[MERITAGE GRAPHIC]
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press release
A DYNAMIC GROWTH COMPANY IN THE HOME BUILDING SECTOR
Contacts: ARIZONA: TEXAS: NEW YORK:
Larry Seay Jane Hays Chris Tofalli
CFO & Vice President-Finance Vice President-Corp. Develop. Broadgate Consultants
(480) 609-3330 (972) 612-8085 (212) 232-2222
MERITAGE CORPORATION REPORTS RECORD THIRD QUARTER 2003 --
DILUTED EPS INCREASES 18% TO $1.86
THIRD QUARTER RECORDS :
- CLOSINGS RISE TO 1,464 HOMES, UP 12% OVER PRIOR YEAR'S QUARTER
- NEW HOME ORDERS RISE TO 1,546, UP 37% OVER PRIOR YEAR'S
QUARTER
ALL-TIME QUARTERLY RECORDS :
- NET EARNINGS REACHES $25.8 MILLION, UP 15% OVER PRIOR YEAR'S
QUARTER
- THIRD QUARTER REVENUE UP 16% OVER PRIOR YEAR'S QUARTER TO $381
MILLION
- HOMES IN BACKLOG OF 3,217, 40% AHEAD OF PRIOR YEAR'S QUARTER
FULL YEAR EARNINGS GUIDANCE RAISED BY $0.25 TO $6.45 - $6.65 PER
DILUTED SHARE
SCOTTSDALE, ARIZONA AND DALLAS (OCTOBER 20, 2003) - Meritage Corporation (NYSE:
MTH) today announced net earnings of $25.8 million, or $1.86 per diluted share,
for the third quarter ended September 30, 2003, representing year-over-year
increases of 15% and 18%, respectively. Net earnings for the first nine months
of 2003 were $62.8 million, or $4.57 per diluted share, for year-over-year
increases of 37% and 28%, respectively.
SUMMARY OPERATING RESULTS ($ IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
% %
2003 2002 Increase 2003 2002 Increase
Home sales revenue $380,752 $328,514 16% $989,895 $744,686 33%
Net earnings $25,755 $22,437 15% $62,840 $45,941 37%
Diluted EPS $1.86 $1.58 18% $4.57 $3.58 28%
3RD QUARTER EARNINGS / 2
"Meritage is continuing to successfully execute its long-term
growth strategy, resulting in record operating results for the third quarter and
first nine months of 2003," said Steve Hilton, Meritage Co-Chairman and Co-CEO.
"The Company has diversified its operations into four of the fastest growing
states in the nation. We are expanding within our existing markets in Texas,
Arizona and California, while our results have also benefited from the October
2002 acquisition of Perma-Bilt Homes in Las Vegas, Nevada. In addition, our
start-up operation in San Antonio, Texas, produced its first closings during
September 2003. We expect San Antonio to be profitable in 2003, its first year
of operation. This has all translated into record home sales revenue during the
first nine months of 2003 of $990 million and generated net earnings of $62.8
million, an increase of 33% in revenue and 37% in net earnings over the same
period a year ago."
The Company's gross margin increased by 59 basis points to 20.2% in the
third quarter of 2003, compared to the same quarter last year. This margin level
was generally consistent with the levels of the first half of 2003 and reflects
a continued strong housing market, supporting pricing power in most markets.
This improvement in gross margin was more than offset by an increase in SG&A
expenses from 8.9% to 9.9% of revenue resulting in a pretax margin of 10.7%,
down 47 basis points from 11.2% in the same quarter last year. The increase in
SG&A expense was caused mainly by start-up marketing costs relating to
communities in the Phoenix metropolitan area, increased sales commissions and a
general increase in marketing and other sales costs. "We anticipate that
increases in revenue should help leverage our SG&A expenses in the fourth
quarter of this year and into next year," added Hilton.
"The dollar value of new home orders was up 44% to $1.3 billion in the
first nine months of 2003 and the value of homes in backlog was up 40% over the
prior year, to $840 million," said John Landon, Meritage Co-Chairman and Co-CEO.
"Based on our strong third quarter orders and backlog, we anticipate closing
approximately 5,600 homes and generating approximately $1.4 billion in revenue
for the full year 2003. We expect this top line revenue to produce record 2003
diluted earnings per share in the range of $6.45 to $6.65, representing an
increase of 21% to 25% for the full year, and is a $0.25 increase from our prior
quarter's earnings guidance of $6.20 to $6.40."
