Meritage Homes Reports First Quarter 2007 Results and Comments On Outlook For Full Year


 * Closed 1,796 homes (-29%) with an ASP of $321K (-4%) for
   $576 million home closing revenue (-32%)
 * Net earnings of $15 million (-81%), or $0.57 diluted EPS (-80%)
 * Gross margin of 15.6%, including $17 million pre-tax charge
   ($0.40 per share after tax) for land-related write-offs and
 * Net orders for 2,073 homes (-20%) totaling $641 million (-23%)
 * Cancellation rate improved to 27% of gross orders in the quarter
   from 48% in the fourth quarter 2006
 * Order backlog at quarter-end of 3,962 homes (-39%) valued at
   $1.3 billion (-42%)
 * Net debt-to-capital ratio of 43%
 * Total lot supply reduced 23% from September 30, 2005 peak to
   41,936 lots, with 20% owned and 80% optioned

SCOTTSDALE, Ariz., April 25, 2007 (PRIME NEWSWIRE) -- Meritage Homes Corporation (NYSE:MTH) today announced first quarter results for the period ended March 31, 2007.

                 Summary Operating Results (Unaudited)
           (Dollars in thousands, except per share amounts)

                               As of and for the Three Months Ended
                                            March 31,

                                  2007              2006        %Chg
 Homes closed (units)              1,796             2,528       -29%
 Home closing revenue           $576,115          $846,374       -32%
 Sales orders (units)              2,073             2,590       -20%
 Sales order value              $640,616          $832,618       -23%
 Ending backlog (units)            3,962             6,456       -39%
 Ending  backlog value        $1,264,562        $2,167,844       -42%
 Net Earnings                    $15,116           $79,736       -81%
 Diluted EPS                       $0.57             $2.86       -80%

Revenue and earnings reflect slower overall housing demand and difficult comparisons to record 2006 results

Meritage reported total revenue, net earnings and diluted EPS of $577 million, $15 million and $0.57 per diluted share, respectively, for the first quarter of 2007, compared to all-time first quarter record 2006 amounts of $847 million, $80 million and $2.86 per diluted share, respectively.

"Our first quarter 2007 results reflect the broad slowdown in the U.S. housing market and a difficult comparison to the prior year, when we achieved record first quarter revenue and earnings, resulting from unprecedented housing demand in 2005. Although home closing revenue returned to levels achieved two years ago, our margins were much lower due to competitive pricing pressures and additional land-related write-offs," said Steven J. Hilton, chairman and CEO of Meritage.

Total home closing revenue for the first quarter 2007 was $576 million from 1,796 home closings at an average price of approximately $321,000. First quarter 2006 home closing revenue was $846 million, up from $551 million the previous year, on 2,528 home closings at an average price of approximately $335,000.

Gross margin on first quarter home closing revenue was 15.6% in 2007, compared with a near-record 25.3% in the first quarter of 2006. First quarter 2007 gross margin was reduced by $17 million in pre-tax charges ($0.40 per share after tax) related to lot option deposit write-offs and inventory impairments, with no such charges in the first quarter 2006. Excluding these charges in 2007, gross margin would have been 18.6% and the Company would have reported diluted EPS of $0.97 per share.

Sales improve with lower cancellations

Net sales orders for 2,073 homes totaled $641 million in the first quarter 2007, a substantial improvement from the fourth quarter 2006, although lower than the near-record first quarter 2006 sales by 20% and 23%, respectively. Net sales were helped by a decline in order cancellations during the first quarter 2007. The cancellation rate improved to 27% of first quarter gross orders (21% of beginning backlog) from 48% of fourth quarter 2006 gross orders (22% of beginning backlog) and in line with 28% of gross orders reported in last year's first quarter.

With 217 active communities at quarter-end, up from 185 a year ago, the absorption rate as measured by sales per average community was 10 in the first quarter 2007 compared to 14 in the first quarter 2006.

Total dollar value of backlog at the end of the first quarter was reduced 42% year-over-year, a combination of 39% fewer homes and a 5% lower average price (ASP.) The lower ASP reflects price reductions, incentives and changes in sales mix, with a higher percentage of lower-priced homes sold in recent quarters.

"Considering the difficult comparison to the first quarter last year, we were pleased with our sales results this quarter, and encouraged by the overall decline in cancellations," said Mr. Hilton. "We define a normal market as an absorption rate of about one sale per community per week, with stable prices and normal incentives. While we're not there yet, we believe our first quarter results indicate a move in the right direction."

