Meritage Homes Reports First Quarter 2011 Results


  Net loss of $6.7M or $(0.21) per share, due to lower closings and margin compression
  Sales orders of 840 -- highest quarter since the expiration of the home buyer tax credit in April 2010, but 21% below prior year – sequential quarterly increases in sales, absorptions per community and backlog
  Home closing gross margin of 17.1% compared to 18.9% in 1Q10 and 15.8% in 4Q10; adjusted gross margin excluding impairments was 17.5% compared to 19.2% in 1Q10 and 18.1% in 4Q10
  Expanded into new market in Raleigh-Durham, NC
  Introduced energy-neutral "net-zero" production home -- which produces as much energy as it uses -- in the community of Verrado in Phoenix, AZ

SCOTTSDALE, Ariz., April 28, 2011 (GLOBE NEWSWIRE) -- Meritage Homes Corporation (NYSE:MTH), a leading U.S. homebuilder, today announced first quarter results for the period ended March 31, 2011.

Summary Operating Results (unaudited)
    (Dollars in thousands, except per share amounts)
                                                                  As of and for the Three Months Ended
    March 31,
                                                                                2011             2010         %Chg
                                               Homes closed (units)              678             808        -16%
                                               Home closing revenue        $ 177,489       $ 200,582        -12%
                                               Sales orders (units)             840           1,064        -21%
                                                  Sales order value       $  220,612       $ 268,468        -18%
                                             Ending backlog (units)             940           1,351        -30%
                                               Ending backlog value       $  244,939       $ 355,419        -31%
                       Net (loss)/earnings -- including impairments       $  (6,659)         $ 2,660         n/m
     Adjusted pre-tax (loss)/earnings* --
    excluding impairments         (5,780)           3,323         n/m
                                Diluted EPS (including impairments)         $ (0.21)          $ 0.08         n/m
*see non-GAAP reconciliation of net (loss)/earnings to adjusted pre-tax (loss)/earnings on "Operating Results" statement


"We reported a modest loss in the first quarter due to lower closings and revenue compared to last year, combined with lower margins," said Steven J. Hilton, chairman and chief executive officer of Meritage Homes. "The market has obviously softened since the federal home buyer tax credit expired in April last year, as reflected in total U.S. home sales as well as our own sales and closings. As a result, we have offered larger incentives in some of our communities, resulting in lower margins that offset the improvements we are achieving in our new higher-margin communities."

Meritage reported a net loss of $6.7 million or ($0.21) per diluted share for the first quarter of 2011, compared to net earnings of $2.7 million or $0.08 per diluted share for the first quarter of 2010, which included the benefit of a $2.4 million gain from a legal settlement in 2010.

"Our first quarter 2011 closings were down 16% year over year, which is better than our beginning backlog would have indicated, as it was 29% lower than the prior year," said Mr. Hilton. "The decline in closings was less than the decline in backlog because our conversion rate was higher -- we closed 87% of backlog in the first quarter of 2011, compared to 74% in the first quarter of 2010."

Lower closings were partially offset by a 5% increase in average closing prices, resulting in a 12% decline in closing revenue. ASPs on closings increased to approximately $262,000 in the first quarter of 2011, from approximately $248,000 in the first quarter of 2010, reflecting a greater percentage of home closings in higher-priced communities.

First quarter reported home closing gross margin was 17.1% in 2011, compared to 18.9% in 2010 and 15.8% in the fourth quarter of 2010.Excluding impairments, 2011 home closing gross margin was 17.5%, 170 basis points lower than one year ago, and 60 basis points below the fourth quarter 2010 gross margin.

"Our gross margin contracted as a result of larger incentives offered in response to weaker market conditions, as well as some negative leverage in our construction overhead due to fewer closings in the first quarter of 2011," explained Mr. Hilton.

"Our average margin on closings in the new communities we've opened since the beginning of 2009 was approximately 500 basis points higher than the average in our legacy communities," he continued.

Approximately 42% of closings and 45% of closing revenue in the first quarter 2011 came from new communities, compared to 19% of first quarter 2010 closings and revenue.


