Meritage Homes reports Q2 net earnings of US$28.1M, up from US$8M a year earlier, primary driven by higher home closing revenue and gross margins, overhead expense leverage; home closing revenue up 55% US$436M
Allison Oesterle
SCOTTSDALE, Arizona
,
July 24, 2013
(press release)
–
21% Growth in Orders, 55% Increase in Home Closing Revenue, 21.5% Home Closing Gross Margin and Diluted EPS of $0.74
Meritage Homes Corporation (NYSE: MTH), a leading U.S. homebuilder, today announced second quarter results for the period ended June 30, 2013.
Summary Operating Results (unaudited)
(Dollars in thousands, except per share amounts)
Three Months Ended June 30,
Six Months Ended June 30,
2013
2012
%Chg
2013
2012
%Chg
Homes closed (units)
1,321
1,042
27
%
2,373
1,801
32
%
Home closing revenue
$
436,040
$
281,340
55
%
$
766,750
$
485,362
58
%
Average sales price - closings
$
330
$
270
22
%
$
323
$
269
20
%
Home orders (units)
1,637
1,353
21
%
3,184
2,497
28
%
Home order value
$
573,392
$
385,829
49
%
$
1,093,795
$
694,158
58
%
Average sales price - orders
$
350
$
285
23
%
$
344
$
278
24
%
Ending backlog (units)
2,283
1,611
42
%
Ending backlog value
$
806,311
$
457,650
76
%
Average sales price - backlog
$
353
$
284
24
%
Net earnings
$
28,143
$
8,005
252
%
$
40,184
$
3,251
1,136
%
Diluted EPS
$
0.74
$
0.24
208
%
$
1.06
$
0.10
960
%
MANAGEMENT COMMENTS
"The second quarter of 2013 was another quarter of strong growth, with continued significant improvements across our operating metrics," said Steven J. Hilton, chairman and chief executive officer of Meritage Homes. "This was our ninth consecutive quarter of positive year-over-year growth in orders and our seventh consecutive quarter of growth in closing revenue year over year.
"More importantly, our earnings continued to grow at a much higher rate than our revenue. Our gross margin on home closings increased to 21.5%, and our additional operating leverage drove year-over-year net earnings growth of 252% on a 55% increase in home closing revenue.
"Despite the recent rise in interest rates and home prices, affordability remains excellent and demand for new homes continues to be strong in our markets, as evidenced by our pace of orders increasing over last quarter's pace and well above the second quarter of 2012," Mr. Hilton explained.
"In a competitive land market, I am also pleased with our ability to acquire new lot positions for additional growth. We increased our total lot supply by more than 1,500 lots during the quarter, putting more than 3,500 new lots under control, which was the second highest number of lots we have acquired over the last six quarters. We continue to seek new opportunities to expand our footprint while also allocating capital to grow within our existing markets."
STRONG GROWTH
OPERATING LEVERAGE
YEAR-TO-DATE RESULTS
BALANCE SHEET STRENGTH
SUMMARY
"Most housing metrics have been moving in a positive direction over the last year, albeit from historically depressed levels. As the U.S. economy improves and creates jobs, demand for new homes should remain strong, especially in light of the shortage of used homes listed for sale," said Mr. Hilton. "Nearly every major housing market is experiencing price appreciation, which is good for both existing homeowners and homebuilders, and is helping to drive our revenue growth well in excess of our growth in orders and closings. Buyers may conclude that they missed the absolute bottom of the market in terms of prices and interest rates, but they also recognize that both are still a bargain in terms of the amount of house you can buy at a given income level.
"Assuming continued growth in the market due to those factors, and based on our better than expected second quarter performance and subsequently revised projections, we are projecting home closing revenue of approximately $1.7-1.8 billion for 2013, resulting in projected earnings per diluted share in the range of $2.65-$2.85 for the year."
CONFERENCE CALL
Management will host a conference call today to discuss the Company's second 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=10030804&linkSecurityString=259fe32118.
