Meritage Homes Reports Results for the First Quarter of 2013 Including 35% Growth in Orders, 65% Increase in Revenue and Diluted EPS of $0.32
SCOTTSDALE, AZ -- (Marketwired) -- 04/24/13 -- Meritage Homes Corporation (NYSE: MTH), a leading U.S. homebuilder, today announced first quarter results for the period ended March 31, 2013.
Summary Operating Results (unaudited)
(Dollars in thousands, except per share amounts)
Three Months Ended March 31,
2013 2012 %Chg
---------- ---------- ---------
Homes closed (units) 1,052 759 39%
Home closing revenue $ 330,710 $ 204,022 62%
Average sales price - closings $ 314 $ 269 17%
Home orders (units) 1,547 1,144 35%
Home order value $ 520,403 $ 308,329 69%
Average sales price - orders $ 336 $ 270 25%
Ending backlog (units) 1,967 1,300 51%
Ending backlog value $ 668,959 $ 353,161 89%
Average sales price - backlog $ 340 $ 272 25%
Net income/(loss) $ 12,041 $ (4,754) n/m
Diluted EPS $ 0.32 $ (0.15) n/m
MANAGEMENT COMMENTS
"We continued to achieve significant gains in virtually every key metric we had targeted and across all of our states during the first quarter of 2013," said Steven J. Hilton, chairman and chief executive officer of Meritage Homes. "We grew our first quarter orders, closings, backlog, average prices, revenue, gross margin and pretax margin significantly over the prior year, with most of those metrics reaching heights we haven't seen for many years. I believe our strong performance is due to sound strategies and operational execution, as well as healthier market conditions evident during this spring selling season.
"Housing demand is greater than the supply of homes available for sale in many of the areas where we operate, causing home prices to increase," Mr. Hilton explained. "To meet the higher demand, we opened 24 new communities during the first quarter and also grew our active community count to its highest point in almost four years. In addition, our 9.5 orders per average community for the quarter was a 27% increase over 2012 even as we raised prices in many communities. As a result, we received orders for 35% more homes for a 69% increase in total order value compared to the first quarter of 2012. We are pricing our homes and limiting the number of lots we're releasing for sale in some communities to better manage our order volumes relative to our production capacity, and to maximize our profit from those communities."
STRONG GROWTH
- Meritage ended the quarter with 168 active communities, up from 150 at March 31, 2012, and 158 at the end of 2012.
- Meritage has established a solid position in its new Carolinas market since opening at the end of 2011, and ended the first quarter of 2013 with 11 actively selling communities, up from four at March 31, 2012.
- Orders per average community increased to 9.5 for the first quarter of 2013 from 7.5 in the prior year period.
- Order cancellation rate declined in the first quarter to 11% in 2013, compared to 15% in the first quarter of 2012.
- Closings and revenue, orders and order value, and ending backlog increased in every state over the first quarter of 2012. California led in most areas with a 172% increase in closing revenue, a 113% increase in total order value, and the company's highest average prices and orders per community for the first quarter of 2013.
- Average sales prices for home orders reached their highest point since the fourth quarter of 2005, largely reflective of the continuing shift in orders toward the states where Meritage's average home prices are highest, in California, Colorado, the Carolinas and Florida. Those four states made up 45% of the company's first quarter 2013 orders and 55% of the total order value, increasing from 37% of total orders and 45% of total order value in the first quarter last year.
OPERATING LEVERAGE
- Net income increased by $16.8 million for the first quarter to $12.0 million or $0.32 per diluted share, from a loss of $4.8 million or ($0.15) per share in the first quarter of 2012, primarily due to higher home closing revenue and gross margins, supplemented by leveraging overhead expenses.
- Home closing revenue increased 62% over the prior year as a result of 39% more closings and a 17% increase in the average price of homes closed during the quarter.
- Home closing gross margin increased to 19.5% in the first quarter of 2013, from 17.2% in the first quarter of 2012 and 18.9% in the fourth quarter of 2012.
