Meritage Homes Reports First Quarter 2016 Diluted EPS of $0.50, a 28% Increase in Net Earnings, With a 15% Increase in Home Closing Revenue and a 21% Increase in Ending Backlog Value

SCOTTSDALE, AZ -- (Marketwired) -- 04/28/16 -- Meritage Homes Corporation (NYSE: MTH), a leading U.S. homebuilder, announced today first quarter results for the period ended March 31, 2016.


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

	Three Months Ended March 31,
	2016		2015		%Chg
Homes closed (units)		1,488		1,335	11	%
Home closing revenue	$	595,617	$	517,273	15	%
Average sales price - closings	$	400	$	387	3	%
Home orders (units)		1,987		1,979	0	%
Home order value	$	804,600	$	782,812	3	%
Average sales price - orders	$	405	$	396	2	%
Ending backlog (units)		3,191		2,758	16	%
Ending backlog value	$	1,346,664	$	1,111,991	21	%
Average sales price - backlog	$	422	$	403	5	%
Net earnings	$	20,969	$	16,400	28	%
Diluted EPS	$	0.50	$	0.40	25	%

MANAGEMENT COMMENTS

"We were pleased with our results for the first quarter, including first quarter net earnings growth of 28%, which reflected an 11% increase in home closings, a 15% increase in home closing revenue, improved overhead leverage and tax credits earned for our energy efficient homes," said Steven J. Hilton, chairman and chief executive officer of Meritage Homes. "Based on our first quarter closings volume, we are confident we'll achieve our projected 7,000-7,500 total closings in 2016, driving substantial revenue and earnings growth for the year.

"The housing market has remained healthy and we continue to experience solid demand overall," said Mr. Hilton. "Orders of 1,987 homes in the first quarter of 2016 were in line with last year's first quarter due to the early sell-out of some very successful communities, a slower sales pace in Houston and an intentional metering of order flow in northern California and Colorado.

"Our East region delivered 10% order growth over the first quarter of 2015, as we continue to expand and develop that region. We also grew our total orders in Texas by 6%, despite rising home prices in most Texas markets and the impact of weak energy prices on the Houston market. First quarter orders in the West region were down 11% from last year, as demand eased after a year of strong growth in 2015, though our West region sales pace remained the highest in the company.

"We are still facing the challenges of high land and labor costs, although the rate of inflation has slowed," Mr. Hilton explained, "Part of our strategy to address those challenges is to develop communities with higher densities at lower price points, which we are doing across many of our markets, targeting the same or better net margins.

He continued, "Based on the demand we are experiencing on the ground and in line with our market research, we continue to invest in new communities, putting approximately 2,400 new lots under control during the first quarter and ending the quarter with approximately 28,400 total lots owned or controlled."

Mr. Hilton concluded, "Considering our increased home closing revenue during our first quarter and a 21% higher ending backlog value at the end of the quarter, we are confident that we'll achieve revenue and earnings growth in 2016, despite the margin compression we've experienced over the last year. We were pleased that Moody's Investors Service recently upgraded their corporate ratings for Meritage Homes' notes due to positive momentum in our financial performance over the past several quarters."

FIRST QUARTER RESULTS

Net earnings of $21.0 million ($0.50 per diluted share) for the first quarter of 2016, compared to prior year net earnings of $16.4 million ($0.40 per diluted share), primarily reflects higher home closing revenues, greater overhead leverage and the benefit of energy tax credits that reduced the company's effective tax rate.
Home closing revenue increased 15% due to an 11% increase in home closings combined with a 3% increase in average price over the prior year period. The West region (California, Colorado and Arizona) led with a 26% increase in home closing revenue over the first quarter of 2015, followed by 11% growth in the East region (Florida, Georgia, the Carolinas and Tennessee) and 5% in the Central region (Texas).
Home closing gross margin was 17.4% for the first quarter of 2016 compared to 18.5% in the first quarter of 2015, primarily reflecting higher land and labor costs, as well as a high volume of closings from a limited number of under-performing communities within Arizona and southern California, where management is strategically working through its remaining inventory.
Commissions and other sales costs totaled 7.8% of home closing revenue in the first quarter of 2016, compared to 8.0% in the first quarter of 2015, reflecting greater leverage of non-commission selling expenses.
General and administrative expenses for the first quarter of 2016 also benefited from improved leverage on higher revenue, and decreased 70 basis points to 5.0% of total closing revenue in 2016, compared to 5.7% in 2015.
First quarter effective tax rate declined to 27% in 2016 from 35% in the first quarter of 2015 and management's projected 32% for the full year, due to energy tax credits captured on energy-efficient homes closed in prior periods. The lower than expected tax rate had a net impact of approximately $0.03 per diluted share.
First quarter 2016 orders for homes were consistent with 2015 and total order value increased 3% year over year. The total value of homes ordered increased 17% in Texas and 7% in the East, partially offset by a 7% decline in the West. The largest increases outside of Texas came from Georgia, with a 45% increase in total order value, North Carolina, with a 25% increase and South Carolina, with a 16% increase in total order value, while Florida and California were off by 15% from the first quarter of 2015 due to successful early closeouts of high-absorption communities.
Total active community count was 243 at March 31, 2016, a 6% increase over the 229 reported as of March 31, 2015. Average orders per community were 8.0 for the first quarter of 2016, compared to 8.6 in 2015.