"When we reported our fourth quarter 2010 results, we indicated that January sales had been slightly better than we expected, and we did achieve sequential improvements in our first quarter orders over the third and fourth quarters of last year," said Hilton. "However, the spring selling season for the last few months is off to a tepid start, and we have not produced sales at the pace we would have hoped this far into the 2011 selling season. We believe the housing market in general is still bouncing along the bottom, with pockets of strength in certain of our markets."

First quarter 2011 net orders of 840, or 5.8 per community, represented the highest quarterly sales and sales pace since the expiration of the home buyer tax credit last year. Comparisons to the prior year are difficult, as we believe 2010 sales of 1,064 homes, or 7.0 per community, were elevated by the tax credit. Notably, the company-wide order cancellation rate remained below its historical average range of 20-25%, at 17% of gross sales in the first quarter of 2011, compared to 18% in the first quarter of 2010.

The total value of orders declined 18% from the prior year, as the 21% decline in sales was partially offset by a 4% increase in average sales prices. Average sales prices increased in all of Meritage's markets with the exception of California, which was 3% lower than the prior year. The increase in ASPs primarily reflects a greater share of sales in closer-in communities, as well as sales of larger homes within certain niche markets.

"Our strategic market research department identifies submarkets where demand is strongest, and we have been successful acquiring lots in those areas, some of which are in higher-priced communities," said Mr. Hilton. "This is most recently evident in Colorado and Florida, where we have grown our sales per community to the highest in the company. In addition, our average prices there have been trending upward at a greater pace than our other markets."

The company operated with 3% fewer average active communities in the first quarter of 2011 than one year earlier, also contributing to lower sales in 2011. Meritage opened 13 new communities for sales in the first quarter of 2011, and closed out 23 older communities, ending the quarter with 141 total active communities. Based on communities in the pipeline, management expects to re-grow its total active communities to at least 150 by the end of the second quarter.

As a result of sales outpacing closings in the first quarter, ending backlog increased to a total value of $245 million from year-end 2010. March 31, 2011 backlog value was 31% lower than it was at March 31, 2010, as sales generally slowed after the expiration of the 2010 home buyer tax credit.


"We spent $40 million to purchase approximately 900 lots during the first quarter of 2011. Additionally, we contracted for about 1,000 new lots, which included 17 new communities," said Mr. Hilton. "The number of newly-contracted lots slightly outpaced our closings and increased our lot supply to approximately 15,400 total lots. Based on trailing twelve months closings, that equates to a 4.3 year supply of lots.

"Earlier this month, we announced our expansion into the Raleigh-Durham market, which was ranked by Hanley Wood Market Intelligence as the healthiest homebuilding market for 2011," continued Mr. Hilton. "This is our first entry into a new market since 2005. We have an experienced management team that has already contracted for several communities in the area. We expect to begin selling homes there in the latter part of 2011, and should report our first closings from this new division early next year."

Meritage ended the quarter with $388 million in cash and cash equivalents, restricted cash and securities. Net debt to total capital ratio was 31% at March 31, 2011, compared to of 26% at March 31, 2010 and 28% at December 31, 2010.


"We continued to execute on our strategic initiatives that have shown positive results and will drive our future success," said Mr. Hilton. "Our strategy has been to select the best locations we can find for our new communities through rigorous market research; reduce our direct costs and redesign our homes to offer greater value, as evident in our Simply Smart™ Series; reduce cycle times to turn our assets faster, allowing us to offer a 99-day guaranteed delivery; and design our homes to function better and cost less to operate through Meritage Green™ technologies.

"As one example of our progress, we have exceeded ENERGY STAR® standards in every home started since the beginning of 2010, and were honored to be awarded the ENERGY STAR® 2011 Partner of the Year by the EPA, 'for leading the homebuilding industry in reducing energy use through innovative, high-performance homes.' We have continued to raise the bar for the industry by doubling the energy-efficiency achievable in homes within our new communities opening this year.