- Commissions and other sales costs in the first quarter decreased as a percentage of home closing revenue to 7.8% in 2013 from 9.3% in 2012.
- General and administrative expenses declined to 5.9% of first quarter revenue in 2013, from 7.2% in 2012, as revenue grew at nearly twice the rate of increase in general and administrative expenses.
- Interest expense declined to 1.5% of first quarter revenue in 2013 compared to 3.6% in 2012.
- As a result, first quarter pre-tax margin increased 710 bps to 4.9% in 2013 from (2.2%) in 2012, or $16.5 million in 2013 pre-tax income compared to a pre-tax loss of $4.6 million in 2012.
BALANCE SHEET STRENGTH
- Meritage replenished its land pipeline by spending approximately $75 million on land acquisition and development in the first quarter of 2013, and added approximately 1,600 lots under contract during the quarter.
- Total lot supply at the end of the quarter was approximately 21,000, compared to approximately 17,200 a year earlier. Based on trailing twelve months closings, the March 31, 2013 balance represents a 4.6 year supply of lots.
- In March, Meritage issued $175 million of 4.50% senior notes due 2018, in anticipation of retiring $100 million of 7.731% notes due 2017, thereby securing $75 million of additional capital for growth with minimal added interest expense. Of the $100 million 7.731% issue, $17 million was retired in the first quarter and the remaining $83 million balance was retired in the second quarter of 2013.
- The company ended the first quarter of 2013 with $453 million in cash and cash equivalents, restricted cash and securities, an increase of $176 million over the March 31, 2012 total of $277 million. Net debt to total capital ratio decreased to 37.6% at March 31, 2013, from 40.4% at March 31, 2012.
SUMMARY
"We believe job growth in most of our markets has increased demand for homes, and the limited supply of available resale homes has driven more prospective home buyers to new construction. Existing homeowners are also choosing to take advantage of historically low interest rates and very affordable prices to trade up, increasing the demand for new homes in already constrained markets," said Mr. Hilton. "We expect increasing prices to help regulate orders to some degree, but we believe the homebuilding market is poised for continued growth for years to come, and Meritage is well positioned to capture much of that growth.
"Based on our projections for opening new communities, coupled with a modest increase in average sales per community and higher average sales prices, we are projecting approximately a 40-45% year-over-year increase in home closing revenue for each of the three remaining quarters of 2013. Assuming some additional improvement in margins -- which are being somewhat constrained by rising construction costs -- and the operating leverage demonstrated in our first quarter results, we would anticipate earnings per diluted share in the range of $2.20-$2.45 for the year, representing a 350%-400% increase in pretax earnings."
CONFERENCE CALL
Management will host a conference call today to discuss the Company's first quarter results at 10:30 a.m. Eastern time (7:30 a.m. Pacific 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 Pre-registration link: http://services.choruscall.com/DiamondPassRegistration/register?confirmationNumber=10027059&linkSecurityString=213bae13e1
Telephone participants who are unable to pre-register may dial in to 888-317-6016 on the day of the call.
A replay of the call will be available for fifteen days, beginning at 12:30 p.m. ET on April 24, 2013 on the website noted above, or by dialing 877-344-7529, and referencing conference number 10027059. For more information, visit meritagehomes.com.
