Allocated costs:    
Homes under contract under construction $508,927  $456,138 
Unsold homes, completed and under construction 431,725  307,425 
Model homes 147,406  138,546 
Finished home sites and home sites under development 1,334,005  1,196,193 
Total real estate $2,422,063  $2,098,302 


Supplemental Information and Non-GAAP Financial Disclosures (Dollars in thousands – unaudited):
 
 Three Months Ended
December 31,
 Twelve Months Ended
December 31,
 2016 2015 2016 2015
Depreciation and amortization$4,508  $3,947  $15,978  $14,241 
        
Summary of Capitalized Interest:       
Capitalized interest, beginning of period$67,631  $61,396  $61,202  $54,060 
Interest incurred17,704  17,877  70,348  67,542 
Interest expensed(45) (4,003) (5,172) (15,965)
Interest amortized to cost of home and land closings(17,094) (14,068) (58,182) (44,435)
Capitalized interest, end of period$68,196  $61,202  $68,196  $61,202 
        
 December 31,
2016
 December 31,
2015
    
Notes payable and other borrowings$1,127,314  $1,117,040     
Stockholders' equity1,421,495  1,258,937     
Total capital2,548,809  2,375,977     
Debt-to-capital44.2% 47.0%    
Notes payable and other borrowings$1,127,314  $1,117,040     
Less: cash and cash equivalents$(131,702) $(262,208)    
Net debt995,612  854,832     
Stockholders’ equity1,421,495  1,258,937     
Total net capital$2,417,107  $2,113,769     
Net debt-to-capital41.2% 40.4%    



Meritage Homes Corporation and Subsidiaries
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
 
  Twelve Months Ended December 31,
  2016 2015
Cash flows from operating activities:    
Net earnings $149,541  $128,738 
Adjustments to reconcile net earnings to net cash used in operating activities:    
Depreciation and amortization 15,978  14,241 
Stock-based compensation 13,741  15,781 
Excess income tax provision/(benefit) from stock-based awards 956  (2,043)
Equity in earnings from unconsolidated entities (19,042) (12,759)
Distribution of earnings from unconsolidated entities 16,959  12,650 
Other 9,539  11,530 
Changes in assets and liabilities:    
Increase in real estate (311,426) (209,407)
Decrease in deposits on real estate under option or contract 2,337  6,316 
Increase in other receivables, prepaids and other assets (17,513) (7,083)
Increase in accounts payable and accrued liabilities 43,377  31,883 
(Decrease)/increase in home sale deposits (7,849) 6,818 
Net cash used in operating activities (103,402) (3,335)
Cash flows from investing activities:    
Investments in unconsolidated entities (7,244) (481)
Distributions of capital from unconsolidated entities 3,600   
Purchases of property and equipment (16,662) (16,092)
Proceeds from sales of property and equipment 200  86 
Maturities/sales of investments and securities 746  1,555 
Payments to purchase investments and securities (746) (1,555)
Net cash used in investing activities (20,106) (16,487)
Cash flows from financing activities:    
Proceeds from Credit Facility, net 15,000   
Repayment of loans payable and other borrowings (21,274) (23,226)
Proceeds from issuance of senior notes   200,000 
Debt issuance costs   (3,006)
Excess income tax (provision)/benefit from stock-based awards (956) 2,043 
Proceeds from stock option exercises 232  2,886 
Net cash (used in)/provided by financing activities (6,998) 178,697 
Net (decrease)/increase in cash and cash equivalents (130,506) 158,875 
Beginning cash and cash equivalents 262,208  103,333 
Ending cash and cash equivalents $131,702  $262,208 


Meritage Homes Corporation and Subsidiaries
Operating Data
(Dollars in thousands)
(Unaudited)
 
  Three Months Ended December 31,
  2016 2015
  Homes Value Homes Value
Homes Closed:        
Arizona 373  $126,628  291  $98,004 
California 282  171,506  323  175,601 
Colorado 160  78,278  131  57,211 
West Region 815  376,412  745  330,816 
Texas 567  212,587  559  194,879 
Central Region 567  212,587  559  194,879 
Florida 276  116,253  254  106,520 
Georgia 108  37,263  72  23,735 
North Carolina 198  80,222  162  66,921 
South Carolina 97  32,274  83  24,217 
Tennessee 56  21,083  44  14,284 
East Region 735  287,095  615  235,677 
Total 2,117  $876,094  1,919  $761,372 
Homes Ordered:        
Arizona 314  $105,397  253  $86,887 
California 187  116,969  215  118,370 
Colorado 116  64,887  105  51,033 
West Region 617  287,253  573  256,290 
Texas 490  185,557  465  171,938 
Central Region 490  185,557  465  171,938 
Florida 159  71,559  200  80,929 
Georgia 28  11,682  73  25,704 
North Carolina 108  48,959  159  67,492 
South Carolina 60  19,253  65  20,071 
Tennessee 31  11,732  33  11,757 
East Region 386  163,185  530  205,953 
Total 1,493  $635,995  1,568  $634,181 