Meritage received 1,546 orders for new homes valued at $416 million in
the three months ended September 30, 2003, increases of 37% and 36%,
respectively, from the same period a year ago. The number of actively selling
communities at quarter end was 151, up 10% from June 30, 2003 and 29% from the
same quarter a year ago. "We anticipate beginning 2004 with approximately 155
communities, 20% higher than at the beginning of 2003," added Landon.
Meritage maintains operating objectives which are intended to reduce
operating risk, such as minimizing unsold inventory. At the end of the third
quarter Meritage had 192 completed unsold homes, or about 1.3 per community. The
Company also reduces risk by controlling a significant majority of lots
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3RD QUARTER EARNINGS / 3
through option agreements which minimizes the investment in inventory, decreases
the risk of holding large amounts of land and increases returns. Meritage's goal
is to maintain a four to five year supply of lots with approximately 80-85%
controlled through options. The number of lots controlled at September 30, 2003
increased 30% to 28,798 from the same time last year. Of this number
approximately 85% are controlled through options.
Meritage's balance sheet remains prudently leveraged with a net debt to
capital ratio of 50% at September, 30 2003. EBITDA in the third quarter was
$48.4 million, up 9% from the same period last year, resulting in a trailing
four quarter interest coverage ratio of about 7.0 times and a trailing four
quarter debt to EBITDA ratio of about 2.3 times. (EBITDA represents a non-GAAP
financial measure. A table reconciling this measure to the appropriate GAAP
measure is included with the operating results part of this press release). In
addition, at the end of the quarter, Meritage had approximately $93.8 million
outstanding under our revolving credit facility and $21.2 million in letters of
credit, leaving an unused commitment of $135.0 million, all of which was
available to borrow. During the third quarter Meritage enhanced its liquidity by
completing an add-on offering of $75 million in aggregate principal amount of
its 9.75% Senior Notes due 2011. The notes were priced at 109.0% of their face
amount implying a yield - to-worst of 7.642%. The net proceeds from the offering
were used to pay down a portion of the Company's senior credit facility.
Meritage will hold its third quarter earnings call on Tuesday, October
21, 2003 at 11:00 a.m. EDT (10:00 a.m. CDT, 9:00 a.m. MDT, 8:00 a.m. PDT). To
participate in the call, please dial in at least five minutes before the start
time. The toll free domestic dial-in number is 1-800-289-0726; international
toll free number is 1-913-981-5545. A replay will be available from 2:00 p.m.
EDT Tuesday, October 21, 2003 through Tuesday, October 28, 2003 at 12:00
midnight Eastern Standard Time by dialing 1-888-203-1112, code 786361. The
Company will be webcasting a slide show presentation along with the conference
call. The webcast and presentation may be accessed through the Company's website
at www.meritagehomes.com. The call may also be accessed through CCBN for two
weeks at www.companyboardroom.com.
ABOUT MERITAGE CORPORATION
Meritage Corporation designs, builds and sells distinctive single-family homes
ranging from entry-level to semi-custom luxury and has built approximately
26,000 homes in its 18 year history. The Company was recently ranked 11th in
Fortune magazine's September 1, 2003 "Fastest Growing Companies in America"
list, its third appearance in this list. In addition, Meritage was named as the
14th largest builder in the U.S. for 2002 by Builder magazine in their May 2003
issue and was recently included in THE BLOOMBERG 100 "HOT STOCKS", compiled by
Bloomberg Personal Finance Magazine in their February 2003 issue. The Company
has also been ranked 4th by Forbes magazine in its "200 Best Small Companies in
America". Meritage operates in the Phoenix and Tucson, Arizona markets under the
Monterey Homes, Hancock
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3RD QUARTER EARNINGS / 4
Communities and Meritage Homes brand names, in the Dallas/Ft. Worth, Austin,
Houston and San Antonio, Texas markets as Legacy Homes, Hammonds Homes and
Monterey Homes, in the East San Francisco Bay and Sacramento, California markets
as Meritage Homes and in Las Vegas, Nevada as Perma-Bilt Homes. The Meritage web
site is located at: www.meritagehomes.com. NYSE, Symbol: MTH.
