Meritage Homes Reports First Quarter 2010 Results
Margin Improvement Drives Return to Profitability
Sales Show Third Quarterly Increase Over Prior Year
FIRST QUARTER 2010 SELECTED RESULTS (COMPARISONS TO FIRST QUARTER 2009):
-- Generated pre-tax earnings of $2.8M after $0.5M of impairments, marking
the first quarter of positive pre-tax earnings since the housing
downturn began
-- Improved home closing gross margin to 18.9% from 7.5% in prior year
(19.2% and 12.0% excluding impairments)
-- Increased net sales orders to 1,064 homes, 8% over 1Q09 and 71% higher
than the fourth quarter of 2009, and grew backlog value by 24% at
quarter-end
-- Achieved 23% greater sales per community over the prior year
-- Opened 16 new communities for sales in the first quarter
-- Contracted for approximately 1,600 new lots representing 15 new
communities, ending with 3.4 years supply of lots
-- Reduced net debt/capital ratio to 26% from 35% the prior year
SCOTTSDALE, Ariz., April 28, 2010 (GLOBE NEWSWIRE) -- Meritage Homes Corporation (NYSE:MTH), a leading U.S. homebuilder, today announced first quarter results for the period ended March 31, 2010.
Summary Operating Results (unaudited)
(Dollars in millions, except per share amounts)
-------------------------
As of and for the Three
Months Ended
March 31,
2010 2009 %Chg
---------------------------------------- -------- --------- ----
Homes closed (units) 808 932 -13%
Home closing revenue $200,582 $230,978 -13%
---------------------------------------- -------- --------- ----
Sales orders (units) 1,064 987 8%
Sales order value $268,468 $232,123 16%
---------------------------------------- -------- --------- ----
Ending backlog (units) 1,351 1,336 1%
Ending backlog value $355,419 $339,176 5%
---------------------------------------- -------- --------- ----
Net earnings/(loss) --- including
impairments
---------------------------------------- $2,660 ($18,355) n/m
Adjusted pre-tax earnings/(loss)* ---
excluding impairments $3,323 ($7,801) n/m
---------------------------------------- -------- --------- ----
Diluted EPS (including impairments) $0.08 ($0.60) n/m
---------------------------------------- -------- --------- ----
*see non-GAAP reconciliation of net earnings/(loss) to adjusted
pre-tax earnings/(loss) on "Operating Results" statement
-------------------------------------------------------------------
NET EARNINGS
Meritage reported a profitable quarter with net earnings of $3 million or $0.08 per diluted share for the first quarter of 2010, compared to a net loss of $18 million or ($0.60) per diluted share in the first quarter of 2009. The 2009 results included $10 million of pre-tax charges due to real estate-related impairments, with only $0.5 million dollars of such charges in 2010. The first quarter results included a $2.4 million gain from a legal settlement in 2010 and a $2.8 million gain on early extinguishment of debt in 2009. It was the first quarter in three years since the downturn in the housing market began that Meritage has reported a pre-tax profit.
"Our number one goal for 2010 was to return to profitability as soon as possible, and we are very pleased to have achieved this in the first quarter, largely driven by our improved margins on home closings," said Steven J. Hilton, chairman and chief executive officer of Meritage Homes. "As our results continue to improve, our successes in reducing costs, redesigning our homes and positioning the right product in the right communities are becoming more evident. Approximately 19% of our first quarter 2010 closings and related revenue were in our newer communities, nearly double the level of two quarters ago, and we expect it to be approximately 35-40% by the end of this year.
"Our margins on homes closed in these new communities were approximately 600 basis points higher than those we earned in our older communities. Even in our older communities, we achieved average pre-impairment margins that were 400 basis points higher this quarter than they were a year ago, as a result of operational improvements and reduced incentives."
First quarter total home closing gross margin improved to 18.9% in 2010, from 7.5% in 2009. Excluding impairments from the cost of sales, comparative gross margins were 19.2% and 12.0% for 2010 and 2009, respectively. Meritage generated $38 million in gross profit on homes closed in the first quarter 2010, more than double the $17 million gross profit in the prior year.
Meritage had 12% fewer active communities at March 31, 2010 than one year earlier, which contributed to 13% lower home closings and closing revenue in the first quarter 2010 compared to 2009. Sixteen new communities were opened for sales in the first quarter, and management expects to open more than 20 new communities over the next six months.
SALES IMPROVE
First quarter 2010 net orders increased by 8% year-over-year to 1,064 sales, compared to 987 in 2009, led by gains of 113% in California and 39% in Arizona, as well as meaningful increases in Colorado and Florida. Meritage's first quarter company-wide order cancellation rate fell to 18% in 2010 from 26% in 2009. Sales in Texas were 12% lower year over year, primarily due to 16% fewer actively selling communities.
