Meritage Homes Reports Fourth Quarter and Full Year 2010 Results
Achieved Profitability Goal for the Year, With Earnings of $0.22 Per Share for 2010
FOURTH QUARTER 2010 SELECTED RESULTS:
Reported net loss of $0.9M or $0.03 per diluted share including net tax benefit of $5M, compared to net income of $43M or $1.35 per diluted share in 2009, including a $90M net tax benefit Reduced adjusted pre-tax loss to $0.3M from $8M in the prior year Improved home closing gross margin before impairments by 320 basis points over 2009 Increased net sales orders by 15% over the prior year; with sequential growth over the third quarter of 2010
FULL YEAR 2010 SELECTED RESULTS:
Generated net income of $7M or $0.22 per diluted share, compared to a net loss of $66M or ($2.12) per diluted share in 2009 Reduced net debt-to-capital ratio to 28% from 31% in the prior year Completed the year with $413M cash and short-term investments, and no short-term debt Issued $200M of 7.15% senior notes due in 2020 and retired $195M of notes due in 2014 and 2015
SCOTTSDALE, Ariz., Feb. 2, 2011 (GLOBE NEWSWIRE) -- Meritage Homes Corporation (NYSE:MTH), a leading U.S. homebuilder, today announced fourth quarter results for the period ended December 31, 2010.
Summary Operating Results (unaudited)
(Dollars in thousands, except per share amounts)
Three Months Ended
December 31, Full year Ended
December 31,
2010 2009 %Chg 2010 2009 %Chg
Homes closed (units) 837 1,202 -30% 3,700 4,039 -8%
Home closing revenue $214,616 $279,589 -23% $940,406 $962,797 -2%
Sales orders (units) 713 621 15% 3,383 3,853 -12%
Sales order value $174,021 $162,338 7% $854,687 $912,301 -6%
Ending backlog (units) 778 1,095 -29%
Ending backlog value $201,816 $287,535 -30%
Net (loss)/income– incl. impairments $(895) $43,286 -102% $7,150 $(66,456) 111%
Adjusted pre-tax (loss)/income --
excl. impairments and (loss)/gain
on early extinguishment of debt $(311) $(8,262) 96% $12,684 $(35,141) 136%
Diluted EPS (including impairments) $(0.03) $1.35 -102% $0.22 $(2.12) 110%
* Adjusted pre-tax (loss)/income excludes impairments: See non-GAAP reconciliations of net (loss)/profit to
adjusted pre-tax (loss)/income on "Operating Results" statement.
FOURTH QUARTER OPERATING RESULTS
Meritage reported a net loss of $0.9 million or $0.03 per diluted share in the fourth quarter of 2010, compared to net income of $43 million or $1.35 per diluted share in the fourth quarter of 2009. The loss in 2010 included $5 million of impairments offset by a $5 million net tax benefit, while 2009 net income included $39 million of impairments, more than offset by a $90 million net tax benefit. Excluding those items, Meritage reduced its pre-tax loss to $311,000 from $8 million in the prior year.
"We achieved our number one goal for 2010, which was to be profitable for the year," said Steven J. Hilton, chairman and chief executive officer of Meritage Homes. "Despite lower closing revenue in 2010, we returned to profitability primarily by improving our margins and holding down our overhead expenses."
Fourth quarter home closing revenue declined 23% year over year, with 30% fewer homes closed in 2010 than in 2009, partially offset by a 10% higher average closing price. Average prices increased to approximately $256,000 in the fourth quarter of 2010, from approximately $233,000 in the fourth quarter of 2009, reflecting a greater percentage of closings in move-up communities and in California, Colorado and Florida, higher-priced areas within Meritage's markets.
Meritage generated home closing gross profit of $34 million in the fourth quarter 2010 compared to $17 million in 2009, and home closing gross margins of 15.8% and 6.2%, respectively. Excluding the effects of impairments on gross margins, home closing gross margin climbed to 18.1% in the fourth quarter of 2010 from 14.9% in the fourth quarter of 2009.