Meritage Homes Corporation and Subsidiaries
Operating Results
(Unaudited)
(In thousands, except per share data)
Three Months Ended
March 31,
2013 2012
---------- ----------
Homebuilding:
Home closing revenue $ 330,710 $ 204,022
Land closing revenue 5,725 328
---------- ----------
Total closing revenue 336,435 204,350
---------- ----------
Cost of home closings (266,350) (168,909)
Cost of land closings (5,550) (205)
---------- ----------
Total cost of closings (271,900) (169,114)
---------- ----------
Home closing gross profit 64,360 35,113
Land closing gross profit 175 123
---------- ----------
Total closing gross profit 64,535 35,236
---------- ----------
Financial Services:
Revenue 842 --
Expense (573) (25)
Earnings from financial services unconsolidated
entities and other, net 2,787 1,606
---------- ----------
Financial services profit 3,056 1,581
---------- ----------
Commissions and other sales costs (25,879) (18,977)
General and administrative expenses (19,724) (14,721)
Loss from other unconsolidated entities, net (155) (183)
Interest expense (5,128) (7,371)
Other income/(expense), net 470 (139)
Loss on early extinguishment of debt (700) --
---------- ----------
Income/(loss) before income taxes 16,475 (4,574)
Provision for income taxes (4,434) (180)
---------- ----------
Net income/(loss) $ 12,041 $ (4,754)
========== ==========
Income/(loss) per share:
Basic
Income/(loss) per share $ 0.34 $ (0.15)
Weighted average shares outstanding 35,798 32,634
Diluted
Income/(loss) per share $ 0.32 $ (0.15)
Weighted average shares outstanding 38,440 32,634
Meritage Homes Corporation and Subsidiaries
Condensed Consolidated Balance Sheets
(In thousands)
(unaudited)
March 31, December
2013 31, 2012
---------- ----------
Assets:
Cash and cash equivalents $ 325,021 $ 170,457
Investments and securities 88,901 86,074
Restricted cash 38,938 38,938
Other receivables 23,885 20,290
Real estate (1) 1,152,139 1,113,187
Deposits on real estate under option or contract 11,321 14,351
Investments in unconsolidated entities 10,949 12,085
Property and equipment, net 16,352 15,718
Deferred tax asset 74,407 77,974
Prepaid expenses and other assets 29,072 26,488
---------- ----------
Total assets $1,770,985 $1,575,562
========== ==========
Liabilities:
Accounts payable $ 60,283 $ 49,801
Accrued liabilities 100,102 96,377
Home sale deposits 17,744 12,377
Senior, senior subordinated, convertible senior
notes and other borrowings 881,219 722,797
---------- ----------
Total liabilities 1,059,348 881,352
---------- ----------
Stockholders' Equity:
Preferred stock, par value $0.01. Authorized
10,000,000 shares; none issued and outstanding at
March 31, 2013 and December 31, 2012 -- --
Common stock, par value $0.01. Authorized
125,000,000 shares; issued 36,010,224 and
35,613,351 shares at March 31, 2013 and December
31, 2012, respectively 360 356
Additional paid-in capital 395,631 390,249
Retained earnings 315,646 303,605
---------- ----------
Total stockholders' equity 711,637 694,210
---------- ----------
Total liabilities and stockholders' equity $1,770,985 $1,575,562
========== ==========
(1)Real estate - Allocated costs:
Homes under contract under construction $ 247,682 $ 192,948
Unsold homes, completed and under construction 105,094 107,466
Model homes 64,783 62,411
Finished home sites and home sites under
development 617,507 634,106
Land held for development 57,081 56,118
Land held for sale 22,430 21,650
Communities in mothball status 37,562 38,488
---------- ----------
Total real estate $1,152,139 $1,113,187
========== ==========
Supplemental Information and Non-GAAP Financial Disclosures (In thousands -
unaudited):
Three Months Ended
March 31,
2013 2012
---------- ----------
Depreciation and amortization $ 2,158 $ 1,693
========== ==========
Summary of Capitalized Interest:
Capitalized interest, beginning of period $ 21,600 $ 14,810
Interest incurred 12,726 10,847
Interest expensed (5,128) (7,371)
Interest amortized to cost of home, land closings
and impairments (5,000) (2,378)
---------- ----------
Capitalized interest, end of period $ 24,198 $ 15,908
========== ==========
March 31, December
2013 31, 2012
---------- ----------
Notes payable and other borrowings $ 881,219 $ 722,797