MERITAGE CORPORATION AND SUBSIDIARIES
OPERATING RESULTS
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
2003 2002 2003 2002
---- ---- ---- ----
OPERATING RESULTS
Home sales revenue $ 380,752 $ 328,514 $ 989,895 $ 744,686
Land sales revenue -- 615 8,100 5,615
------------ ------------ ------------ ------------
380,752 329,129 997,995 750,301
Home sales gross profit 76,739 64,243 198,457 145,830
Land sales gross profit -- 163 1,241 304
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76,739 64,406 199,698 146,134
Commissions and other sales costs (23,461) (17,644) (64,534) (44,240)
General and administrative expenses (14,403) (11,518) (38,691) (30,307)
Other income 1,839 1,502 3,911 4,008
------------ ------------ ------------ ------------
Pre-tax earnings 40,714 36,746 100,384 75,595
Income taxes (14,959) (14,309) (37,544) (29,654)
------------ ------------ ------------ ------------
Net earnings $ 25,755 $ 22,437 $ 62,840 $ 45,941
============ ============ ============ ============
Earnings per share:
Basic shares:
Earnings per share $ 1.98 $ 1.66 $ 4.83 $ 3.80
Weighted average shares outstanding 13,032,910 13,514,217 13,019,487 12,105,397
Diluted shares:
Earnings per share $ 1.86 $ 1.58 $ 4.57 $ 3.58
Weighted average shares outstanding 13,837,378 14,238,667 13,755,674 12,841,439
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3RD QUARTER EARNINGS / 5
QUARTER ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
(UNAUDITED) (UNAUDITED)
2003 2002 2003 2002
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EBITDA Reconciliation:(1)
Net earnings $ 25,755 $ 22,437 $ 62,840 $ 45,941
Income taxes 14,959 14,309 37,544 29,654
Interest 5,653 5,886 14,513 13,917
Depreciation 1,695 1,723 4,916 4,340
Amortization 291 131 816 391
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EBITDA $ 48,353 $ 44,486 $120,629 $ 94,243
======== ======== ======== ========
(1) EBITDA represents earnings before interest expense, interest amortized
to cost of sales, income taxes, depreciation and amortization. EBITDA
is a non-GAAP financial measure. For purposes of Regulation G, a
non-GAAP financial measure is a numerical measure of a registrant's
historical or future financial performance, financial position or cash
flows that excludes amounts, or is subject to adjustments that have the
effect of excluding amounts, that are included in the most directly
comparable measure calculated and presented in accordance with GAAP in
the statement of earnings, balance sheet, or statement of cash flows
(or equivalent statements) of the issuer; or includes amounts, or is
subject to adjustments that have the effect of including amounts, that
are excluded from the most directly comparable measure so calculated
and presented. In this regard, GAAP refers to generally accepted
accounting principles in the United States. Pursuant to the
requirements of Regulation G, we have provided a reconciliation of the
non-GAAP financial measure to the most directly comparable GAAP
financial measure.
EBITDA is presented here because it is a widely accepted financial
indicator used by investors and analysts to analyze and compare
homebuilding companies on the basis of operating performance and we
believe is a financial measure widely used by the homebuilding
industry. EBITDA as presented may not be comparable to similarly titled
measures reported by other companies because not all companies
calculate EBITDA in an identical manner and, therefore, is not
necessarily an accurate means of comparison between companies. EBITDA
is not intended to represent cash flows for the period or funds
available for management's discretionary use nor has it been presented
as an alternative to operating income or as an indicator of operating
performance and it should not be considered in isolation or as a
substitute for measures of performance prepared in accordance with
generally accepted accounting principles in the United States of
America.
MERITAGE CORPORATION AND SUBSIDIARIES
BALANCE SHEETS
(IN THOUSANDS)
SEPTEMBER 30, 2003
(UNAUDITED) DECEMBER 31, 2002
----------- -----------------
Total assets $ 952,971 $ 691,788
Real estate 668,495 484,970
Consolidated real estate not owned * 27,917 --
Cash and cash equivalents 6,910 6,600
Total liabilities 575,196 374,480
Notes payable 383,810 264,927
Stockholders' equity 376,246 317,308
* Amount represents variable interest entities (VIE's) formed subsequent to
January 31, 2003 required to be consolidated by FIN 46. The Financial Accounting
Standards Board has delayed implementation of FIN 46 for VIE's created prior to
that date. If we had implemented FIN 46 for VIE's created prior to January 31,
2003, consolidated real estate not owned would increase approximately $10 to $12
million.
