Meritage Homes Reports Second Quarter 2015 EPS of $0.70, an 18% Increase in Home Closing Revenue and 21% Increase in Home Orders

SCOTTSDALE, Ariz.--(BUSINESS WIRE)-- Meritage Homes Corporation (NYSE: MTH), a leading U.S. homebuilder, announced today second quarter results for the period ended June 30, 2015.

MANAGEMENT COMMENTS

“We achieved significant year-over-year growth in the second quarter of 2015, with an 18% increase in home closing revenue, a 21% increase in orders and a 36% increase in our total backlog value,” said Steven J. Hilton, chairman and chief executive officer of Meritage Homes. “Our earnings of $0.70 per diluted share for the second quarter of 2015 were lower than last year’s $0.85 per diluted share due to a decline in home closing margins from last year’s unusually high level of 21.9%.

“Additionally, our second quarter results were significantly stronger than our first quarter this year, with a 75% increase in earnings per diluted share, driven by a 14% increase in home closing revenue and a 19.3% home closing gross margin, compared to our first quarter 2015 margin of 18.5%. We believe we are on track to achieve our projected target margin of approximately 20% for the full year 2015.”

Mr. Hilton continued, “We’ve more than doubled our actively selling communities in the East region over the last year, which drove most of the growth in our second quarter orders, closings and backlog. Our West and Central regions were impacted by abnormally heavy and persistent rain in Texas and Colorado during much of the second quarter, which caused unavoidable delays in starting and completing homes. Our team is working closely with our contractors to catch up as soon as possible. Even so, we estimate that approximately 200 home closings that were expected this year will be pushed out until next year. As a result, we're adjusting our projections for 2015 home closing revenue to $2.65-2.75 billion -- an increase of 24-28% over 2014 -- compared to our previous expectation for 25-30% growth, and we're estimating earnings per diluted share of $3.60-3.90 for the year, compared to our previous full year guidance of $3.75-4.00.

“The housing market continues to benefit from job growth, increasing household formations, consumer confidence and low interest rates. Considering those factors and our broadened position across many of the best housing markets in the country, our long-term outlook is for continued growth and earnings expansion for Meritage Homes,” concluded Mr. Hilton.

SECOND QUARTER RESULTS

• Net earnings were $29.1 million or $0.70 per diluted share for the second quarter of 2015, compared to $35.1 million or $0.85 per diluted share in the second quarter of 2014, resulting from higher home closing revenue offset by lower gross margins on closings.
• Home closing revenue increased 18% over the prior year’s second quarter, resulting from a 14% increase in home closings and a 3% increase in the average price of homes closed during the quarter. East region home closing revenue grew 77% and the Central region grew 9% year over year, while West region home closing revenue was down 5% due to a 15% decline in Arizona, where our beginning backlog was reduced by weaker demand and orders in the latter half of 2014.
• Home closing gross margin improved sequentially to 19.3% in the second quarter of 2015, up from 18.5% in the first quarter of 2015, though lower than the 21.9% achieved a year ago. High margins in 2014 were driven by home price appreciation that exceeded cost inflation in 2013 through the first half of 2014. Purchase accounting adjustments from the acquisition of Legendary Communities last August reduced second quarter total home closing gross margin by 28 bps.
• General and administrative expenses as a percentage of total second quarter closing revenue decreased slightly to 4.6% from 4.9% in 2015 compared to 2014, while commissions and other sales costs as a percentage of home closing revenue rose slightly in the second quarter to 7.6% in 2015 from 7.2% in 2014.
• Interest expense increased by $3.2 million year over year to 0.8% of second quarter 2015 total closing revenue, compared to 0.3% of second quarter closing revenue in 2014, primarily due to intra-quarter borrowings on the credit facility and the issuance of $200 million of new senior notes in early June 2015.
• The effective tax rate was 30% in the second quarter of 2015 compared to 36% in 2014. The difference was primarily due to a tax benefit of approximately $1.3 million in this year's second quarter for increases in estimated federal energy tax credits from prior years’ home closings.
• Total order value grew 25% to $775.8 million in the second quarter of 2015, compared to $618.4 million in the prior year. Total orders increased 21% and average sales prices rose 4% year over year. The increases were primarily driven by community count growth in the East and West regions over the past year, as well as stronger demand in the West, including Arizona. The two regions grew total order value by 81% and 28%, respectively. Higher sales per average active community in Texas were offset by fewer actively selling communities in 2015 compared to 2014, though Texas is rebuilding and has added seven net new communities in 2015.
• Average orders per active community during the quarter slowed to 8.5 in the second quarter of 2015 compared to 9.0 in 2014, primarily due to the East region, where average orders per community were 6.7 in the second quarter of 2015, compared to 9.0 in the second quarter of 2014. Georgia and South Carolina, acquired from Legendary in the third quarter of 2014, have historically operated at a lower sales velocity than Meritage’s other markets, and Florida has also experienced a slower sales pace in 2015.
• Ending community count at June 30, 2015 was 240, compared to 175 at June 30, 2014. The East region added 59 net new communities including 36 in Georgia and South Carolina combined, associated with the acquisition of Legendary Communities in August 2014. The West region grew by nine net new communities over the prior year’s quarter-end count.
• Ending backlog value at June 30 was 36% higher in 2015 than in 2014, with 25% more units in backlog and a 9% increase in the average price of orders in backlog.