"We showed a 320 basis point improvement year over year in our home closing gross margin before impairments, as our newer communities continued to produce much higher margins on average than our older communities," said Mr. Hilton. "Market conditions continued to be challenging following the expiration of the home buyer tax credit in the second quarter of 2010, which put pressure on home prices and margins."
General and administrative expenses were 28% lower than the same quarter of 2009, largely due to certain expenses – particularly accruals for lease abandonments and discretionary awards – in 2009 that did not recur in the fourth quarter of 2010. Excluding those items, G&A was flat compared to 2009.
FULL YEAR OPERATING RESULTS
Meritage reported net income for the full year of 2010 of $7 million or $0.22 per diluted share, compared to a $66 million net loss in 2009 or ($2.12) per diluted share. Net income in 2010 was reduced by $7 million in pre-tax real estate-related impairment charges and a $3 million loss on extinguishment of debt, partially offset by a $5 million net tax benefit. By comparison, the net loss in 2009 included $129 million of impairments, partially offset by a $9 million gain on extinguishment of debt and a net tax benefit of $88 million. Excluding these items, Meritage produced pre-tax income of $13 million in 2010, compared to a pre-tax loss of $35 million in 2009.
SALES
Fourth quarter 2010 net orders for 713 homes were 15% greater than the 621 sales recorded in the prior year, despite 4% fewer average active communities year over year. Sales per community increased 21% in the fourth quarter, to 4.7 sales per community from 3.9 in 2009. The largest sales increases were in Texas, with 20% year-over-year growth, and Colorado, with 73% growth.
"We closed a record high 93% of beginning backlog during the fourth quarter, as half of our closings were homes not under contract at the beginning of the quarter," explained Mr. Hilton. "We ended the year with 29% fewer orders in backlog than we had a year ago, which will make it more challenging to be profitable in the first quarter of 2011. Even so, we expect to be more profitable in 2011 than we were in 2010."
BALANCE SHEET
Meritage generated $33 million positive cash flow from operations for the full year 2010, after using $236 million of cash to purchase approximately 5,800 lots during the year. The Company ended the year with $413 million in cash and cash equivalents, restricted cash and short-term investments, an increase of $21 million over the year-end 2009 total. Meritage's net debt to total capital ratio improved to 28% at December 31, 2010, from 31% at December 31, 2009.
Meritage put approximately 7,000 lots under contract in 2010, including 63 new communities. At December 31, 2010, Meritage controlled 15,224 lots representing approximately 4.1 years supply based on trailing twelve months closings, compared to a total of 12,906 lots or 3.2 years lot supply at December 31, 2009. Approximately 85% of total lots were owned at year-end 2010, compared to 77% in 2009, and 56% of year-end 2010 lots were purchased in the last two years.
SUMMARY
"In a year when market conditions remained very challenging for the homebuilding industry, it was gratifying to return to profitability in 2010, which we believe was the direct result of successfully executing our strategies," said Mr. Hilton. "We've dramatically reduced our lot and construction costs over the last few years, carefully controlled our overhead costs, repositioned our communities to address each of our markets opportunistically, redesigned our homes to be more efficient and appealing, and emerged as the leader in profitable, energy efficient home building."
"Meritage has received several awards for our leadership in advanced green building, including in 2010 the Alliance Home Quality and Performance Leadership award, and the Pubby Award for Community of the Year." Mr. Hilton continued, "Most recently, Meritage received the 2011 Energy Value Housing Award from the National Association of Homebuilders for our Lyon's Gate Community located in Gilbert, Arizona, and was also awarded the 2011 People's Choice Award, recognizing Meritage Homes for voluntarily incorporating energy efficiency in the design, construction & marketing of our homes.
"I believe Meritage is in the best shape it's ever been – stronger, leaner, faster and more nimble than ever before – and we're poised to take advantage of opportunities to grow and increase our profitability as the market recovers. I am confident in our strategies and our organization, and optimistic about our prospects for the coming year."