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3RD QUARTER EARNINGS / 6
MERITAGE CORPORATION AND SUBSIDIARIES
OPERATING DATA
(UNAUDITED)
($ IN THOUSANDS)
FOR THE AS OF AND FOR THE
THREE MONTHS ENDED SEPTEMBER 30 NINE MONTHS ENDED SEPTEMBER 30
------------------------------- ------------------------------
2003 2002 2003 2002
---- ---- ---- ----
HOMES $ HOMES $ HOMES $ HOMES $
----- - ----- - ----- - ----- -
HOMES ORDERED:
Texas 730 156,182 641 130,799 2,404 498,919 1,575 302,051
Arizona 481 126,921 306 88,266 1,533 403,826 1,200 316,361
California 219 100,548 182 85,491 568 265,418 658 276,874
Nevada * 116 32,036 n/a n/a 500 123,577 n/a n/a
----- ------- ----- ------- ----- --------- ----- -------
Total 1,546 415,687 1,129 304,556 5,005 1,291,740 3,433 895,286
===== ======= ===== ======= ===== ========= ===== =======
HOMES CLOSED:
Texas 741 153,495 692 132,129 1,988 405,251 1,431 258,571
Arizona 325 83,774 442 122,948 866 234,083 1,192 296,673
California 206 96,459 177 73,437 540 241,714 468 189,442
Nevada * 192 47,024 n/a n/a 464 108,847 n/a n/a
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Total 1,464 380,752 1,311 328,514 3,858 989,895 3,091 744,686
===== ======= ===== ======= ===== ======= ===== =======
ORDER BACKLOG:
Texas 1,501 312,567 1,185 232,487
Arizona 1,133 313,898 784 225,674
California 361 160,631 323 140,746
Nevada * 222 52,513 n/a n/a
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Total 3,217 839,609 2,292 598,907
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* Amounts are for Perma-Bilt Homes, acquired in October 2002.
* * *
This press release contains forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. Such statements include
statements concerning our expectation of positive operating results during the
remainder of 2003 and during fiscal 2004, including our ability to meet our 2003
full-year goals of closing 5,600 homes, growing revenue to $1.4 billion, our
expected earnings per share of $6.45 to $6.65 for 2003, the number of active
communities we expect to have at the beginning of 2004 and our ability to
utilize anticipated revenue increases from our operations in the Phoenix metro
area to leverage SG&A expenses. Such statements are based upon the current
beliefs and expectations of our management and are subject to significant risks
and uncertainties. Actual results may differ from those set forth in the
forward-looking statements.
Meritage's business is subject to a number of risks and uncertainties including:
the strength and competitive pricing of the single-family housing market; demand
for and acceptance of our homes; changes in the availability and pricing of real
estate in the markets in which we operate; our ability to continue to acquire
additional land or options to acquire additional land on acceptable terms;
general economic slow downs; consumer confidence, which can be impacted by
economic and other factors such as terrorism, war, or threats thereof and
changes in stock prices; the impact of construction defect and home warranty
claims; the cost and availability of insurance, including the availability of
insurance for the presence of mold; interest rates and changes in the
availability and pricing of residential mortgages; our lack of geographic
diversification; our level of indebtedness and our ability to raise additional
capital when and if needed; our ability to take certain actions because of
restrictions contained in the indenture for our senior notes and the agreement
for our senior unsecured credit facility; legislative or other initiatives that
seek to restrain growth in new housing construction or similar measures; the
success of our program to integrate existing operations with any new operations
or those of past or future acquisitions; our success in locating and negotiating
favorably with possible acquisition candidates; our ability to expand pre-tax
margins; our dependence on key personnel and the availability of satisfactory
subcontractors; the impact of inflation; our potential exposure to natural
disasters; new accounting policies or principles or governmental or stock
exchange regulations that could affect our corporate governance or accounting
methods; and other factors identified in documents filed by us with the
Securities and Exchange Commission, including those set forth in our Form 10-K
Report for the year ended December 31, 2002 under the
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2RD QUARTER EARNINGS / 7
captions "Market for the Registrant's Common Stock and Related Stockholder
Matters - Factors That May Affect Future Stock Performance" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Factors That May Affect Our Future Results and Financial Condition" and in
Exhibit 99.1 of Meritage's Form 10-Q for the quarter ended June 30, 2003. As a
result of these and other factors, the Company's stock and note prices may
fluctuate dramatically.
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