BALANCE SHEET

Cash and cash equivalents at March 31, 2016, totaled $172.2 million, compared to $262.2 million at December 31, 2015, primarily reflecting investments in real estate to replace lots and position the company for future growth.
Real estate assets increased by $120.9 million for the first quarter, ending at $2.22 billion at March 31, 2016, compared to $2.10 billion at December 31, 2015.
Meritage ended the first quarter of 2016 with approximately 28,400 total lots under control, compared to approximately 29,300 total lots at March 31, 2015 and 27,800 at year-end 2015.
Net debt-to-capital ratio at March 31, 2016 was 42.4%, compared to 40.4% at December 31, 2015, due to the use of cash for land and development, and a growing inventory of homes under construction during the first quarter of 2016.

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/10083245.

Telephone participants who are unable to pre-register may dial in to 866-226-4948 on the day of the call. International dial-in number is 1-412-902-4125 or 1-855-669-9657 for Canada.

A replay of the call will be available until May 12, 2016, beginning at approximately 12:30 p.m. ET on April 28 on the website noted above, or by dialing 877-344-7529, 1-412-317-0088 for international or 1-855-669-9658 for Canada, and referencing conference number 10083245.


Meritage Homes Corporation and Subsidiaries
Consolidated Income Statements
(Unaudited)
(In thousands, except per share data)

			Three Months Ended March 31,
			2016			2015
Homebuilding:
	Home closing revenue		$	595,617		$	517,273
	Land closing revenue			2,149			1,439
		Total closing revenue		597,766			518,712
	Cost of home closings			(492,270	)		(421,786	)
	Cost of land closings			(1,700	)		(1,285	)
		Total cost of closings		(493,970	)		(423,071	)
	Home closing gross profit			103,347			95,487
	Land closing gross profit			449			154
		Total closing gross profit		103,796			95,641
Financial Services:
	Revenue			2,500			2,535
	Expense			(1,246	)		(1,299	)
	Earnings from financial services unconsolidated entities and other, net			2,792			2,544
		Financial services profit		4,046			3,780
Commissions and other sales costs				(46,177	)		(41,612	)
General and administrative expenses				(29,618	)		(29,650	)
Loss from other unconsolidated entities, net				(157	)		(123	)
Interest expense				(3,288	)		(3,154	)
Other income/(loss), net				283			415
Earnings before income taxes				28,885			25,297
Provision for income taxes				(7,916	)		(8,897	)
Net earnings			$	20,969		$	16,400

Earnings per share:
	Basic
		Earnings per share	$	0.53		$	0.42
		Weighted average shares outstanding		39,839			39,390
	Diluted
		Earnings per share	$	0.50		$	0.40
		Weighted average shares outstanding		42,363			41,948


Meritage Homes Corporation and Subsidiaries
Consolidated Balance Sheets
(In thousands)
(unaudited)

				March 31, 2016		December 31, 2015
Assets:
	Cash and cash equivalents			$	172,175	$	262,208
	Other receivables				60,491		57,296
	Real estate ⁽¹⁾				2,219,169		2,098,302
	Deposits on real estate under option or contract				91,991		87,839
	Investments in unconsolidated entities				10,592		11,370
	Property and equipment, net				34,544		33,970
	Deferred tax asset				58,989		59,147
	Prepaids, other assets and goodwill				66,562		69,645
		Total assets		$	2,714,513	$	2,679,777
Liabilities:
	Accounts payable			$	122,289	$	106,440
	Accrued liabilities				145,883		161,163
	Home sale deposits				42,639		36,197
	Loans payable and other borrowings				25,734		23,867
	Senior and convertible senior notes, net				1,093,659		1,093,173
			Total liabilities		1,430,204		1,420,840
Stockholders' Equity:
	Preferred stock				-		-
	Common stock				400		397
	Additional paid-in capital				563,892		559,492
	Retained earnings				720,017		699,048
			Total stockholders' equity		1,284,309		1,258,937
		Total liabilities and stockholders' equity		$	2,714,513	$	2,679,777