Less: cash and cash equivalents, restricted
cash, and investments and securities (452,860) (295,469)
---------- ----------
Net debt 428,359 427,328
Stockholders' equity 711,637 694,210
---------- ----------
Total capital $1,139,996 $1,121,538
========== ==========
Net debt-to-capital 37.6% 38.1%
Meritage Homes Corporation and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(In thousands)
(unaudited)
Three Months Ended
March 31,
2013 2012
---------- ----------
Cash flows from operating activities:
Net income/(loss) $ 12,041 $ (4,754)
Adjustments to reconcile net income/(loss) to
net cash provided by/(used in) operating
activities:
Depreciation and amortization 2,158 1,693
Stock-based compensation 1,844 1,653
Loss on early extinguishment of debt 700 --
Excess income tax benefit from stock-based
awards (464) --
Equity in earnings from unconsolidated
entities (2,632) (1,423)
Distribution of earnings from unconsolidated
entities 3,722 1,252
Other 3,632 313
Changes in assets and liabilities:
Increase in real estate (38,876) (52,722)
Decrease in deposits on real estate under
option or contract 3,030 99
(Increase)/decrease in receivables and prepaid
expenses and other assets (5,312) 1,355
Increase/(decrease) in accounts payable and
accrued liabilities 14,671 (5,210)
Increase in home sale deposits 5,367 2,382
---------- ----------
Net cash used in operating activities (119) (55,362)
---------- ----------
Cash flows from investing activities:
Investments in unconsolidated entities (28) (130)
Distributions of capital from unconsolidated
entities 74 --
Purchases of property and equipment (2,704) (2,336)
Proceeds of sales from property and equipment 33 350
Maturities of investments and securities 43,999 50,000
Payments to purchase investments and securities (46,826) (76,503)
Increase in restricted cash -- (83)
---------- ----------
Net cash used in investing activities (5,452) (28,702)
---------- ----------
Cash flows from financing activities:
Repayments of senior subordinated notes (17,264) --
Proceeds from issuance of new debt 175,000 --
Debt issuance costs (1,143) --
Excess income tax benefit from stock-based
awards 464 --
Proceeds from stock option exercises 3,078 1,055
---------- ----------
Net cash provided by financing activities 160,135 1,055
---------- ----------
Net increase/(decrease) in cash 154,564 (83,009)
Beginning cash and cash equivalents 170,457 173,612
---------- ----------
Ending cash and cash equivalents (2) $ 325,021 $ 90,603
========== ==========
(2) Ending cash and cash equivalents as of March 31, 2013 and December 31, 2012 excludes investments and securities and restricted cash totaling $128 million and $125 million, respectively.
Meritage Homes Corporation and Subsidiaries
Operating Data
(Dollars in thousands)
(unaudited)
Three Months Ended
March 31, 2013 March 31, 2012
------------------- -------------------
Homes Value Homes Value
-------- --------- -------- ---------
Homes Closed:
Arizona 192 $ 57,149 142 $ 38,899
California 228 90,642 97 33,306
Colorado 94 32,204 64 21,300
Nevada 16 3,569 6 1,196
-------- --------- -------- ---------
West Region 530 183,564 309 94,701
-------- --------- -------- ---------
Texas 354 90,705 317 71,651
-------- --------- -------- ---------
Central Region 354 90,705 317 71,651
-------- --------- -------- ---------
Carolinas 40 14,215 18 6,547
Florida 128 42,226 115 31,123
-------- --------- -------- ---------
East Region 168 56,441 133 37,670
-------- --------- -------- ---------
Total 1,052 $ 330,710 759 $ 204,022
======== ========= ======== =========
Homes Ordered:
Arizona 318 $ 97,708 249 $ 59,612
California 314 133,631 187 62,647
Colorado 141 56,795 91 30,313
Nevada 23 5,506 8 1,456
-------- --------- -------- ---------
West Region 796 293,640 535 154,028
-------- --------- -------- ---------
Texas 503 131,130 463 108,863
-------- --------- -------- ---------
Central Region 503 131,130 463 108,863
-------- --------- -------- ---------
Carolinas 69 26,886 33 12,079
Florida 179 68,747 113 33,359
-------- --------- -------- ---------
East Region 248 95,633 146 45,438
-------- --------- -------- ---------
Total 1,547 $ 520,403 1,144 $ 308,329
======== ========= ======== =========
Order Backlog:
Arizona 375 $ 121,375 265 $ 65,945
