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Meritage Homes reports first quarter 2017 diluted EPS of $0.56, increased community count and solid order growth

SCOTTSDALE, Ariz., April 27, 2017 (GLOBE NEWSWIRE) -- Meritage Homes Corporation (NYSE:MTH), a leading U.S. homebuilder, reported its first quarter results for the period ended March 31, 2017.

 
Summary Operating Results (unaudited)
(Dollars in thousands, except per share amounts)
 
    Three Months Ended March 31,
    2017   2016   % Chg
Homes closed (units)   1,581     1,488     6 %
Home closing revenue   $ 660,617     $ 595,617     11 %
Average sales price - closings   $ 418     $ 400     4 %
Home orders (units)   2,135     1,987     7 %
Home order value   $ 892,703     $ 804,600     11 %
Average sales price - orders   $ 418     $ 405     3 %
Ending backlog (units)   3,181     3,191     %
Ending backlog value   $ 1,367,844     $ 1,346,664     2 %
Average sales price - backlog   $ 430     $ 422     2 %
Earnings before income taxes   $ 36,769     $ 28,885     27 %
Net earnings   $ 23,572     $ 20,969     12 %
Diluted EPS   $ 0.56     $ 0.50     12 %
                       

/EIN News/ -- MANAGEMENT COMMENTS

“We delivered solid earnings, revenue and order growth for the first quarter of 2017, and are on track to achieve our projections for the year,” said Steven J. Hilton, chairman and chief executive officer of Meritage Homes. “We closed more homes in the first quarter than we did a year ago, which resulted in an 11% increase in home closing revenue, despite beginning the year with slightly fewer orders in backlog than we had entering 2016. We leveraged that revenue growth by managing overhead expenses to deliver a 27% year-over-year increase in our earnings before taxes."

Mr. Hilton added, "I am pleased with our performance in the first quarter and the progress we are making on the strategic initiatives we have outlined, which are designed to position the company for further growth and earnings expansion. We grew our ending community count by 5% while also increasing our sales pace to generate 7% order growth over last year's first quarter. In addition, we secured approximately 3,600 new lots for future growth, ending the quarter with approximately 31,300 total lots -- the most we’ve had since mid-2007. We also completed our new product library for the East region and began rolling out those plans in our new communities. We believe customers will find them very attractive and are expecting to generate better margins with them as well.

“Strong housing market fundamentals in the U.S. have continued to drive demand in our markets,” added Mr. Hilton. “We have been addressing the increasing demand from entry-level and first-time home buyers by securing more lots and opening communities with affordable homes designed for those buyers, including our LiVE.NOW.™ homes, which are available in a growing number of Meritage communities across the country.

“With a successful first quarter behind us and a positive outlook for continued strong demand through the spring selling season, we remain confident in our projections for 2017, including deliveries of approximately 7,500-7,900 homes and estimated total closing revenue of $3.1-3.3 billion for the year. Though mindful of labor and materials cost pressures, we believe we can maintain gross margins consistent with 2016 while generating a 6-12% increase in pre-tax earnings through a combination of cost management and additional operating leverage with our anticipated revenue growth.”

FIRST QUARTER RESULTS

  • Net earnings of $23.6 million ($0.56 per diluted share) for the first quarter of 2017, compared to prior year net earnings of $21.0 million ($0.50 per diluted share), primarily reflect higher closing revenue and greater overhead leverage, partially offset by lower home closing gross margin and a higher effective tax rate. Earnings before income taxes increased 27% year-over-year.

  • First quarter effective tax rate was 36% in 2017, compared to 27% in 2016. The lower rate in 2016 reflected the significant impact of energy tax credits captured on energy-efficient homes closed in 2016 and prior periods, which Congress has not yet extended for 2017, resulting in a higher assumed effective tax rate this year.

  • Home closing revenue increased 11% on a 6% increase in home closings coupled with a 4% increase in average closing price over the first quarter of 2016. All regions delivered year-over-year increases in home closing revenue, led by 15% growth in the West region (California, Colorado and Arizona), followed by 9% in the Central region (Texas) and 6% in the East region (Florida, Georgia, the Carolinas and Tennessee).

  • Land closing gross profit of $2.5 million, primarily from the sale of one parcel in southern California, also contributed to the year-over-year increase in first quarter net earnings.

  • Home closing gross margin was in line with management's expectations at 16.2% for the first quarter of 2017, compared to 17.4% in the first quarter of 2016. The lower margin reflects increases in land and construction costs, approximately $2.0 million of asset impairments and write-offs, as well as front-end loaded costs associated with opening new communities that are expected to begin generating revenue in the latter half of 2017.