⁽¹⁾ Real estate - Allocated costs:
	Homes under contract under construction			$	580,194	$	456,138
	Unsold homes, completed and under construction				269,353		307,425
	Model homes				138,109		138,546
	Finished home sites and home sites under development				1,231,513		1,196,193
		Total real estate		$	2,219,169	$	2,098,302


Supplemental Information and Non-GAAP Financial Disclosures (Dollars in thousands - unaudited):

		Three Months Ended March 31,
		2016			2015
Depreciation and amortization		$	3,402		$	3,211

Summary of Capitalized Interest:
Capitalized interest, beginning of period		$	61,202		$	54,060
Interest incurred			17,559			15,282
Interest expensed			(3,288	)		(3,154	)
Interest amortized to cost of home and land closings			(11,347	)		(9,345	)
Capitalized interest, end of period		$	64,126		$	56,843

			March 31, 2016			December 31, 2015
Notes payable and other borrowings		$	1,119,393		$	1,117,040
Stockholders' equity			1,284,309			1,258,937
Total capital			2,403,702			2,375,977
Debt-to-capital			46.6	%		47.0	%
Notes payable and other borrowings		$	1,119,393		$	1,117,040
	Less: cash and cash equivalents		(172,175	)		(262,208	)
Net debt			947,218			854,832
Stockholders' equity			1,284,309			1,258,937
Total net capital		$	2,231,527		$	2,113,769
Net debt-to-capital			42.4	%		40.4	%


Meritage Homes Corporation and Subsidiaries
Consolidated Statements of Cash Flows
(In thousands) (unaudited)

			Three Months Ended March 31,
			2016			2015
Cash flows from operating activities:
	Net earnings		$	20,969		$	16,400
	Adjustments to reconcile net earnings to net cash used in operating activities:
		Depreciation and amortization		3,402			3,211
		Stock-based compensation		4,758			4,630
		Excess income tax provision/(benefit) from stock-based awards		516			(1,935	)
		Equity in earnings from unconsolidated entities		(2,635	)		(2,421	)
		Distribution of earnings from unconsolidated entities		3,477			3,035
		Other		1,048			(490	)
	Changes in assets and liabilities:
		Increase in real estate		(116,035	)		(58,906	)
		(Increase)/decrease in deposits on real estate under option or contract		(4,046	)		3,767
		Increase in receivables, prepaids and other assets		(168	)		(5,695	)
		Increase/(decrease) in accounts payable and accrued liabilities		455			(3,179	)
		Increase in home sale deposits		6,442			3,392
		Net cash used in operating activities		(81,817	)		(38,191	)
Cash flows from investing activities:
	Investments in unconsolidated entities			(63	)		(104	)
	Purchases of property and equipment			(3,940	)		(4,589	)
	Proceeds from sales of property and equipment			35			44
	Maturities of investments and securities			645			-
	Payments to purchase investments and securities			(645	)		-
		Net cash used in investing activities		(3,968	)		(4,649	)
Cash flows from financing activities:
	Proceeds from Credit Facility, net			-			27,000
	Repayment of loans payable and other borrowings			(3,893	)		(3,017	)
	Excess income tax (provision)/benefit from stock-based awards			(516	)		1,935
	Proceeds from stock option exercises			161			2,834
		Net cash (used in)/provided by financing activities		(4,248	)		28,752
Net decrease in cash and cash equivalents				(90,033	)		(14,088	)
Beginning cash and cash equivalents				262,208			103,333
Ending cash and cash equivalents			$	172,175		$	89,245


Meritage Homes Corporation and Subsidiaries
Operating Data
(Dollars in thousands) (unaudited)