YEAR TO DATE RESULTS

• Net earnings were $45.5 million for the first half of 2015, compared to $60.5 million for the first half of 2014, as a 22% increase in revenue year to date was more than offset by lower home closing gross margins.
• Home closings for the first half of the year increased 17% over 2014, with a 5% increase in average prices.
• Year-to-date home closing gross margin in 2015 was 18.9%, compared to 22.3% for 2014, which exceeded underwriting target levels of approximately 20% due to a rapid rise in home prices in 2013 and early 2014. In contrast, higher land and construction costs in 2015 were not fully offset by modest home price appreciation this year, resulting in reduced margins. Additionally, 2015 home closing margins were negatively impacted by 32 bps due to purchase accounting adjustments on closings from lots acquired from Legendary.
• Total commissions and selling expenses were 7.8% of year-to-date 2015 home closing revenue, compared to 7.4% in 2014, while general and administrative expenses were flat at 5.1% of total closing revenue in both years.

BALANCE SHEET

• The company ended the second quarter of 2015 with $217.0 million in cash and cash equivalents plus investments and securities, compared to $103.3 million at December 31, 2014 and $290.6 million at June 30, 2014. The year-over-year decrease in cash reflects the net impact of increased investments in land and homes under construction, partially offset by the proceeds from a new senior notes offering in June 2015.
• Real estate assets increased to $2.03 billion at June 30, 2015, compared to $1.88 billion at December 31 and $1.64 billion at June 30, 2014.
• Net debt-to-capital ratio at quarter-end was 44.1% compared to 42.9% at December 31, 2014 and 37.6% at June 30, 2014.
• In June 2015, the company issued $200 million of 6.0% senior unsecured notes with a maturity date of June 2025, and also extended the maturity of its $500 million revolving credit facility by one year to July 2019 in order to provide ample liquidity for future growth.
• Total lot supply at the end of the quarter was approximately 29,100, compared to approximately 25,800 a year earlier and 30,300 at year-end 2014. Based on trailing twelve months closings, total lots at June 30, 2015 represented approximately a 4.6 year supply of lots.

CONFERENCE CALL

Management will host a conference call today to discuss the Company's results at 10:30 a.m. Eastern Time (7:30 a.m. Arizona Time). The call will be webcast with an accompanying slideshow available on the "Investor Relations" page of the Company's web site at http://investors.meritagehomes.com. Telephone participants may avoid any delays by pre-registering for the call using the following link to receive a special dial-in number and PIN.

Conference Call registration link: http://dpregister.com/10067831.

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.

A replay of the call will be available through August 12, 2015, beginning at 12:00 p.m. ET on July 29, 2015 on the website noted above, or by dialing 877-344-7529, and referencing conference number 10067831. For more information, visit www.meritagehomes.com.

(2) Ending cash and cash equivalents excludes investments and securities of $59.9 million as of June 30, 2014.

About Meritage Homes Corporation

Meritage Homes is the eighth-largest public homebuilder in the United States, based on homes closed in 2014. Meritage 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 builds in markets including Sacramento, San Francisco's East Bay, the Central Valley and Orange County, California; Houston, Dallas-Ft. Worth, Austin and San Antonio, Texas; Phoenix/Scottsdale, Green Valley and Tucson, Arizona; Denver and Fort Collins, Colorado; Orlando and Tampa, Florida; Raleigh and Charlotte, North Carolina; Greenville-Spartanburg and York County, South Carolina; Nashville, Tennessee and Atlanta, Georgia.

Meritage has designed and built more than 85,000 homes in its 30-year history, and has a reputation for its distinctive style, quality construction, and positive customer experience. Meritage 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 in 2013, 2014 and 2015, for innovation and industry leadership in energy efficient homebuilding. Meritage was the first national homebuilder to be 100 percent ENERGY STAR qualified in every home it builds, and far exceeds ENERGY STAR standards today.

For more information, visit investors.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 2015 home closing gross margins, that a number of closings in Texas and Colorado may be delayed into 2016, estimates for home closing revenue and earnings per diluted share for 2015, and that the company expects to continue to grow revenue and expand earnings.

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 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 or our failure to comply with tax laws that adversely impact our homebuyers; the ability of our potential buyers to sell their existing homes; cancellation rates and home prices in our markets; weakness in the homebuilding market resulting from an unexpected setback in the current economic recovery due to lower oil prices or other factors; inflation in the cost of materials used to develop communities and construct homes; the adverse effect of slower order absorption rates; potential write-downs or write-offs of assets; 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 ability to successfully integrate acquired companies and achieve anticipated benefits from these acquisitions; our potential exposure to natural disasters; competition; construction defect and home warranty claims; adverse legal rulings; 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; changes in, or our failure to comply with, laws and regulations; limitations of our geographic diversification; fluctuations in quarterly operating results; our financial leverage and level of indebtedness and our ability to take certain actions because of restrictions contained in the indentures for our senior notes and our ability to raise additional capital when and if needed; our credit ratings; successful integration of future 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; acts of war; the replication of our "Green" 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, 2014 and subsequent quarterly reports on Forms 10-Q under the caption "Risk Factors," which can be found on our website.

View source version on businesswire.com: http://www.businesswire.com/news/home/20150729005227/en/

Meritage Homes Corporation
Brent Anderson, 972-580-6360
VP Investor Relations
Brent.Anderson@meritagehomes.com

Source: Meritage Homes Corporation

Released July 29, 2015