Meritage maintains strong balance sheet

Responding to the downturn in demand and sales, the Company further reduced its inventories of unsold homes by 11% during the quarter, to a total of 1,213 spec homes, from the year-end 2006 balance of 1,365 spec homes.

While maintaining approximately a four- to five-year target supply of lots, total lot supply under control was reduced to 41,936 at first quarter-end, with 20% owned and 80% controlled under option contracts. Meritage has reduced its total controlled lot supply by 23% from the peak of 54,675 at September 30, 2005. The total was reduced by approximately 495 lots in the first quarter 2007 due to the write-off of optioned lots.

"We continue to believe that our use of options to control land has provided tangible benefits -- by leveraging capital to allow us to grow faster when markets are strong, and by reducing our capital at risk, thereby limiting our land-related write-offs as markets weaken," said Mr. Hilton. "This strategy has benefited our shareholders, and we expect it will continue to do so."

Meritage reported a net debt-to-capital ratio of 43% at March 31, 2007, better than most other 'BB' rated homebuilders and near the low end of the Company's target of 40-50%. Meritage Homes Corporation received a rating upgrade to 'BB' from Standard and Poor's Rating Services during the quarter.

Total funds available under Meritage's existing bank credit facility increased 18% from year-end 2006 to $528 million at March 31, 2007, after considering the facility's borrowing base availability and most restrictive covenants. In February of this year, the Company issued $150 million of 7.73% senior subordinated notes maturing in 2017 in a private placement, and used the proceeds to pay down borrowings under its credit facility, increasing Meritage's liquidity.

Operating and reporting segments

Closings and orders slowed in the Central segment, Meritage's largest, comprised of Arizona, Texas and Colorado. Total closing revenue was down 7%, as 15% lower volume was partially offset by a 10% increase in ASP. First quarter 2007 total order value was 41% lower in Arizona, 12% lower in Texas, and 9% higher in Colorado, compared to the first quarter 2006.

Meritage's West segment, comprised of California and Nevada, experienced a 63% decline in total closing revenue during the first quarter 2007, while the total value of net orders was off just 9%. ASP's for the West segment were down 6% on homes closed and 11% on new orders, reflecting continued pricing constraints. Meritage's California markets were some of the first to realize a slowdown, contributing to more favorable year-over-year comparisons, as the total value of home sales improved 2% year-over-year in the first quarter.

Florida markets comprise the East segment for Meritage, and continued to report the largest declines in terms of order volume and ASPs, driven by very weak demand in southwest Florida. Total closing revenue was 46% lower, while total order value was 62% lower in the first quarter 2007 compared to the first quarter 2006.

Summary and future outlook

"The markets for homebuilders have changed dramatically in the last year," said Mr. Hilton. "Change creates opportunity, and we see this period of change as one of opportunity for Meritage. We have a sound strategy for growth and profitability, a strong organization and leadership team with a proven record of success, and a solid franchise in some of the best homebuilding markets in the country. We are using the slowdown in demand as an opportunity to improve each.

"As we've stated previously, we expect 2007 will be a difficult year, but we are encouraged by some early signs of stabilization," offered Mr. Hilton. "We've seen our overall cancellation rate decline, sales pace begin to improve and incentives begin to stabilize in certain markets, resulting in modest impairments during the first quarter this year relative to last year's fourth quarter and some of our peers' recent write-offs. We have taken steps to improve sales, reduce our cost structure and strengthen our balance sheet, and our successes are evident in the results we've reported. While conditions are still challenging -- with softer demand and weaker pricing compared to a year ago -- we are confident in our ability to manage through these difficult conditions."

Mr. Hilton continued, "Based on current conditions and our projections, we are expecting to close 7,700-8,500 homes in 2007 for a total of $2.4-2.7 billion revenue. Assuming relatively stable conditions and an associated modest exposure to inventory impairments or option write-offs during the remainder of the year, we expect to earn between $2.00-2.50 per diluted share for the full year 2007.

"We will face difficult comparisons in the second quarter as we did in the first, but we believe that order comparisons will ease as we go through 2007. We anticipate that margins will continue to be under pressure due to competition in 2007, and would expect some modest improvement in demand during 2008, but are not relying on a rebound in 2007 to achieve our projections."

Concluding, Mr. Hilton said, "We expect Meritage will remain profitable for the full year 2007, and will emerge from this cycle a stronger competitor, well positioned to deliver superior growth and earnings in future years for our shareholders."

Awards and recognition

Meritage was pleased to move up to 580th on the FORTUNE 1000 list in its most recently published report, up from 615th in 2006. Among homebuilders ranked on this list, Meritage is the 13th largest in terms of total 2006 revenue.