         
  Twelve Months Ended December 31,
  2016 2015
  Homes Value Homes Value
Homes Closed:        
Arizona 1,122  $384,767  1,008  $325,371 
California 1,020  590,340  888  478,174 
Colorado 634  310,191  495  224,125 
West Region 2,776  1,285,298  2,391  1,027,670 
Texas 2,130  778,964  2,025  705,318 
Central Region 2,130  778,964  2,025  705,318 
Florida 895  368,564  843  361,127 
Georgia 337  114,137  228  72,913 
North Carolina 672  278,747  551  215,642 
South Carolina 328  103,851  330  101,847 
Tennessee 217  73,865  154  47,039 
East Region 2,449  939,164  2,106  798,568 
Total 7,355  $3,003,426  6,522  $2,531,556 
Homes Ordered:        
Arizona 1,249  $428,204  1,133  $377,059 
California 962  559,832  965  538,357 
Colorado 575  302,124  559  264,643 
West Region 2,786  1,290,160  2,657  1,180,059 
Texas 2,119  783,504  2,109  746,471 
Central Region 2,119  783,504  2,109  746,471 
Florida 861  367,012  893  376,563 
Georgia 333  114,074  270  89,755 
North Carolina 605  254,521  626  258,952 
South Carolina 356  114,376  348  105,838 
Tennessee 230  77,856  197  65,147 
East Region 2,385  927,839  2,334  896,255 
Total 7,290  $3,001,503  7,100  $2,822,785 
Order Backlog:        
Arizona 444  $161,343  317  $117,906 
California 231  153,638  289  184,146 
Colorado 273  154,084  332  162,151 
West Region 948  469,065  938  464,203 
Texas 931  354,734  942  350,194 
Central Region 931  354,734  942  350,194 
Florida 253  116,454  287  118,006 
Georgia 91  33,363  95  33,426 
North Carolina 193  87,252  260  111,478 
South Carolina 116  40,636  88  30,111 
Tennessee 95  34,254  82  30,263 
East Region 748  311,959  812  323,284 
Total 2,627  $1,135,758  2,692  $1,137,681 



Meritage Homes Corporation and Subsidiaries
Operating Data
(Unaudited)
 
  Three Months Ended December 31,
  2016 2015
  Ending Average Ending Average
Active Communities:        
Arizona 42  41.0  41  41.0 
California 28  28.5  24  25.0 
Colorado 10  10.0  16  15.5 
West Region 80  79.5  81  81.5 
Texas 80  77.0  72  71.0 
Central Region 80  77.0  72  71.0 
Florida 27  26.5  31  31.0 
Georgia 17  17.0  17  17.0 
North Carolina 17  18.0  26  25.5 
South Carolina 15  15.0  18  17.5 
Tennessee 7  7.0  9  8.5 
East Region 83  83.5  101  99.5 
Total 243  240.0  254  252.0 


  Twelve Months Ended December 31,
  2016 2015
  Ending Average Ending Average
Active Communities:        
Arizona 42  41.5  41  41.0 
California 28  26.0  24  24.0 
Colorado 10  13.0  16  16.5 
West Region 80  80.5  81  81.5 
Texas 80  76.0  72  65.5 
Central Region 80  76.0  72  65.5 
Florida 27  29.0  31  30.0 
Georgia 17  17.0  17  15.0 
North Carolina 17  21.5  26  23.5 
South Carolina 15  16.5  18  19.0 
Tennessee 7  8.0  9  7.0 
East Region 83  92.0  101  94.5 
Total 243  248.5  254  241.5 
             

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 its 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, our strategy and projections with respect to the entry-level and first-time home buyer market, the timing of community openings in 2017, quarterly order trends during 2017, projected home closings and home closing revenue, home closing gross margins, operating leverage and pre-tax earnings for the full year 2017.

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