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 July 24, 2013 on the website noted above, or by dialing 877-344-7529, and referencing conference number 10030804. For more information, visit meritagehomes.com.
Meritage Homes Corporation and Subsidiaries
Operating Results
(Unaudited)
(In thousands, except per share data)
Three Months Ended June 30,
Six Months Ended June 30,
2013
2012
2013
2012
Homebuilding:
Home closing revenue
$
436,040
$
281,340
$
766,750
$
485,362
Land closing revenue
13,910
755
19,635
1,083
Total closing revenue
449,950
282,095
786,385
486,445
Cost of home closings
(342,435
)
(229,394
)
(608,785
)
(398,303
)
Cost of land closings
(12,463
)
(1,135
)
(18,013
)
(1,340
)
Total cost of closings
(354,898
)
(230,529
)
(626,798
)
(399,643
)
Home closing gross profit
93,605
51,946
157,965
87,059
Land closing gross profit/(loss)
1,447
(380
)
1,622
(257
)
Total closing gross profit
95,052
51,566
159,587
86,802
Financial Services:
Revenue
1,434
-
2,276
-
Expense
(755
)
(142
)
(1,328
)
(167
)
Earnings from financial services unconsolidated entities and other, net
3,486
2,319
6,273
3,925
Financial services profit
4,165
2,177
7,221
3,758
Commissions and other sales costs
(31,180
)
(23,118
)
(57,059
)
(42,095
)
General and administrative expenses
(22,451
)
(16,516
)
(42,175
)
(31,237
)
Loss from other unconsolidated entities, net
(120
)
(91
)
(275
)
(274
)
Interest expense
(4,523
)
(6,338
)
(9,651
)
(13,709
)
Other income, net
685
934
1,155
795
Loss on early extinguishment of debt
(3,096
)
(5,772
)
(3,796
)
(5,772
)
Earnings/(loss) before income taxes
38,532
2,842
55,007
(1,732
)
(Provision for)/benefit from income taxes
(10,389
)
5,163
(14,823
)
4,983
Net earnings
$
28,143
$
8,005
$
40,184
$
3,251
Earnings per share:
Basic
Earnings per share
$
0.78
$
0.24
$
1.12
$
0.10
Weighted average shares outstanding
36,151
32,755
35,976
32,694
Diluted
Earnings per share
$
0.74
$
0.24
$
1.06
$
0.10
Weighted average shares outstanding
38,758
33,104
38,662
33,086
Meritage Homes Corporation and Subsidiaries
Consolidated Balance Sheets
(In thousands)
(unaudited)
June 30, 2013
December 31, 2012
Assets:
Cash and cash equivalents
$
218,019
$
170,457
Investments and securities
91,988
86,074
Restricted cash
43,265
38,938
Other receivables
30,246
20,290
Real estate (1)
1,227,229
1,113,187
Deposits on real estate under option or contract
21,712
14,351
Investments in unconsolidated entities
10,698
12,085
Property and equipment, net
17,013
15,718
Deferred tax asset
77,279
77,974
Prepaid expenses and other assets
30,028
26,488
Total assets
$
1,767,477
$
1,575,562
Liabilities:
Accounts payable
$
68,662
$
49,801
Accrued liabilities
124,353
96,377
Home sale deposits
25,566
12,377
Senior, senior subordinated, convertible senior notes and other borrowings
798,215
722,797
Total liabilities
1,016,796
881,352
Stockholders' Equity:
Preferred stock, par value $0.01.
-
-
Common stock, par value $0.01.