Company-wide average sales per community increased by approximately 23% to 7.0 in the first quarter of 2010 from 5.7 in the same period last year. The increased sales pace was primarily related to new communities opened in late 2009, as well as improved selling conditions in most of Meritage's markets.
"While the overall housing market has improved nominally, we believe our success has been primarily driven by our acquisitions of new communities and pricing strategies based on robust market research, in addition to the appeal of our Simply Smart(TM) series, ENERGY STAR(R) qualified homes and our promise of a 99-day guaranteed delivery of a new home," said Mr. Hilton. "We believe we're positioned well within our markets relative to both resales and new homes, and are excited about the advances we're making that allow us to offer our customers a more energy-efficient home that fits their lifestyle at affordable and competitive prices."
Ending backlog with a total value of $355 million increased sequentially by 24% in the first quarter of 2010, after 74% of homes in beginning backlog were converted to closings during the quarter. Assuming a similar conversion rate continues due to Meritage's shortened cycle times, management expects revenue growth and positive year-over-year comparisons to continue over the next couple of quarters.
CASH FLOW AND BALANCE SHEET
Meritage generated $44 million of cash flow from operations, driven by $91 million in tax refunds received during the first quarter of 2010 offset partially by $59 million used to purchase approximately 1,100 lots during the quarter. The Company ended the quarter with $435 million in cash and cash equivalents, restricted cash and short-term investments, which led to a reduced net debt to total capital ratio of 26% at March 31, 2010, compared to 35% at March 31, 2009.
"We acquired new communities in healthier sub-markets identified by our proprietary market research, at prices we believe will allow us to earn near-normal margins and attractive returns," said Mr. Hilton. "We have contracted for more than 5,500 new lots since the beginning of 2009, and now control approximately 13,000 total lots equivalent to a 3.4 year supply based on trailing twelve months closings."
At March 31, 2010, Meritage owned 78% of its lots under control. By comparison, the Company controlled approximately 15,000 lots at March 31, 2009, with 55% of those lots owned. Approximately 40% of Meritage's owned lots were contracted for within the last 15 months at prices substantially lower than lots purchased prior to that time.
"We have successfully transitioned from more than 90% optioned lots at our peak to nearly 80% owned currently, and have already deployed the capital required to support that transition," said Mr. Hilton.
In April 2010, Meritage issued $200 million of 7.15% senior notes due in 2020 and will use the proceeds to retire its $130 million outstanding principal amount of notes due in 2014 and repurchase $65 million of its 2015 notes through tender offers that expire on May 3, 2010. The transactions effectively extend the maturity of Meritage's long-term debt at attractive rates for an additional five to six years, and management currently estimates that the Company will recognize a $3.2 million loss on early extinguishment of debt in the second quarter of 2010.
SUMMARY
"We have made great strides in executing on the strategic initiatives we undertook last year, and our improved results are evidence of our successes," said Mr. Hilton.
"We have built a strong balance sheet that provides a solid foundation for future growth. We have reduced our direct costs while maintaining our average prices and expanding our margins back to near-normal levels. We have increased our sales velocity with redesigned homes in new communities and believe we can add significant volume without adding significantly to our overhead, with the potential to grow our bottom line faster than our top line.
"With our new Simply Smart(TM) series of affordable homes, 100% ENERGY STAR(R) qualification in every home we build, and our 99-day completion guarantee that is gaining traction with home buyers and realtors, we can offer all the advantages of a new home built to suit our buyer's lifestyle, at prices comparable to used homes and payments competitive with rents."
In conclusion, Mr. Hilton said, "It is satisfying to report that we returned to profitability this quarter, and I believe we're well-positioned to grow profits going forward. I am confident in our strategy and the determination of our people to make Meritage successful."
CONFERENCE CALL
Management will host a conference call to discuss these results on Thursday, April 29, 2010 at 10:30 a.m. Eastern Time (7:30 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 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, April 29, 2010 on the website noted above, or by dialing 877-660-6853, and referencing passcode 348949.