California 401 167,577 172 56,989
Colorado 189 74,680 97 32,506
Nevada 21 5,042 7 1,336
-------- --------- -------- ---------
West Region 986 368,674 541 156,776
-------- --------- -------- ---------
Texas 649 172,742 542 130,706
-------- --------- -------- ---------
Central Region 649 172,742 542 130,706
-------- --------- -------- ---------
Carolinas 78 30,012 39 14,148
Florida 254 97,531 178 51,531
-------- --------- -------- ---------
East Region 332 127,543 217 65,679
-------- --------- -------- ---------
Total 1,967 $ 668,959 1,300 $ 353,161
======== ========= ======== =========
Meritage Homes Corporation and Subsidiaries
Operating Data
(unaudited)
Three Months Ended
--------------------------------------
March 31, 2013 March 31, 2012
------------------ ------------------
Beg. End Beg. End
-------- -------- -------- --------
Active Communities:
Arizona 38 40 37 32
California 17 15 20 21
Colorado 12 11 10 8
Nevada 1 -- 2 2
-------- -------- -------- --------
West Region 68 66 69 63
-------- -------- -------- --------
Texas 65 69 67 67
-------- -------- -------- --------
Central Region 65 69 67 67
-------- -------- -------- --------
Carolinas 7 11 3 4
Florida 18 22 18 16
-------- -------- -------- --------
East Region 25 33 21 20
-------- -------- -------- --------
Total 158 168 157 150
======== ======== ======== ========
About Meritage Homes Corporation
Meritage Homes is the ninth-largest public homebuilder in the United States, based on 4,238 homes closed in 2012. 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. As of March 31, 2013, the company had 168 actively selling communities in markets including Sacramento, San Francisco's East Bay, the Central Valley and Southern California; Houston, Dallas-Ft. Worth, Austin and San Antonio, Texas; Phoenix/Scottsdale and Tucson, Arizona; Las Vegas, Nevada; Denver, Colorado; Orlando and Tampa, Florida; Raleigh and Charlotte, North Carolina.
Meritage has designed and built more than 75,000 homes in its 27-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 in 2013 Meritage received the U.S. Environmental Protection Agency's ENERGY STAR Partner of the Year for Sustained Excellence Award, for its 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 meritagehomes.com.
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 that increasing prices will help regulate demand for new homes and maximize profit from communities, that the homebuilding market is poised for years of continued growth, that Meritage is positioned to capture additional market growth, and management's projected revenue, pretax earnings and earnings per share for 2013.
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 an unexpected setback in the current economic recovery; the availability of finished lots and undeveloped land; interest rates and changes in the availability and pricing of residential mortgages; the availability and cost of materials and labor; 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 order absorption rates; potential write-downs or write-offs of assets, including pre-acquisition costs and deposits; our potential exposure to natural disasters; competition; 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; our ability to preserve our deferred tax assets and use them within the statutory time limits; delays and risks associated with land development; our ability to obtain performance bonds in connection with our development work; the liquidity of our joint ventures and the ability of our joint venture partners to meet their obligations to us and the joint venture; the loss of key personnel; changes in or our failure to comply with laws and regulations; our lack of geographic diversification; fluctuations in quarterly operating results; our financial leverage and level of indebtedness; our ability to take certain actions because of restrictions contained in the indentures for our 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; 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, 2012 under the caption "Risk Factors," which can be found on our website.
Contacts: Brent Anderson VP Investor Relations (972) 580-6360 (office) Brent.Anderson@meritagehomes.com
Source: Meritage Homes Corp.
Released April 24, 2013