CONFERENCE CALL
Management will host a conference call to discuss these results on February 3, 2011 at 10:00 a.m. Eastern Time (8:00 a.m. Mountain Time.) The call will be webcast by Business-to-Investor, Inc. (B2i), with an accompanying slideshow on the "Investor Relations" page of the Company's web site at http://investors.meritagehomes.com. For telephone participants, the dial-in number is 877-485-3104 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, through March 2, 2011 on the website noted above, or by dialing 877-660-6853, and referencing account 356 and passcode 364919.
Meritage Homes Corporation and Subsidiaries
Operating Results
(Unaudited)
(In thousands, except per share data)
Three Months Ended Full year Ended
December 31, December 31,
2010 2009 2010 2009
Operating results
Home closing revenue $214,616 $279,589 $940,406 $962,797
Land closing revenue 28 6,231 1,250 7,516
Total closing revenue 214,644 285,820 941,656 970,313
Home closing gross profit 34,001 17,244 167,456 18,693
Land closing gross (loss)/profit (18) (14,192) 240 (14,642)
Total closing gross profit 33,983 3,052 167,696 4,051
Commissions and other sales costs (18,346) (23,058) (76,798) (78,683)
General and administrative expenses (12,684) (17,528) (59,784) (59,461)
Interest expense (8,449) (8,016) (33,722) (36,531)
(Loss)/gain on extinguishment of debt -- -- (3,454) 9,390
Other income/(loss), net 77 (1,447) 8,546 6,435
(Loss)/income before income taxes (5,419) (46,997) 2,484 (154,799)
Benefit for income taxes 4,524 90,283 4,666 88,343
Net (loss)/income $(895) $43,286 $7,150 $(66,456)
Earnings/(loss) per share
Basic:
(Loss)/earnings per share $(0.03) $1.36 $0.22 $(2.12)
Weighted average shares outstanding 32,127 31,805 32,060 31,350
Diluted:
(Loss)/earnings per share $(0.03) $1.35 $0.22 ($2.12)
Weighted average shares outstanding 32,127 32,037 32,322 31,350
Non-GAAP Reconciliations:
Total closing gross profit $33,983 $3,052 $167,696 $4,051
Add Real estate-related impairments:
Terminated lot options and land sales 1,047 19,460 1,047 85,679
Impaired projects 3,878 19,273 5,404 40,537
Adjusted closing gross profit $38,908 $41,785 $174,147 $130,267
(Loss)/income before income taxes $(5,419) $(46,997) $2,484 $(154,799)
Add: Real estate-related and joint venture (JV) impairments:
Terminated lot options and land sales 1,047 19,460 1,047 85,679
Impaired projects 3,878 19,273 5,404 40,537
Joint venture impairments 183 2 295 2,832
Loss/(gain) on early extinguishment of debt -- -- 3,454 (9,390)
Adjusted (loss)/income before income taxes $(311) $(8,262) $12,684 $(35,141)
Meritage Homes Corporation and Subsidiaries
Condensed Consolidated Balance Sheets
(In thousands)
(unaudited)
December 31, 2010 December 30, 2009
Assets:
Cash and cash equivalents $103,953 $249,331
Investments and securities 299,345 125,699
Restricted cash 9,344 16,348
Income tax receivable -- 92,509
Other receivables 20,835 22,934
Real estate (1) 738,928 675,037
Investments in unconsolidated entities 10,987 11,882
Deposits on real estate under option or contract 10,359 8,636
Other assets 31,187 40,291
Total assets $1,224,938 $1,242,667
Liabilities:
Accounts payable, accrued liabilities,
home sale deposits and other
liabilities $119,163 $152,233
Senior notes 479,905 479,134
Senior subordinated notes 125,875 125,875
Total liabilities 724,943 757,242
Total equity 499,995 485,425
Total liabilities and equity $1,224,938 $1,242,667
(1) Real estate – Allocated costs:
Homes under contract under construction $96,844 $114,769
Unsold homes, completed and under construction 86,869 73,442
Model homes 36,966 37,601
Finished homesites and homesites under development 454,718 407,592
Land held for development or sale 63,531 41,633
Total allocated costs $738,928 $675,037
Supplemental Information and Non-GAAP Financial Disclosures (In thousands – unaudited):
Three Months Ended December
31,As of and for the Full Year Ended