"We also just announced our first net-zero house in the community of Verrado in Buckeye, Arizona. It is designed to produce as much energy as it uses annually, using a solar upgrade package. We plan to make that upgrade available in every community where we offer solar for as little as $10,000. It is the first of its kind to be offered by a production homebuilder in the U.S., creating an entirely new standard for energy efficiency and value."

In conclusion, Mr. Hilton said, "We celebrated Meritage's 25th anniversary in 2010. I believe we have managed the company well through some very challenging times over the last four years, and that despite the challenges and unpredictability of this market, we have a reasonable opportunity to be profitable again in 2011. I am confident in our strategies and the team we have assembled to lead Meritage into our next 25 years."


Management will host a conference call to discuss these results on Thursday, April 28, 2011 at 10:00 a.m. Eastern Time (7:00 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 For telephone participants, the dial-in number is 877-485-3104 with a passcode of "Meritage". Participants are encouraged to dial in five minutes before the call begins. A replay of the call will be available after 12:00 p.m. ET, April 28, 2011 on the website noted above, or by dialing 877-660-6853, and referencing account 356, replay ID 369123. For more information, visit

                                                                                        Meritage Homes Corporation and Subsidiaries
                                                                                                                  Operating Results
                                                                                              (In thousands, except per share data)
                                                                                                  Three Months Ended
    March 31,
                                                                                                               2011           2010
                                                                                  Operating results                              
                                                                               Home closing revenue       $ 177,489     $ 200,582
                                                                               Land closing revenue            100         1,222
                                                                              Total closing revenue        177,589       201,804
                                                                          Home closing gross profit         30,380        37,998
                                                                          Land closing gross profit              9           258
                                                                         Total closing gross profit         30,389        38,256
                                                                  Commissions and other sales costs       (15,315)      (17,222)
                                                                General and administrative expenses       (15,126)      (14,693)
                                                                                   Interest expense        (8,023)       (8,295)
                                                                              Other income, net (1)          1,631        4,735
                                                                (Loss)/earnings before income taxes        (6,444)         2,781
                                                                         Provision for income taxes          (215)         (121)
                                                                                Net (loss)/earnings        (6,659)         2,660
                                                                          (Loss)/earnings per share                              
                                                                          (Loss)/earnings per share        $ (0.21)        $ 0.08
                                                                Weighted average shares outstanding          32,260        31,940
                                                                          (Loss)/earnings per share        $ (0.21)        $ 0.08
                                                                Weighted average shares outstanding          32,260        32,197
                                                                          Non-GAAP Reconciliations:                              
                                                                         Total closing gross profit         30,389       38,256
                                                                                  Impaired projects            664          542
                                                                Adjusted total closing gross profit         31,053       38,798
                                                                (Loss)/earnings before income taxes        (6,444)        2,781
                                                               Add real estate-related impairments:                              
                                                                                  Impaired projects             664           542
                                                       Adjusted (loss)/earnings before income taxes       $ (5,780)        3,323
     (1) Other income includes a $2.4 million legal settlement award in the first quarter of 2010.                              