  • Selling, general and administrative expenses were 11.8% of home closing revenue, an improvement of 90 bps from 12.7% in the first quarter of 2016, reflecting successful cost controls and greater leverage of expenses on higher closing volumes and revenue.

  • Total orders for the first quarter increased 7% year-over-year, primarily due to an 8% increase in absorption pace (orders per average number of active communities) of 8.6 in 2017 compared to 8.0 in 2016. Strong order growth of 25% and 17% respectively in the West and Central regions offset a 19% decline in the East region.  The decline in the East region reflected fewer average actively selling communities in the first quarter of 2017 than the previous year, as well as the opening of communities late in the quarter, which only minimally contributed to first quarter 2017 orders.

  • A total of 26 new communities were opened during the quarter, approximately half of which opened and recorded their first sale in the final weeks of the quarter. Total active community count increased 5% to 256 at March 31, 2017, from 243 at March 31, 2016.

  • In addition to the 7% increase in orders, a 3% increase in average sales price (ASP) drove an 11% increase in the total value of orders. The increase in order value was led by robust growth in Arizona (+48%), California (+28%) and Texas (+17%), markets where Meritage has opened a large number of communities designed for entry-level and first-time buyers, which have been selling at a higher pace than traditional move-up communities. As a result of the beginning of a shift in those markets to entry level product, ASPs for the first quarter of 2017 were 5% lower in Arizona and 1% lower in Texas, compared to the first quarter of 2016.

BALANCE SHEET

  • Cash and cash equivalents at March 31, 2017, totaled $85.7 million, compared to $131.7 million at December 31, 2016, primarily reflecting $207 million in land and development spending to meet growing demand and position the company for future growth.

  • Real estate assets increased by $90.8 million during the first quarter, ending at $2.51 billion at March 31, 2017, compared to $2.42 billion at December 31, 2016. Approximately $73 million of the increase was for homes under construction or completed, with finished home sites or land under development accounting for most of the remainder of the increase.

  • Meritage ended the first quarter of 2017 with approximately 31,300 total lots owned or under control, compared to approximately 28,400 total lots at March 31, 2016. Approximately two-thirds of the 3,600 newly controlled lots added during the first quarter were in communities planned for entry-level or first-time buyers.

  • Net debt-to-capital ratio at March 31, 2017 was 42.8%, compared to 41.2% at December 31, 2016, reflecting the increased investment of cash into homes and land under development, while remaining well within management’s target range for this key ratio.

CONFERENCE CALL

Management will host a conference call today to discuss the Company's results at 10:00 a.m. Eastern Time (7:00 a.m. in Arizona). 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/10104520.

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 11, 2017, beginning at approximately 12:00 p.m. ET on April 27 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 10104520.


   
  Meritage Homes Corporation and Subsidiaries
  Consolidated Income Statements
  (In thousands, except per share data)
  (Unaudited)
   
    Three Months Ended March 31,
    2017   2016
Homebuilding:      
  Home closing revenue $ 660,617     $ 595,617  
  Land closing revenue 12,155     2,149  
  Total closing revenue 672,772     597,766  
  Cost of home closings (553,349 )   (492,270 )
  Cost of land closings (9,660 )   (1,700 )
  Total cost of closings (563,009 )   (493,970 )
  Home closing gross profit 107,268     103,347  
  Land closing gross profit 2,495     449  
  Total closing gross profit 109,763     103,796  
Financial Services:      
  Revenue 2,944     2,500  
  Expense (1,379 )   (1,246 )
  Earnings from financial services unconsolidated entities and other, net 2,725     2,792  
  Financial services profit 4,290     4,046  
Commissions and other sales costs (48,320 )   (46,177 )
General and administrative expenses (29,622 )   (29,618 )
Earnings/(loss) from other unconsolidated entities, net 373     (157 )
Interest expense (825 )   (3,288 )
Other income, net 1,110     283  
Earnings before income taxes 36,769     28,885  
Provision for income taxes (13,197 )   (7,916 )
Net earnings $ 23,572     $ 20,969  
       
Earnings per share:      
  Basic      
  Earnings per share $ 0.59     $ 0.53  
  Weighted average shares outstanding 40,178     39,839  
  Diluted      
  Earnings per share $ 0.56     $ 0.50  
  Weighted average shares outstanding 42,808     42,363  


 
Meritage Homes Corporation and Subsidiaries
Consolidated Balance Sheets
(In thousands)
(Unaudited)
 