Conference call and webcast

The Company will host a conference call on Thursday, April 26, 2007 at 11:00 a.m. Eastern Time to discuss the results of the quarter. The call will be webcast and accompanying materials will be accessible on the "Investor Relations" page of the Company's website at The dial-in number is 800-901-5248 with a passcode of "Meritage," and participants are encouraged to dial in five minutes before the call begins. A replay of the call will be available after 2:00 p.m. EDT April 26, 2007, through midnight May 25, 2007, on the website noted above, or by dialing 888-286-8010, and referencing passcode 54286061. The webcast replay will also be available on the "Investor Relations" page of the Company's website, and through CCBN for two weeks at

             Meritage Homes Corporation and Subsidiaries
                           Operating Results
                 (In thousands, except per share data)

                                             Three Months Ended
                                                  March 31,

                                           2007              2006
                                           ----              ----
 Operating results
 Home closing revenue                   $ 576,115         $ 846,374
 Land closing revenue                       1,335               897
                                        ---------         ---------
   Total closing revenue                  577,450           847,271

 Home closing gross profit                 90,151           214,063
 Land closing gross profit/(loss)             189               (22)
                                        ---------         ---------
   Total closing gross profit              90,340           214,041

 Commissions and other sales costs        (47,338)          (48,027)
 General and administrative expenses      (26,663)          (42,722)
 Other income, net                          6,279             7,499
                                        ---------         ---------
 Earnings before provision for
  income taxes                             22,618           130,791
 Provision for income taxes                (7,502)          (51,055)
                                        ---------         ---------
 Net earnings                           $  15,116         $  79,736
                                        =========         =========

 Earnings per share
    Earnings per share                  $    0.58         $    2.96
    Weighted average shares
     outstanding                           26,165            26,974

    Earnings per share                  $    0.57         $    2.86
    Weighted average shares
     outstanding                           26,543            27,876

 Non-GAAP Reconciliations:
 Total closing gross profit             $  90,340         $ 214,041
 Add: Land-related write-offs/
  impairments                              17,037                --
                                        ---------         ---------
 Adjusted closing gross profit            107,377           214,041
                                        =========         =========

 Earnings before provision for
  income taxes                             22,618           130,791
 Add: Land-related write-offs/
  impairments                              17,037                --
                                        ---------         ---------
 Adjusted earnings before
  provision for income taxes               39,655           130,791
 Adjusted provision for income
  taxes                                   (13,933)          (51,055)
                                        ---------         ---------
 Adjusted net earnings                  $  25,722         $  79,736
                                        =========         =========

 Adjusted basic earnings
  per share                             $    0.98         $    2.96
 Adjusted diluted earnings
  per share                             $    0.97         $    2.86

               Meritage Homes Corporation and Subsidiaries
                     Non-GAAP Financial Disclosures
                         (Dollars in thousands)

                                              As of and for the Four
                         Three Months Ended      Quarters Ended
                             March 31,               March 31,
                         2007        2006       2007         2006
                         ----        ----       ----         ----
 EBITDA reconciliation:(1)
 Net earnings         $ 15,116    $ 79,736   $  160,734   $  311,205
 Provision for
  income taxes           7,502      51,055       95,102      197,090
 Interest amortized
  to cost of sales       7,972      10,761       40,197       41,629
 Depreciation and
  amortization           4,269       4,873       23,125       18,326
                      --------    --------   ----------   ----------
                      $ 34,859    $146,425   $  319,158   $  568,250
                      ========    ========   ==========   ==========

 Interest coverage ratio:(2)
 EBITDA                                      $  319,158   $  568,250
 Interest incurred                               54,373   $   44,480
 Interest coverage
  ratio                                            5.9x        12.8x

 Debt to EBITDA ratio:(3)
 Notes payable and other
  borrowings                                 $  810,364   $  648,413
 EBITDA                                      $  319,158   $  568,250
 Debt to EBITDA ratio                              2.5x         1.1x

 After-tax stockholder returns:(4)
 Net earnings                                $  160,734   $  311,205
 Average assets                              $2,154,122   $1,785,990
 Average equity                              $   970,01   $  762,744
 After-tax return on
  assets                                           7.5%        17.4%
 After-tax return on
  equity                                          16.6%        40.8%

 Net debt-to-capital:(5)
 Notes payable and
  other borrowings                           $  810,364   $  648,413
 Less:  cash and cash
    Equivalents                                  38,919       41,662
                                           ------------  -----------
 Net debt                                       771,445      606,751
 Stockholders' equity                         1,023,061      891,540
                                           ------------  -----------
 Capital                                     $1,794,50    $1,498,291
 Net debt-to-capital                              43.0%        40.5%