Meritage Homes Corporation and Subsidiaries
                                                                                         Condensed Consolidated Balance Sheets
                                                                                                                (In thousands)
                                                                                         March 31, 2011     December 31, 2010
                                                            Cash and cash equivalents         $ 103,508            $ 103,953
                                                           Investments and securities           273,944              299,345
                                                                      Restricted cash            10,270                9,344
                                                                    Other receivables            19,516               20,835
                                                                      Real estate (1)           757,653              738,928
                                               Investments in unconsolidated entities            10,900               10,987
                                                                      Option deposits            10,388               10,359
                                                                         Other assets            32,755               31,187
                                                                         Total assets       $ 1,218,934          $ 1,224,938
                                                              Liabilities and Equity:                                       
     Accounts payable, accrued liabilities, Home buyer deposits and other liabilities         $ 116,430            $ 119,163
                                                                         Senior notes           480,062              479,905
                                                            Senior subordinated notes           125,875              125,875
                                                                    Total liabilities           722,367              724,943
                                                           Total stockholders' equity           496,567              499,995
                                                         Total liabilities and equity       $ 1,218,934          $ 1,224,938
                                                 (1) Real estate – Allocated costs:                                       
                                              Homes under contract under construction         $ 101,127             $ 96,844
                                       Unsold homes, completed and under construction            86,536               86,869
                                                                          Model homes            36,579               36,966
                                   Finished homesites and homesites under development           477,755              454,718
                                                    Land held for development or sale            55,656               63,531
                                                                Total allocated costs         $ 757,653            $ 738,928
                                                             Supplemental Information and Non-GAAP Financial Disclosures (In thousands – unaudited):
                                                                                    Three Months Ended March 31,As of and for the Twelve Months Ended March 31,
                                                                                             2011         2010                   2011                   2010
                                                  Interest amortized to cost of sales     $ 2,196     $ 3,218              $ 10,989              $ 17,820
                                                                    Interest expensed     $ 8,023     $ 8,295              $ 33,450              $ 36,496
                                                        Depreciation and amortization     $ 1,756     $ 1,947               $ 7,783               $ 8,365
                                                                 Net debt-to-capital:                                                                    
                                                   Notes payable and other borrowings                                      $ 605,937             $ 605,051
     Less: cash and cash equivalents, restricted cash, and investments and securities                                      (387,722)              (434,647)
                                                                             Net debt                                       218,215               170,404
                                                                 Stockholders' equity                                       496,567               490,677
                                                                              Capital                                     $ 714,782             $ 661,081
                                                                  Net debt-to-capital                                         30.5%                 25.8%
                                                                                                                                                                                          Meritage Homes Corporation and Subsidiaries
                                                                                                                                                                                      Condensed Consolidated Statements of Cash Flows
                                                                                                                                                                                                                       (In thousands)
                                                                                                                                                                                                    Three Months Ended
    March 31,
                                                                                                                                                                                                          2011                  2010
                                                                                                                                                                             Net (loss)/earnings     $ (6,659)              $ 2,660
                                                                                                                                                                 Real-estate related impairments           664                  542
                                                                                                       Equity in earnings from JVs (including impairments) and distributions of JV earnings, net           280                  537
                                                                                                                                                      Net (increase) in real estate and deposits      (19,261)             (50,982)
                                                                                                                                                                      Other operating activities           413               91,180
                                                                                                                                             Net cash (used in)/provided by operating activities      (24,563)               43,937
                                                                                                                                                 Payments to purchase investments and securities       (59,908)      
                                                                                                                                                (Payments)/distributions to fund restricted cash          (926)                  104
                                                                                                                                                        Maturities of investments and securities         85,000                    0
                                                                                                                                                                      Other financing activities       (1,566)              (2,003)
                                                                                                                                                 Cash provided by/(used in) investing activities        22,600             (51,923)
                                                                                                                                                     Proceeds from issuance of common stock, net         1,518                1,335
                                                                                                                                                       Net cash provided by financing activities         1,518                1,335
                                                                                                                                                                            Net decrease in cash         (445)              (6,651)
                                                                                                                                                             Beginning cash and cash equivalents       103,953              249,331
                                                                                                                                                             Ending cash and cash equivalents(1)     $ 103,508            $ 242,680
     (1) Ending cash and cash equivalents exclude investments and securities, and restricted cash totaling $284 million and $192 million as of March 31, 2011 and March 31, 2010, respectively.                                   
                            Meritage Homes Corporation and Subsidiaries
                                                         Operating Data
                                                 (Dollars in thousands)
                                  For the Three Months Ended March 31,
                                       2011                       2010
                       Homes          Value       Homes          Value
      Homes Closed:                                                
         California       62      $ 21,171        105      $ 37,085
             Nevada       15         2,979         22         4,319
        West Region       77        24,150        127        41,404
            Arizona      127        31,967        168        33,952
              Texas      354        84,810        428       101,359
           Colorado       49        15,629         30         8,621
     Central Region      530       132,406        626       143,932
            Florida       71        20,933         55        15,246
        East Region       71        20,933         55        15,246
              Total      678     $ 177,489        808     $ 200,582
     Homes Ordered:                                                
         California       78      $ 27,149        115      $ 41,129
             Nevada       19         4,022         25         4,745
        West Region       97        31,171        140        45,874
            Arizona      149        34,342        233        48,008
              Texas      446       109,681        573       139,908
           Colorado       71        22,182         41        12,543
     Central Region      666       166,205        847       200,459
            Florida       77        23,236         77        22,135
        East Region       77        23,236         77        22,135
              Total      840     $ 220,612      1,064     $ 268,468
     Order Backlog:                                                
         California       61      $ 21,273         99      $ 38,366
             Nevada       16         3,412         17         3,097
        West Region       77        24,685        116        41,463
            Arizona      147        34,355        212        46,165
              Texas      555       136,478        860       220,112
           Colorado       74        23,517         50        15,378
     Central Region      776       194,350      1,122       281,655
            Florida       87        25,904        113        32,301
        East Region       87        25,904        113        32,301
              Total      940     $ 244,939      1,351     $ 355,419