December 31,
2010 2009 2010 2009
Interest amortized to cost of sales
and interest expense 10,805 13,355 45,733 57,795
Depreciation and amortization 1,835 2,296 7,974 8,843
Net debt-to-capital:
Notes payable and other borrowings $605,780 $605,009
Less: cash and cash equivalents,
restricted cash, and
investments and securities (412,642) (391,378)
Net debt 193,138 213,631
Stockholders' equity 499,995 485,425
Capital $693,133 $699,056
Net debt-to-capital 27.9% 30.6%
Meritage Homes Corporation and Subsidiaries
Condensed Consolidated Statement of Cash Flows
(In thousands)
(unaudited)
Three Months Ended Full year Ended
December 31, December 31,
2010 2009 2010 2009
Net (loss)/income $ (895) $43,286 $7,150 $ (66,456)
Loss/(gain) on early
extinguishment of debt -- -- 3,454 (9,390)
Real-estate related impairments 4,925 38,733 6,451 126,216
Equity in earnings from JVs
(including impairments) and
distributions of JV earnings, net 616 282 2,020 4,273
Decrease/(increase) in real
estate and deposits, net 1,957 13,908 (69,964) 108,628
Other operating activities (12,215) (69,569) 83,440 20,803
Net cash (used in)/provided by
operating activities (5,612) 26,640 32,551 184,074
Net payments to purchase
investments and securities (183,923) (125,699) (424,639) (125,699)
(Payments)/distribution to fund
restricted cash (396) 2,256 7,004 (16,348
Other financing activities 148,268 (1,307) 243,120 (3,372)
Cash used in investing
activities (36,051) (124,750) (174,515) (145,419)
Proceeds from issuance of new
debt -- -- 195,134 34 --
Debt issuance cost -- -- (3,067) --
Repayments of senior notes -- -- (197,543) --
Proceeds from stock option
exercises 292 490 2,062 4,753
Net cash provided by/(used in)
financing activities 292 490 (3,414) 4,753
Net (decrease)/increase in
cash (41,371) (97,620) (145,378) 43,408
Beginning cash and cash
equivalents 145,324 346,951 249,331 205,923
Ending cash and cash
equivalents (1) $103,953 $249,331 $103,953 $249,331
(1) Ending cash and cash equivalents balances at December 31 exclude investments and securities of $299 million
and restricted cash of $9 million in 2010, and $126 million and $16 million, respectively, in 2009.
Meritage Homes Corporation and Subsidiaries
Operating Data
(Dollars in thousands)
(unaudited)
For the Three Months Ended December 31,
2010 2009
Homes Value Homes Value
Homes Closed:
California 94 $32,696 130 $40,155
Nevada 16 3,378 18 3,325
West Region 110 36,074 148 43,480
Arizona 152 36,970 218 45,044
Texas 450 105,205 726 163,344
Colorado 52 16,099 40 11,223
Central Region 654 158,274 984 219,611
Florida 73 20,268 70 16,498
East Region 73 20,268 70 16,498
Total 837 $214,616 1,202 $279,589
Homes Ordered:
California 61 $20,011 63 $22,921
Nevada 20 4,053 20 3,718
West Region 81 24,064 83 26,639
Arizona 118 29,244 117 26,711
Texas 401 87,258 334 86,563
Colorado 57 17,425 33 9,506
Central Region 576 133,927 484 122,780
Florida 56 16,030 54 12,919
East Region 56 16,030 54 12,919
Total 713 $174,021 621 $162,338
Meritage Homes Corporation and Subsidiaries
Operating Data
(Dollars in thousands)
(unaudited)
For the Full year Ended December 31,
2010 2009
Homes Value Homes Value
Homes Closed:
California 417 $147,194 348 $116,197
Nevada 81 16,006 130 27,049
West Region 498 163,200 478 143,246
Arizona 700 156,117 781 156,107
Texas 2,028 487,797 2,405 566,879
Colorado 162 48,820 145 44,225
Central Region 2,890 692,734 3,331 767,211
Florida 312 84,472 230 52,340
East Region 312 84,472 230 52,340
Total 3,700 $940,406 4,039 $962,797
Homes Ordered:
California 373 $128,167 350 $116,609
Nevada 79 15,704 119 23,267
West Region 452 143,871 469 139,876
Arizona 678 155,987 738 146,006
Texas 1,776 417,840 2,233 518,288
Colorado 175 54,328 140 42,416
Central Region 2,629 628,155 3,111 706,710
Florida 302 82,661 273 65,715
East Region 302 82,661 273 65,715
Total 3,383 $854,687 3,853 $912,301
Order Backlog:
California 45 $15,295 89 $34,322
Nevada 12 2,369 14 2,671