Meritage Homes Corporation and Subsidiaries
Operating Results
(Unaudited)
(In thousands, except per share data)
Three Months Ended
March 31,
2010 2009
-------- ----------
Operating results
Home closing revenue $200,582 $230,978
Land closing revenue 1,222 160
-------- ----------
Total closing revenue 201,804 231,138
Home closing gross profit 37,998 17,350
Land closing gross
profit/(loss) 258 (28)
-------- ----------
Total closing gross profit 38,256 17,322
Commissions and other sales
costs (17,222) (19,145)
General and administrative
expenses (14,693) (13,869)
Interest expense (8,295) (8,330)
Other income, net (1) 4,735 5,753
-------- ----------
Earnings/(loss) before income
taxes 2,781 (18,269)
Provision for income taxes (121) (86)
-------- ----------
Net earnings/(loss) $2,660 $ (18,355)
======== ==========
Earnings/(loss) per share
Basic:
Earnings/(loss) per share $0.08 $(0.60)
Weighted average shares
outstanding 31,940 30,808
Diluted:
Earnings/(loss) per share $0.08 $(0.60)
Weighted average shares
outstanding 32,197 30,808
Non-GAAP Reconciliations:
Total closing gross profit $38,256 $17,322
Add real estate-related
impairments:
Terminated lot options and
land held for sale -- 1,234
Impaired projects 542 9,234
-------- ----------
Adjusted closing gross profit $38,798 $27,790
======== ==========
Earnings/(loss) before income
taxes $2,781 $(18,269)
Add real estate-related
impairments:
Terminated lot options and
land held for sale -- 1,234
Impaired projects 542 9,234
-------- ----------
Adjusted earnings/(loss)
before income taxes $3,323 $(7,801)
======== ==========
(1) Other income includes a $2.8 million gain on early
extinguishment of debt in the first quarter 2009, and a
$2.4 million legal settlement award in the first
quarter of 2010.
Meritage Homes Corporation and Subsidiaries
Condensed Consolidated Balance Sheets
(In thousands)
(unaudited)
March 31, December
2010 31, 2009
---------- ----------
Assets:
Cash and cash equivalents $242,680 $249,331
Investments and securities 175,723 125,699
Restricted cash 16,244 16,348
Income tax receivable 1,853 92,509
Other receivables 21,633 22,934
Real estate (1) 724,722 675,037
Investments in unconsolidated
entities 11,524 11,882
Option deposits 10,772 8,636
Other assets 35,487 40,291
---------- ----------
Total assets $1,240,638 $1,242,667
========== ==========
Liabilities and Equity:
Accounts payable, accrued
liabilities,
Home buyer deposits and
other liabilities $144,910 $152,233
Senior notes 479,176 479,134
Senior subordinated notes 125,875 125,875
---------- ----------
Total liabilities 749,961 757,242
Total stockholders' equity 490,677 485,425
---------- ----------
Total liabilities and equity $1,240,638 $1,242,667
========== ==========
(1) Real estate -- Allocated
costs:
Homes under contract under
construction $149,293 $114,769
Finished homesites and
homesites under development 405,420 407,592
Unsold homes, completed and
under construction 88,157 73,442
Model homes 35,451 37,601
Land held for development or
sale 46,401 41,633
---------- ----------
Total allocated costs $724,722 $675,037
========== ==========
Supplemental Information and Non-GAAP Financial Disclosures (In thousands
-- unaudited):
Three Months As of and for the
Ended Twelve Months
March 31, Ended March 31,
2010 2009 2010 2009
------ ----- --------- ---------
Interest amortized to cost of
sales 3,218 6,662 17,820 33,526
Interest expensed 8,295 8,330 36,496 26,323
Depreciation and amortization 1,947 2,425 8,365 14,746
Net debt-to-capital:
Notes payable and other borrowings $605,051 $622,421
Less: cash and cash equivalents,
restricted cash, and investments
and securities (434,647) (344,399)
--------- ---------
Net debt 170,404 278,022
Stockholders' equity 490,677 513,539
--------- ---------
Capital $661,081 $791,561
Net debt-to-capital 25.8% 35.1%
Meritage Homes Corporation and Subsidiaries
Condensed Consolidated Statements of Cash
Flows
(In thousands)
(unaudited)
Three Months Ended
March 31,
2010 2009
-------- ---------
Net
earnings/(loss) $2,660 ($18,355)
Real-estate
related
impairments 542 10,468
Equity in
earnings from
JVs (including
impairments)
and
distributions
of JV earnings,
net 537 958
Net
(increase)/decr
ease in real
estate and
deposits (50,982) 77,848
Other operating
activities 91,180 67,700
-------- ---------
Net cash
provided by
operating
activities 43,937 138,619
-------- ---------
Payments to
purchase
investments and
securities (50,024) --
Reductions in
restricted cash 104 --
Other financing
activities (2,003) (143)
-------- ---------
Cash used in
investing
activities (51,923) (143)
-------- ---------
Proceeds from
issuance of
common stock,
net 1,335 --
-------- ---------
Net cash
provided by
financing
activities 1,335 --
-------- ---------
Net
(decrease)/incr
ease in cash (6,651) 138,476
Beginning cash
and cash
equivalents 249,331 205,923
-------- ---------
Ending cash and
cash
equivalents(1) $242,680 $344,399
======== =========
(1) Ending cash and cash equivalents as of
March 31, 2010 excludes investments and
securities and restricted cash totaling $192
million.