                                                     Meritage Homes Corporation and Subsidiaries
                                                                                  Operating Data
                       Three Months Ended
    March 31, 2011Three Months Ended
    March 31, 2010
                                     Beg.               End              Beg.               End
     Active Communities:                                                                    
              California               14               14                7                9
                  Nevada                4                4                6                5
             West Region               18               18               13               14
                 Arizona               32               32               26               32
                   Texas               82               73               98               83
                Colorado                9                9                6                7
          Central Region              123              114              130              122
                 Florida               10                9               10               13
             East Region               10                9               10               13
                   Total              151              141              153              149

About Meritage Homes Corporation

Meritage Homes is the 9th-largest homebuilder in the United States based on homes closed. 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 March 31, 2011, the company had 141 actively selling communities in 12 metropolitan areas, including Houston, Dallas/Ft. Worth, Austin, San Antonio, Phoenix/Scottsdale, Tucson, Las Vegas, Denver, Orlando and the East Bay/Central Valley and Southern California. Meritage recently announced its entry into the Raleigh-Durham market.

In 2010, Meritage celebrated its 25th anniversary and launched a new Simply Smart Series™ of homes and a 99-day guaranteed completion program in certain communities, and is the first large national homebuilder to be 100 percent ENERGY STAR® qualified in every home started since January 1, 2010. Meritage has designed and built nearly 70,000 homes in its 25-year history, and has a reputation for its distinctive style, quality construction, and positive customer experience.

Meritage Homes is listed on the NYSE under the symbol MTH.

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This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements include management's expectations to re-grow its total active communities to at least 150 by the end of the second quarter; to acquire several more communities in the new Raleigh-Durham division during 2011, and to begin selling homes there in the latter part of 2011, and report its first closings from this new division early next year; and that the company has a reasonable opportunity to be profitable in 2011.

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. The risks and uncertainties include but are not limited to the following: weakness in the homebuilding market resulting from the current economic downturn; 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 sales absorption rates; potential write-downs or write-offs of assets, including pre-acquisition costs and deposits; our potential exposure to natural disasters; the liquidity of our joint ventures and the ability of our joint venture partners to meet their obligations to us and the joint venture; competition; the success of our strategies in the current homebuilding market and economic environment; the adverse impacts of cancellations resulting from small deposits relating to our sales contracts; construction defect and home warranty claims; our success in prevailing on contested tax positions; the impact of deferred tax valuation allowances and our ability to preserve our operating loss carryforwards; our ability to obtain performance bonds in connection with our development work; the loss of key personnel; our failure to comply with laws and regulations; the availability and cost of materials and labor; our lack of geographic diversification; inflation in the cost of materials used to construct homes; 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; 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, 2010 under the caption "Risk Factors," and updated in our most recent Quarterly Report on Form 10-Q, all of which can be found on our website.

CONTACT: Brent Anderson
         (972) 580-6360 (office)
         Nancy Newton
         (602) 417-0684 (office)
         (602) 697-7785 (mobile)

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Source: Meritage Homes Corporation