362
356
Additional paid-in capital
406,530
390,249
Retained earnings
343,789
303,605
Total stockholders' equity
750,681
694,210
Total liabilities and stockholders' equity
$
1,767,477
$
1,575,562
(1) Real estate -Allocated costs:
Homes under contract under construction
$
304,159
$
192,948
Unsold homes, completed and under construction
96,076
107,466
Model homes
70,596
62,411
Finished home sites and home sites under development
644,315
634,106
Land held for development
57,650
56,118
Land held for sale
15,104
21,650
Communities in mothball status
39,329
38,488
Total real estate
$
1,227,229
$
1,113,187
Supplemental Information and Non-GAAP Financial Disclosures (In thousands - unaudited):
Three Months Ended June 30,
Six Months Ended June 30,
2013
2012
2013
2012
Depreciation and amortization
$
2,500
$
1,921
$
4,658
$
3,614
Summary of Capitalized Interest:
Capitalized interest, beginning of period
$
24,198
$
15,908
$
21,600
$
14,810
Interest incurred
12,642
11,318
25,368
22,165
Interest expensed
(4,523
)
(6,338
)
(9,651
)
(13,709
)
Interest amortized to cost of home, land closings and impairments
(6,023
)
(3,052
)
(11,023
)
(5,430
)
Capitalized interest, end of period
$
26,294
$
17,836
$
26,294
$
17,836
June 30, 2013
December 31, 2012
Notes payable and other borrowings
$
798,215
$
722,797
Less: cash and cash equivalents, restricted cash, and investments and securities
(353,272
)
(295,469
)
Net debt
444,943
427,328
Stockholders' equity
750,681
694,210
Total capital
$
1,195,624
$
1,121,538
Net debt-to-capital
37.2
%
38.1
%
Meritage Homes Corporation and Subsidiaries
Consolidated Statements of Cash Flows
(In thousands) (unaudited)
Six Months Ended June 30,
2013
2012
Cash flows from operating activities:
Net earnings
$
40,184
$
3,251
Adjustments to reconcile net earnings to net cash used in operating activities:
Depreciation and amortization
4,658
3,614
Stock-based compensation
3,941
3,273
Loss on early extinguishment of debt
3,796
5,772
Excess income tax benefit from stock-based awards
(1,687
)
-
Equity in earnings from unconsolidated entities
(5,998
)
(3,651
)
Deferred tax asset valuation benefit
(3,057
)
(7,705
)
Distribution of earnings from unconsolidated entities
7,236
2,995
Other
4,022
1,202
Changes in assets and liabilities:
Increase in real estate
(113,992
)
(140,662
)
(Increase)/decrease in deposits on real estate under option or contract
(7,361
)
424
(Increase)/decrease in receivables and prepaid expenses and other assets
(13,167
)
1,758
Increase in accounts payable and accrued liabilities
48,715
20,934
Increase in home sale deposits
13,189
3,888
Net cash used in operating activities
(19,521
)
(104,907
)
Cash flows from investing activities:
Investments in unconsolidated entities
(116
)
(405
)
Distributions of capital from unconsolidated entities
74
-
Purchases of property and equipment
(5,787
)
(4,383
)
Proceeds of sales from property and equipment
32
364
Maturities of investments and securities
71,024
120,201
Payments to purchase investments and securities
(76,938
)
(76,502
)
Increase in restricted cash
(4,327
)
(6,962
)
Net cash (used in)/provided by investing activities
(16,038
)
32,313
Cash flows from financing activities:
Repayments of senior and senior subordinated notes
(102,822
)
(315,080
)
Proceeds from issuance of senior notes
175,000
300,000
Debt issuance costs
(1,403
)
(5,334
)
Excess income tax benefit from stock-based awards
1,687
-
Non-controlling interest acquisition
(257
)
-
Proceeds from stock option exercises
10,916
1,222
Net cash (used in)/provided by financing activities
83,121
(19,192
)
Net increase/(decrease) in cash and cash equivalents
47,562
(91,786
)
Beginning cash and cash equivalents
170,457
173,612
Ending cash and cash equivalents (2)
$
218,019
$
81,826
(2) Ending cash and cash equivalents as of June 30, 2013 and December 31, 2012 excludes investments and securities and restricted cash totaling $135 million and $125 million, respectively.