West Region 57 17,664 103 36,993
Arizona 125 31,980 147 32,110
Texas 463 111,607 715 181,564
Colorado 52 16,964 39 11,456
Central Region 640 160,551 901 225,130
Florida 81 23,601 91 25,412
East Region 81 23,601 91 25,412
Total 778 $201,816 1,095 $287,535
Meritage Homes Corporation and Subsidiaries
Operating Data
(unaudited)
Three Months EndedThree Months Ended
December 31, 2010December 31, 2009
Beg. End Beg. End
Active Communities:
California 13 14 9 7
Nevada 5 4 6 6
West Region 18 18 15 13
Arizona 32 32 28 26
Texas 82 82 102 98
Colorado 8 9 3 6
Central Region 122 123 133 130
Florida 10 10 14 10
East Region 10 10 14 10
Total 150 151 162 153
Full year Ended Full year Ended
December 31, 2010December 31, 2009
Beg. End Beg. End
Active Communities:
California 7 14 12 7
Nevada 6 4 12 6
West Region 13 18 24 13
Arizona 26 32 31 26
Texas 98 82 109 98
Colorado 6 9 3 6
Central Region 130 123 143 130
Florida 10 10 11 10
East Region 10 10 11 10
Total 153 151 178 153
About Meritage Homes Corporation
Meritage Homes Corporation is the 9th largest homebuilder in the U.S. based on homes closed. Meritage offers a variety of homes across the Southern and Western states designed to appeal to a wide range of home buyers, including first-time, move-up, luxury and active adult buyers, with base prices starting from under $100,000. As of December 31, 2010, the Company had 151 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 Inland Empire of California.
In 2010, Meritage celebrated its 25th Anniversary, launched a new Simply Smart Series™ of homes and a 99-day guaranteed completion program in certain communities, and is the only large national homebuilder to be 100% 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. To find a Meritage community near you, go to www.meritagehomes.com.
Meritage Homes is listed on the NYSE under the symbol MTH.
For more information about the Company, visit http://investors.meritagehomes.com
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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 our outlook that it will be more challenging to be profitable in the first quarter of 2011, that we expect to be more profitable in 2011 than we were in 2010, and that we are poised to take advantage of opportunities to grow and increase our profitability as the market recovers. Such statements are based upon preliminary financial and operating data which are subject to finalization by management and review by our independent registered public accountants, as well as 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, including: 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; the adverse effect of slower sales absorption rates; potential write-downs or write-offs of assets, including pre-acquisition costs and deposits; 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; 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; fluctuations in housing demand, and the cost and availability of real estate and other matters that are outside of our control; 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; the impact of future capital raising transactions we may engage in; successful integration of future acquisitions; government regulations and legislative or other initiatives that seek to restrain growth or new housing construction or similar measures; consumer confidence, which can be impacted by economic and other factors such as terrorism, war, or threats thereof and our potential exposure to natural disasters; 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, 2009 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. As a result of these and other factors, the Company's stock and note prices may fluctuate dramatically.
CONTACT: Investor Relations:
Brent Anderson
Vice President-Investor Relation
(972)580-6360
Image: Meritage Homes Corporation Logo
Source: Meritage Homes CorporationReleased February 2, 2011