 (1) EBITDA is a non-GAAP financial measure and represents net
 earnings before interest expense amortized to cost of sales, income
 taxes, depreciation and amortization. A non-GAAP financial measure is
 a numerical measure of a company's historical or future financial
 performance, financial position or cash flows that excludes amounts,
 or is subject to adjustments that have the effect of excluding
 amounts, that are included in the most directly comparable measure
 calculated and presented in accordance with GAAP in the statement of
 earnings, balance sheet, or statement of cash flows (or equivalent
 statements) of the Company; or includes amounts, or is subject to
 adjustments that have the effect of including amounts, that are
 excluded from the most directly comparable measure so calculated and
 presented. In this regard, GAAP refers to generally accepted
 accounting principles in the United States. We have provided a
 reconciliation of this non-GAAP financial measure to the most
 directly comparable GAAP financial measure. EBITDA is presented here
 because it is used by management to analyze and compare Meritage with
 other homebuilding companies on the basis of operating performance
 and we believe it is a financial measure widely used by investors and
 analysts in the homebuilding industry. EBITDA as presented may not be
 comparable to similarly titled measures reported by other companies
 because not all companies calculate EBITDA in an identical manner
 and, therefore, it is not necessarily an accurate means of comparison
 between companies. EBITDA is not intended to represent cash flows for
 the period or funds available for management's discretionary use nor
 has it been presented as an alternative to operating income or as an
 indicator of operating performance and it should not be considered in
 isolation or as a substitute for measures of performance prepared in
 accordance with GAAP.

 (2) Interest coverage ratio is calculated as the trailing four
 quarters' EBITDA divided by the trailing four quarters' interest

 (3) Debt to EBITDA ratio is calculated as notes payable and
 other borrowings divided by the trailing four quarters' EBITDA.

 (4) Return on assets is defined as net earnings for the trailing four
 quarters divided by the average of the trailing five quarters' ending
 total assets. Return on equity is defined as net earnings for the
 trailing four quarters divided by the average of the trailing five
 quarters' ending stockholders' equity for the same period.

 (5) Net debt-to-capital is calculated as notes payable and other
 borrowings less cash and cash equivalents, divided by the sum of
 notes payable and other borrowings, less cash and cash equivalents,
 plus stockholders' equity.

              Meritage Homes Corporation and Subsidiaries
                          Balance Sheet Data
                            (In thousands)

                                   March 31, 2007   December 31, 2006
                                   --------------   -----------------

 Total assets                          $2,184,129          $2,170,525
 Real estate                            1,576,038           1,535,871
 Cash and cash equivalents                 38,919              56,710
 Total liabilities                      1,161,068           1,163,693
 Notes payable and other borrowings       810,364             733,276
 Stockholders' equity                   1,023,061           1,006,832

              Meritage Homes Corporation and Subsidiaries
                      Operating Data (Unaudited)
                        (Dollars in Thousands)

                           For the Three Months Ended March 31,
                              2007                     2006
                    ----------------------   -----------------------
                       Homes       Value        Homes        Value

 Homes Closed:
   California             194   $  102,135          423   $  246,883
   Nevada                  45       15,277          189       74,156
                   ----------   ----------   ----------   ----------
  West Region             239      117,412          612      321,039

   Arizona                498      182,289          736      225,859
   Texas                  912      222,888          952      219,084
   Colorado                33       13,663           16        6,090
                   ----------   ----------   ----------   ----------
  Central Region        1,443      418,840        1,704      451,033

   Florida                114       39,863          212       74,302
                   ----------   ----------   ----------   ----------
  East Region             114       39,863          212       74,302

                   ----------   ----------   ----------   ----------
   Total                1,796   $  576,115        2,528   $  846,374
                   ==========   ==========   ==========   ==========

 Homes Ordered:
   California             291   $  139,984          237   $  137,356
   Nevada                  84       30,866          129       49,408
                   ----------   ----------   ----------   ----------
  West Region             375      170,850          366      186,764

   Arizona                478      152,342          733      259,810
   Texas                1,096      278,544        1,312      315,147
   Colorado                48       18,520           42       16,994
                   ----------   ----------   ----------   ----------
  Central Region        1,622      449,406        2,087      591,951

   Florida                 76       20,360          137       53,903
                   ----------   ----------   ----------   ----------
  East Region              76       20,360          137       53,903

                   ----------   ----------   ----------   ----------
   Total                2,073   $  640,616        2,590   $  832,618
                   ==========   ==========   ==========   ==========