Meritage Homes Corporation and Subsidiaries
Operating Data
(Dollars in thousands)
(unaudited)
For the Three Months Ended March 31,
2010 2009
---------------- -------------------
Homes Value Homes Value
------ -------- --------- --------
Homes Closed:
California 105 $37,085 92 $33,424
Nevada 22 4,319 38 8,868
------ -------- --------- --------
West Region 127 41,404 130 42,292
Arizona 168 33,952 198 41,660
Texas 428 101,359 516 123,365
Colorado 30 8,621 39 11,874
------ -------- --------- --------
Central Region 626 143,932 753 176,899
Florida 55 15,246 49 11,787
------ -------- --------- --------
East Region 55 15,246 49 11,787
------ -------- --------- --------
Total 808 $200,582 932 $230,978
====== ======== ========= ========
Homes Ordered:
California 115 $41,129 54 $21,853
Nevada 25 4,745 26 5,388
------ -------- --------- --------
West Region 140 45,874 80 27,241
Arizona 233 48,008 168 32,295
Texas 573 139,908 648 148,899
Colorado 41 12,543 26 8,483
------ -------- --------- --------
Central Region 847 200,459 842 189,677
Florida 77 22,135 65 15,205
------ -------- --------- --------
East Region 77 22,135 65 15,205
------ -------- --------- --------
Total 1,064 $268,468 987 $232,123
====== ======== ========= ========
Order Backlog:
California 99 $38,366 49 $22,339
Nevada 17 3,097 13 2,973
------ -------- --------- --------
West Region 116 41,463 62 25,312
Arizona 212 46,165 160 32,846
Texas 860 220,112 1,019 255,689
Colorado 50 15,378 31 9,874
------ -------- --------- --------
Central Region 1,122 281,655 1,210 298,409
Florida 113 32,301 64 15,455
------ -------- --------- --------
East Region 113 32,301 64 15,455
------ -------- --------- --------
Total 1,351 $355,419 1,336 $339,176
====== ======== ========= ========
Three Months Three Months
Ended Ended
March 31, 2010 March 31, 2009
---------------- -------------------
Beg. End Beg. End
------ -------- --------- --------
Active
Communities:
California 7 9 12 9
Nevada 6 5 12 12
------ -------- --------- --------
West Region 13 14 24 21
Arizona 26 32 31 28
Texas 98 83 109 107
Colorado 6 7 3 3
------ -------- --------- --------
Central Region 130 122 143 138
Florida 10 13 11 11
------ -------- --------- --------
East Region 10 13 11 11
------ -------- --------- --------
Total 153 149 178 170
====== ======== ========= ========
About Meritage Homes Corporation
The year 2010 marks the 25th Anniversary of Meritage Homes Corporation, 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 March 31, 2010, the Company had 149 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. Meritage Homes and its predecessor companies have delivered more than 65,000 homes since the Company was founded in 1985.
Meritage Homes is listed on the NYSE under the symbol MTH.
For more information about the Company, visit http://investors.meritagehomes.com
Click here to join our email alert list: http://www.b2i.us/irpass.asp?BzID=1474&to=ea&s=0
The Meritage Homes Corporation logo is available at https://www.globenewswire.com/newsroom/prs/?pkgid=2624
This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements include: Meritage's expectations of increasing sales and revenue from new communities, and that those communities will enable the Company to earn near-normal margins and attractive returns, and to grow profits; that the Company is positioned well within its markets relative to both resales and other new home builders; the number of communities Meritage expects to open in the next six months and the percentage of closings expected from newer communities; the amount of expense associated with the Company's refinancing transactions in the second quarter of 2010; and that Meritage's strategy will lead to future success. 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 as set forth in our Form 10-K for the year ended December 31, 2009 under the caption "Risk Factors," and updated in our subsequent Quarterly Reports on Form 10-Q. As a result of these and other factors, actual results may differ from those set forth in the forward-looking statements and the Company's stock and note prices may fluctuate dramatically. 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.
CONTACT: Meritage Homes Corporation
Investor Relations:
Brent Anderson, Vice President-Investor Relations
(972) 580-6360
Corporate Communications:
Jane Hays, Vice President-Corporate Communications
(972) 580-6353
Released April 28, 2010