    March 31, 2017   December 31, 2016
Assets:        
Cash and cash equivalents   $ 85,689     $ 131,702  
Other receivables   86,232     70,355  
Real estate (1)   2,512,853     2,422,063  
Real estate not owned   9,987      
Deposits on real estate under option or contract   78,526     85,556  
Investments in unconsolidated entities   16,928     17,097  
Property and equipment, net   32,700     33,202  
Deferred tax asset   53,883     53,320  
Prepaids, other assets and goodwill   79,749     75,396  
  Total assets   $ 2,956,547     $ 2,888,691  
Liabilities:        
Accounts payable   $ 136,804     $ 140,682  
Accrued liabilities   158,666     170,852  
Home sale deposits   32,797     28,348  
Liabilities related to real estate not owned   8,489      
Loans payable and other borrowings   75,820     32,195  
Senior and convertible senior notes, net   1,095,606     1,095,119  
      Total liabilities   1,508,182     1,467,196  
Stockholders' Equity:        
Preferred stock        
Common stock   403     400  
Additional paid-in capital   575,801     572,506  
Retained earnings   872,161     848,589  
      Total stockholders’ equity   1,448,365     1,421,495  
  Total liabilities and stockholders’ equity   $ 2,956,547     $ 2,888,691  
 

(1) Real estate – Allocated costs:
       
Homes under contract under construction   $ 617,790     $ 508,927  
Unsold homes, completed and under construction   395,841     431,725  
Model homes   149,872     147,406  
Finished home sites and home sites under development   1,349,350     1,334,005  
      Total real estate   $ 2,512,853     $ 2,422,063  


Supplemental Information and Non-GAAP Financial Disclosures (Dollars in thousands – unaudited):
 
  Three Months Ended March 31,
  2017   2016
Depreciation and amortization $ 3,670     $ 3,402  
       
Summary of Capitalized Interest:      
Capitalized interest, beginning of period $ 68,196     $ 61,202  
Interest incurred 17,895     17,559  
Interest expensed (825 )   (3,288 )
Interest amortized to cost of home and land closings (14,381 )   (11,347 )
Capitalized interest, end of period $ 70,885     $ 64,126  
       
  March 31, 2017   December 31, 2016
Notes payable and other borrowings $ 1,171,426     $ 1,127,314  
Stockholders' equity 1,448,365     1,421,495  
Total capital 2,619,791     2,548,809  
Debt-to-capital 44.7 %   44.2 %
Notes payable and other borrowings $ 1,171,426     $ 1,127,314  
Less: cash and cash equivalents $ (85,689 )   $ (131,702 )
Net debt 1,085,737     995,612  
Stockholders’ equity 1,448,365     1,421,495  
Total net capital $ 2,534,102     $ 2,417,107  
Net debt-to-capital 42.8 %   41.2 %
           



 
Meritage Homes Corporation and Subsidiaries
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
 
    Three Months Ended March 31,
    2017   2016
Cash flows from operating activities:        
Net earnings   $ 23,572     $ 20,969  
Adjustments to reconcile net earnings to net cash used in operating activities:        
Depreciation and amortization   3,670     3,402  
Stock-based compensation   3,295     4,758  
Excess income tax provision from stock-based awards       516  
Equity in earnings from unconsolidated entities   (3,098 )   (2,635 )
Distribution of earnings from unconsolidated entities   3,280     3,477  
Other   (18 )   1,048  
Changes in assets and liabilities:        
Increase in real estate   (89,222 )   (116,035 )
Decrease/(increase) in deposits on real estate under option or contract   5,532     (4,046 )
Increase in other receivables, prepaids and other assets   (20,162 )   (168 )
(Decrease)/increase in accounts payable and accrued liabilities   (16,064 )   455  
Increase in home sale deposits   4,449     6,442  
Net cash used in operating activities   (84,766 )   (81,817 )
Cash flows from investing activities:        
Investments in unconsolidated entities   (10 )   (63 )
Purchases of property and equipment   (3,238 )   (3,940 )
Proceeds from sales of property and equipment   49     35  
Maturities/sales of investments and securities   1,226     645  
Payments to purchase investments and securities   (1,226 )   (645 )
Net cash used in investing activities   (3,199 )   (3,968 )
Cash flows from financing activities:        
Proceeds from Credit Facility, net   45,000      
Repayment of loans payable and other borrowings   (3,048 )   (3,893 )
Excess income tax provision from stock-based awards       (516 )
Proceeds from stock option exercises       161  
Net cash provided by/(used in) by financing activities   41,952     (4,248 )
Net decrease in cash and cash equivalents   (46,013 )   (90,033 )
Beginning cash and cash equivalents   131,702     262,208  
Ending cash and cash equivalents   $ 85,689     $ 172,175  


 
Meritage Homes Corporation and Subsidiaries
Operating Data
(Dollars in thousands)
(Unaudited)
 