 Order Backlog:
   California             323   $  167,665          528   $  311,437
   Nevada                  96       37,314          289      101,652
                   ----------   ----------   ----------   ----------
  West Region             419      204,979          817      413,089

   Arizona                885      317,359        2,424      872,653
   Texas                2,393      637,819        2,533      605,528
   Colorado                60       23,640           58       22,726
                   ----------   ----------   ----------   ----------
  Central Region        3,338      978,818        5,015    1,500,907

   Florida                205       80,765          624      253,848
                   ----------   ----------   ----------   ----------
  East Region             205       80,765          624      253,848

                   ----------   ----------   ----------   ----------
   Total                3,962   $1,264,562        6,456   $2,167,844
                   ==========   ==========   ==========   ==========

              Meritage Homes Corporation and Subsidiaries
                      Operating Data (Unaudited)

                           First Qtr 2007     First Qtr 2006
                           --------------     --------------
      Communities:        Beg.      End       Beg.      End
                          ----      ---       ----      ---

       California           26        25        20        23
       Nevada                5         9         6         6
                         -----     -----     -----     -----
      West Region           31        34        26        29

       Arizona              42        39        35        36
       Texas               121       124       108       100
       Colorado              6         7         3         5
                         -----     -----     -----     -----
      Central Region       169       170       146       141

       Florida              13        13        12        15
                         -----     -----     -----     -----
      East Region           13        13        12        15

                         -----     -----     -----     -----
       Total               213       217       184       185
                         =====     =====     =====     =====

About Meritage Homes Corporation

Meritage Homes Corporation (NYSE:MTH) is a leader in the homebuilding industry. The Company is ranked by Builder magazine as the 13th largest homebuilder in the U.S. and was recently selected for the fourth consecutive year to Forbes' "Platinum 400 - Best-Managed Big Companies in America." Meritage is in the S&P SmallCap 600 Index, ranks 580 on the 2007 Fortune 1000 list and has appeared on Fortune's "Fastest Growing Companies in America" list in five of the last seven years. Meritage operates in many of the dominant homebuilding markets of the southern and western United States, including six of the top 10 single-family housing markets in the country, and has reported 19 consecutive years of record revenue through 2006. For more information about the Company, visit Meritage is a member of the Public Home Builders Council of America (

The Meritage Homes Corporation logo is available at

This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements include those regarding our expectations about trends in the housing or homebuilding markets, or for Meritage in particular, including trends related to: sales/orders, cancellations, prices/incentives, land values and sales/absorption rates, as well as the timing of changes or continuation of trends in related metrics; our expected home closings, revenue, margins and net earnings/EPS for 2007; the level of option write-offs and impairment charges we may incur in 2007; our future lot or land supply and the benefits of our lot option strategy; and our future opportunities and operations of Meritage Homes. Such statements are based upon preliminary financial and operating data, 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 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, including: fluctuations in demand, competition, sales orders, cancellation rates and home prices in our markets; potential write-downs or write-offs of assets or deposits; interest rates and changes in the availability and pricing of residential mortgages; housing affordability; our success in locating and negotiating potential acquisitions; successful integration of acquired operations with existing operations; our investments in land and development joint ventures; our dependence on key personnel and the availability of satisfactory subcontractors; materials and labor costs; our ability to take certain actions because of restrictions contained in the indentures for our senior and senior subordinated notes, and the agreement for our unsecured credit facility; our lack of geographic diversification; the cost and availability of insurance, including the unavailability of insurance for the presence of mold; our potential exposure to natural disasters; the impact of construction defect and home warranty claims; demand for and acceptance of our homes; changes in the availability and pricing of real estate in the markets in which we operate; our ability to acquire additional land or options to acquire additional land on acceptable terms, particularly in our start-up markets; our exposure to obligations under performance and surety bonds, performance guarantees and letters of credit; general economic slow downs; consumer confidence, which can be impacted by economic and other factors such as terrorism, war, or threats thereof and changes in energy prices or stock markets; inflation in the cost of materials used to construct our homes; our level of indebtedness and our ability to raise additional capital when and if needed; legislative or other initiatives that seek to restrain growth or new housing construction or similar measures and other factors identified in documents filed by us with the Securities and Exchange Commission, including those set forth in our Form 10-K for the year ended December 31, 2006, under the caption "Risk Factors." As a result of these and other factors, the Company's stock and note prices may fluctuate dramatically.

CONTACT:  Meritage Homes Corporation
          Investor Relations:
          Brent Anderson, Director Investor Relations
            (972) 543-8207
          Corporate Communications:
          Jane Hays, Vice President Corporate Development
            (972) 543-8123