Meritage Homes reports Q3 net earnings of US$38.2M, up from US$6.8M a year earlier, on home closing revenue up 44% to US$483.1M; company confident housing market will continue growing for foreseeable future, but growth may be slower than 2012, says CEO
Allison Oesterle
SCOTTSDALE, Arizona
,
October 23, 2013
(press release)
–
Diluted EPS of $0.99 on 44% Increase in Home Closing Revenue
Meritage Homes Corporation (NYSE: MTH), a leading U.S. homebuilder, today announced its third quarter results for the period ended September 30, 2013.
Summary Operating Results (unaudited)
(Dollars in thousands, except per share amounts)
Three Months Ended September 30
Nine Months Ended September 30
2013
2012
%Chg
2013
2012
%Chg
Homes closed (units)
1,418
1,197
18
%
3,791
2,998
26
%
Home closing revenue
$
483,147
$
334,880
44
%
$
1,249,897
$
820,242
52
%
Average sales price - closings
$
341
$
280
22
%
$
330
$
274
20
%
Home orders (units)
1,300
1,204
8
%
4,484
3,701
21
%
Home order value
$
473,924
$
366,752
29
%
$
1,567,719
$
1,060,910
48
%
Average sales price - orders
$
365
$
305
20
%
$
350
$
287
22
%
Ending backlog (units)
2,190
1,618
35
%
Ending backlog value
$
805,580
$
489,522
65
%
Average sales price - backlog
$
368
$
303
22
%
Net earnings
$
38,191
$
6,784
463
%
$
78,375
$
10,035
681
%
Diluted EPS
$
0.99
$
0.19
421
%
$
2.05
$
0.30
583
%
MANAGEMENT COMMENTS
"We are pleased with the strong operating results we achieved again this quarter, including our highest level of home closings and closing revenue in the last five years, and our highest gross margin in more than seven years, with a 44% increase in home closing revenue and a 420 basis point improvement in home closing gross margin," said Steven J. Hilton, chairman and chief executive officer of Meritage Homes. "We are focused on delivering earnings growth by leveraging our operating structure in addition to growing our top line. This was our seventh consecutive quarter in which we increased net earnings year-over-year.
"The pace of sales per community slowed somewhat in the third quarter, reflecting the effects of home price inflation over the past year and the increase in interest rates we experienced just before and during the seasonally slower summer months, resulting in an 8% year-over-year increase in orders," explained Mr. Hilton. "Since the underlying demand drivers remain solidly positive amidst a shortage of homes on the market, we are confident that the housing market can continue to grow for the foreseeable future, though maybe not at the same rate we enjoyed last year and earlier this year.
"We strategically expanded into another new market this quarter with our acquisition of Phillips Builders in the Nashville market, which we plan to grow significantly over the next several years. We acquired 500 lots with that acquisition and also contracted for an additional 3,700 new lots during the quarter to add new communities and support sales growth," continued Mr. Hilton. "Evidencing our confidence in the long-term demand for housing, we are continuing to evaluate additional opportunities to enter new markets while we expand within our existing markets."
STRONG EARNINGS GROWTH
CONTINUED ORDER GROWTH
YEAR TO DATE RESULTS
BALANCE SHEET STRENGTH
SUMMARY
"The recovery in the housing market that began last year drove strong sales growth and price appreciation through the middle of this year, until buyers reacted to successive price increases and higher interest rates by pausing their purchasing decisions, thereby moderating the demand for new homes," explained Steve Hilton. "In some ways, the slower pace of sales seen in the third quarter is healthy for the market, allowing subcontractors and suppliers to catch up before the next spring selling season, and taking some upward pressure off costs.
"Meritage is well positioned with highly desirable locations and distinctive, energy-efficient homes in many of the best housing markets in the country, which have produced some of the best sales and earnings strength during the recovery to date," he continued. "We now control all of the lots we need to satisfy our projected closings through 2014 and approximately 85% of our projected 2015 closings. Our growth strategy and operating leverage should enable us to continue to drive earnings growth throughout this next housing cycle.
"Based on our reported results year to date and assuming continued strength in our markets, we have revised our models and are projecting home closing revenue of approximately $1.8 billion for 2013, with projected earnings per diluted share in the range of $2.95-$3.05 for the year."
CONFERENCE CALL
Management will host a conference call today to discuss the Company's third 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 registration link: http://dpregister.com/10034963.
Telephone participants who are unable to pre-register may dial in to 888-317-6016 on the day of the call. International dial-in number is 1-412-317-6016.