		Three Months Ended
		March 31, 2016			March 31, 2015
		Homes	Value		Homes	Value
Homes Closed:
	Arizona	217	$	74,999	186	$	62,601
	California	207		120,720	153		86,423
	Colorado	138		65,327	128		57,854
	West Region	562		261,046	467		206,878
	Texas	465		159,971	440		152,587
	Central Region	465		159,971	440		152,587
	Florida	156		63,322	177		72,831
	Georgia	65		22,014	52		15,458
	North Carolina	118		50,377	89		34,975
	South Carolina	67		21,171	76		24,560
	Tennessee	55		17,716	34		9,984
	East Region	461		174,600	428		157,808
	Total	1,488	$	595,617	1,335	$	517,273
Homes Ordered:
	Arizona	259	$	90,180	288	$	90,591
	California	270		151,012	310		178,097
	Colorado	169		86,626	189		85,407
	West Region	698		327,818	787		354,095
	Texas	591		216,065	557		185,132
	Central Region	591		216,065	557		185,132
	Florida	227		92,594	248		108,857
	Georgia	105		35,195	77		24,218
	North Carolina	189		77,081	148		61,625
	South Carolina	107		34,221	96		29,528
	Tennessee	70		21,626	66		19,357
	East Region	698		260,717	635		243,585
	Total	1,987	$	804,600	1,979	$	782,812

Order Backlog:
	Arizona	359	$	133,087	294	$	94,208
	California	352		214,438	369		215,637
	Colorado	363		183,450	329		149,186
	West Region	1,074		530,975	992		459,031
	Texas	1,068		406,288	975		341,586
	Central Region	1,068		406,288	975		341,586
	Florida	358		147,278	308		138,596
	Georgia	135		46,607	78		25,344
	North Carolina	331		138,182	244		94,818
	South Carolina	128		43,161	90		31,088
	Tennessee	97		34,173	71		21,528
	East Region	1,049		409,401	791		311,374
	Total	3,191	$	1,346,664	2,758	$	1,111,991


Meritage Homes Corporation and Subsidiaries
Operating Data
(unaudited)

		Three Months Ended
		March 31, 2016		March 31, 2015
		Ending	Average	Ending	Average
Active Communities:
	Arizona	42	41.5	44	42.5
	California	24	24.0	21	22.5
	Colorado	14	15.0	16	16.5
	West Region	80	80.5	81	81.5
	Texas	70	71.0	61	60.0
	Central Region	70	71.0	61	60.0
	Florida	26	27.0	26	27.5
	Georgia	18	17.5	13	13.0
	North Carolina	24	25.0	23	22.0
	South Carolina	16	17.0	20	20.0
	Tennessee	9	9.0	5	5.0
	East Region	93	95.5	87	87.5
	Total	243	247.0	229	229.0

About Meritage Homes Corporation

Meritage Homes is the seventh-largest public homebuilder in the United States, based on homes closed in 2015. 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 Bay area, southern coastal and Inland Empire markets in California; Houston, Dallas-Ft. Worth, Austin and San Antonio, Texas; Phoenix/Scottsdale, Green Valley and Tucson, Arizona; Denver and Fort Collins, Colorado; Orlando, Tampa and southern 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 90,000 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 each of the last four years, for innovation and industry leadership in energy efficient homebuilding.

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 future revenue and earnings growth, projected home closings and home closing revenue for the year 2016, and the Company's strategy to develop communities with higher densities, lower price points and similar net margins.

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 tax laws that adversely impact us or our homebuyers; reversal of the current economic recovery; the ability of our potential buyers to sell their existing homes; cancellation rates; inflation in the cost of materials used to develop communities and construct homes; the adverse effect of slower order absorption rates; impairments of our real estate inventory; a change to the feasibility of projects under option or contract that could result in the write-down or write-off of option deposits; our potential exposure to natural disasters or severe weather conditions; competition; construction defect and home warranty claims; failures in health and safety performance; our success in prevailing on contested tax positions; our ability to obtain performance bonds in connection with our development work; the loss of key personnel; or our failure to comply with, laws and regulations; limitations of our geographic diversification; fluctuations in quarterly operating results; our level of indebtedness; our ability to obtain financing due to a downgrade of our credit ratings; our ability to successfully integrate acquired companies and achieve anticipated benefits from these acquisitions; our compliance with government regulations and the effect of legislative or other initiatives that seek to restrain growth of new housing construction or similar measures; legislation relating to energy and climate change; the replication of our "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, 2015 and subsequent quarterly reports on Forms 10-Q under the caption "Risk Factors," which can be found on our website.

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Contacts:
Brent Anderson
VP Investor Relations
(972) 580-6360 (office)
investors@meritagehomes.com

Source: Meritage Homes Corporation

Released April 28, 2016

Press Releases

Meritage Homes Reports First Quarter 2016 Diluted EPS of $0.50, a 28% Increase in Net Earnings, With a 15% Increase in Home Closing Revenue and a 21% Increase in Ending Backlog Value

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