    Three Months Ended March 31,
    2017   2016
    Homes   Value   Homes   Value
Homes Closed:                
Arizona   296     $ 100,550     217     $ 74,999  
California   210     132,094     207     120,720  
Colorado   128     67,360     138     65,327  
West Region   634     300,004     562     261,046  
Texas   495     174,709     465     159,971  
Central Region   495     174,709     465     159,971  
Florida   146     65,574     156     63,322  
Georgia   55     20,475     65     22,014  
North Carolina   131     56,907     118     50,377  
South Carolina   73     26,055     67     21,171  
Tennessee   47     16,893     55     17,716  
East Region   452     185,904     461     174,600  
Total   1,581     $ 660,617     1,488     $ 595,617  
Homes Ordered:                
Arizona   403     $ 133,832     259     $ 90,180  
California   328     193,758     270     151,012  
Colorado   143     82,095     169     86,626  
West Region   874     409,685     698     327,818  
Texas   693     251,773     591     216,065  
Central Region   693     251,773     591     216,065  
Florida   239     101,560     227     92,594  
Georgia   69     22,402     105     35,195  
North Carolina   150     66,332     189     77,081  
South Carolina   72     25,538     107     34,221  
Tennessee   38     15,413     70     21,626  
East Region   568     231,245     698     260,717  
Total   2,135     $ 892,703     1,987     $ 804,600  
                 
Order Backlog:                
Arizona   551     $ 194,625     359     $ 133,087  
California   349     215,302     352     214,438  
Colorado   288     168,819     363     183,450  
West Region   1,188     578,746     1,074     530,975  
Texas   1,129     431,798     1,068     406,288  
Central Region   1,129     431,798     1,068     406,288  
Florida   346     152,440     358     147,278  
Georgia   105     35,290     135     46,607  
North Carolina   212     96,677     331     138,182  
South Carolina   115     40,119     128     43,161  
Tennessee   86     32,774     97     34,173  
East Region   864     357,300     1,049     409,401  
Total   3,181     $ 1,367,844     3,191     $ 1,346,664  
                             


 
Meritage Homes Corporation and Subsidiaries
Operating Data
(Unaudited)
 
    Three Months Ended March 31,
    2017   2016
    Ending   Average   Ending   Average
Active Communities:                
Arizona   42     42.0     42     41.5  
California   29     28.5     24     24.0  
Colorado   10     10.0     14     15.0  
West Region   81     80.5     80     80.5  
Texas   85     82.5     70     71.0  
Central Region   85     82.5     70     71.0  
Florida   32     29.5     26     27.0  
Georgia   17     17.0     18     17.5  
North Carolina   18     17.5     24     25.0  
South Carolina   15     15.0     16     17.0  
Tennessee   8     7.5     9     9.0  
East Region   90     86.5     93     95.5  
Total   256     249.5     243     247.0  


About Meritage Homes Corporation

Meritage Homes is the eighth-largest public homebuilder in the United States, based on homes closed in 2016. Meritage Homes builds and sells single-family homes for entry-level, first-time, move-up, luxury and active adult buyers across the Western, Southern and Southeastern United States. Meritage Homes 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 south Florida; Raleigh and Charlotte, North Carolina; Greenville-Spartanburg and York County, South Carolina; Nashville, Tennessee; and Atlanta, Georgia.

Meritage Homes has designed and built over 100,000 homes in its 31-year history, and has a reputation for its distinctive style, quality construction, and positive customer experience. Meritage Homes 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 every year since 2013 for innovation and industry leadership in energy efficient homebuilding.

For more information, visit www.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 growth and earnings expansion, our strategy and projections with respect to the entry-level and first-time home buyer market, as well as our new East region product library, plans for community count growth in 2017, projected home closings and home closing revenue, home closing gross margins and pre-tax earnings for the full year 2017.

Such statements are based upon the current beliefs and expectations of Company management, and current market conditions, which are subject to significant uncertainties and fluctuations. 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 and cost of finished lots and undeveloped land; changes in interest rates and 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; changes in economic conditions; 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;  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 earnest or option deposits; our potential exposure to and impacts from 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; enactment of new laws or regulations or our failure to comply with laws and regulations; our limited geographic diversification; fluctuations in quarterly operating results; our level of indebtedness; our ability to obtain financing; our ability to successfully integrate acquired companies and achieve anticipated benefits from these acquisitions; our compliance with government regulations; the effect of legislative and other governmental actions, orders, policies or initiatives that impact housing, labor availability, construction, mortgage availability, our access to capital, the cost of capital or the economy in general, 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 energy-efficient 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, 2016 under the caption "Risk Factors," which can be found on our website.

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

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