Meritage Homes Corporation and Subsidiaries
Operating Data
(Dollars in thousands)
(unaudited)
Three Months Ended
June 30, 2013
June 30, 2012
Homes
Value
Homes
Value
Homes Closed:
Arizona
251
$
79,736
208
$
54,772
California
297
124,818
148
50,521
Colorado
100
37,001
80
26,877
Nevada
21
5,086
11
2,093
West Region
669
246,641
447
134,263
Texas
449
116,970
439
101,744
Central Region
449
116,970
439
101,744
Carolinas
51
19,273
26
9,507
Florida
152
53,156
130
35,826
East Region
203
72,429
156
45,333
Total
1,321
$
436,040
1,042
$
281,340
Homes Ordered:
Arizona
334
$
105,683
260
$
70,331
California
251
113,561
279
100,432
Colorado
121
53,278
87
28,774
Nevada
1
289
31
5,615
West Region
707
272,811
657
205,152
Texas
641
183,509
482
117,028
Central Region
641
183,509
482
117,028
Carolinas
77
31,604
40
14,053
Florida
212
85,468
174
49,596
East Region
289
117,072
214
63,649
Total
1,637
$
573,392
1,353
$
385,829
Six Months Ended
June 30, 2013
June 30, 2012
Homes
Value
Homes
Value
Homes Closed:
Arizona
443
$
136,885
350
$
93,671
California
525
215,460
245
83,827
Colorado
194
69,205
144
48,177
Nevada
37
8,655
17
3,289
West Region
1,199
430,205
756
228,964
Texas
803
207,675
756
173,395
Central Region
803
207,675
756
173,395
Carolinas
91
33,488
44
16,054
Florida
280
95,382
245
66,949
East Region
371
128,870
289
83,003
Total
2,373
$
766,750
1,801
$
485,362
Homes Ordered:
Arizona
652
$
203,391
509
$
129,943
California
565
247,192
466
163,079
Colorado
262
110,073
178
59,087
Nevada
24
5,795
39
7,071
West Region
1,503
566,451
1,192
359,180
Texas
1,144
314,639
945
225,891
Central Region
1,144
314,639
945
225,891
Carolinas
146
58,490
73
26,132
Florida
391
154,215
287
82,955
East Region
537
212,705
360
109,087
Total
3,184
$
1,093,795
2,497
$
694,158
Order Backlog:
Arizona
458
$
147,322
317
$
81,504
California
355
156,320
303
106,900
Colorado
210
90,957
104
34,403
Nevada
1
245
27
4,858
West Region
1,024
394,844
751
227,665
Texas
841
239,281
585
145,990
Central Region
841
239,281
585
145,990
Carolinas
104
42,343
53
18,694
Florida
314
129,843
222
65,301
East Region
418
172,186
275
83,995
Total
2,283
$
806,311
1,611
$
457,650
Meritage Homes Corporation and Subsidiaries
Operating Data
(unaudited)
Three Months Ended
June 30, 2013
June 30, 2012
Beg.
End
Beg.
End
Active Communities:
Arizona
40
36
32
32
California
15
13
21
20
Colorado
11
12
8
8
Nevada
-
-
2
2
West Region
66
61
63
62
Texas
69
71
67
68
Central Region
69
71
67
68
Carolinas
11
13
4
5
Florida
22
20
16
16
East Region
33
33
20
21
Total
168
165
150
151
Six Months Ended
June 30, 2013
June 30, 2012
Beg.
End
Beg.
End
Active Communities:
Arizona
38
36
37
32
California
17
13
20
20
Colorado
12
12
10
8
Nevada
1
-
2
2
West Region
68
61
69
62
Texas
65
71
67
68
Central Region
65
71
67
68
Carolinas
7
13
3
5
Florida
18
20
18
16
East Region
25
33
21
21
Total
158
165
157
151
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 June 30, 2013, the company had 165 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; 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 plans to expand the Company's footprint and allocate capital to existing markets, and management's projected home closing revenue and earnings per diluted 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.
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