A replay of the call will be available for fifteen days, beginning at 12:30 p.m. ET on October 23, 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 September 30
Nine Months Ended September 30
2013
2012
2013
2012
Homebuilding:
Home closing revenue
$
483,147
$
334,880
$
1,249,897
$
820,242
Land closing revenue
8,933
7,763
28,568
8,846
Total closing revenue
492,080
342,643
1,278,465
829,088
Cost of home closings
(372,772
)
(272,726
)
(981,557
)
(671,029
)
Cost of land closings
(6,126
)
(7,493
)
(24,139
)
(8,833
)
Total cost of closings
(378,898
)
(280,219
)
(1,005,696
)
(679,862
)
Home closing gross profit
110,375
62,154
268,340
149,213
Land closing gross profit
2,807
270
4,429
13
Total closing gross profit
113,182
62,424
272,769
149,226
Financial Services:
Revenue
1,684
253
3,960
253
Expense
(901
)
(317
)
(2,229
)
(484
)
Earnings from financial services unconsolidated entities and other, net
3,511
3,049
9,784
6,974
Financial services profit
4,294
2,985
11,515
6,743
Commissions and other sales costs
(33,467
)
(25,855
)
(90,526
)
(67,950
)
General and administrative expenses
(24,412
)
(19,209
)
(66,587
)
(50,446
)
Earnings/(loss) from other unconsolidated entities, net
46
(74
)
(229
)
(348
)
Interest expense
(3,462
)
(5,009
)
(13,113
)
(18,718
)
Other income/(expense), net
605
(8,276
)
1,760
(7,481
)
Loss on early extinguishment of debt
-
-
(3,796
)
(5,772
)
Earnings before income taxes
56,786
6,986
111,793
5,254
(Provision for)/benefit from income taxes
(18,595
)
(202
)
(33,418
)
4,781
Net earnings
$
38,191
$
6,784
$
78,375
$
10,035
Earnings per share:
Basic
Earnings per share
$
1.05
$
0.19
$
2.17
$
0.30
Weighted average shares outstanding
36,226
35,216
36,060
33,541
Diluted
Earnings per share
$
0.99
$
0.19
$
2.05
$
0.30
Weighted average shares outstanding
38,865
35,761
38,771
34,010
Meritage Homes Corporation and Subsidiaries
Consolidated Balance Sheets
(In thousands)
(unaudited)
September 30, 2013
December 31, 2012
Assets:
Cash and cash equivalents
$
177,584
$
170,457
Investments and securities
92,846
86,074
Restricted cash
40,904
38,938
Other receivables
35,711
20,290
Real estate (1)
1,345,214
1,113,187
Real estate not owned
481
-
Deposits on real estate under option or contract
34,911
14,351
Investments in unconsolidated entities
10,662
12,085
Property and equipment, net
18,690
15,718
Deferred tax asset
80,390
77,974
Prepaid expenses and other assets
36,693
26,488
Total assets
$
1,874,086
$
1,575,562
Liabilities:
Accounts payable
$
76,647
$
49,801
Accrued liabilities
178,247
96,377
Home sale deposits
28,183
12,377
Liabilities related to real estate not owned
346
-
Senior, senior subordinated, convertible senior notes and other borrowings
798,337
722,797
Total liabilities
1,081,760
881,352
Stockholders' Equity:
Preferred stock, par value $0.01
-
-
Common stock, par value $0.01
362
356
Additional paid-in capital
409,984
390,249
Retained earnings
381,980
303,605
Total stockholders' equity
792,326
694,210
Total liabilities and stockholders' equity
$
1,874,086
$
1,575,562
(1)Real estate -Allocated costs:
Homes under contract under construction
$
316,508
$
192,948
Unsold homes, completed and under construction
123,602
107,466
Model homes
78,017
62,411
Finished home sites and home sites under development
721,492
634,106
Land held for development
53,053
56,118
Land held for sale
19,630
21,650
Communities in mothball status
32,912
38,488
Total real estate
$
1,345,214
$
1,113,187
Supplemental Information and Non-GAAP Financial Disclosures (In thousands - unaudited):
Three Months Ended September 30
Nine Months Ended September 30
2013
2012
2013
2012
Depreciation and amortization
$
2,511
$
2,299
$
7,169
$
5,913
Summary of Capitalized Interest:
Capitalized interest, beginning of period
$
26,294
$
17,836
$
21,600
$
14,810
Interest incurred
12,508
11,654
37,876
33,819
Interest expensed
(3,462
)
(5,009
)
(13,113
)
(18,718
)
Interest amortized to cost of home, land closings and impairments
(6,342
)
(4,296
)
(17,365
)
(9,726
)
Capitalized interest, end of period
$
28,998
$
20,185
$
28,998
$
20,185
September 30, 2013
December 31, 2012
Notes payable and other borrowings
$
798,337
$
722,797
Less: cash and cash equivalents, restricted cash, and investments and securities
(311,334
)
(295,469
)
Net debt
487,003
427,328
Stockholders' equity
792,326
694,210
Total capital
$
1,279,329
$
1,121,538
Net debt-to-capital
38.1
%
38.1
%
Meritage Homes Corporation and Subsidiaries
Consolidated Statements of Cash Flows
(In thousands) (unaudited)
Nine Months Ended September 30
2013
2012
Cash flows from operating activities:
Net earnings
$
78,375
$
10,035
Adjustments to reconcile net earnings to net cash used in operating activities:
Depreciation and amortization
7,169
5,913
Stock-based compensation
7,040
6,095
Loss on early extinguishment of debt
3,796
5,772
Excess income tax benefit from stock-based awards
(1,733
)
-
Equity in earnings from unconsolidated entities
(9,555
)
(6,626
)
Deferred tax asset valuation benefit
(4,614
)
(7,709
)
Distribution of earnings from unconsolidated entities
10,796
6,118
Other
3,071
1,976
Changes in assets and liabilities:
Increase in real estate
(221,668
)
(190,509
)
(Increase)/decrease in deposits on real estate under option or contract
(20,425
)
2,192
Increase in receivables and prepaid expenses and other assets
(14,224
)
(1,882
)
Increase in accounts payable and accrued liabilities
106,862
31,204
Increase in home sale deposits
15,584
5,169
Net cash used in operating activities
(39,526
)
(132,252
)
Cash flows from investing activities:
Purchases of property and equipment
(9,717
)
(7,139
)
Maturities of investments and securities
132,900
190,701
Payments to purchase investments and securities
(139,672
)
(109,798
)
Other
(20,334
)
(3,020
)
Net cash (used in)/provided by investing activities
(36,823
)
70,744
Cash flows from financing activities:
Repayments of senior and senior subordinated notes
(102,822
)
(315,080
)
Proceeds from issuance of senior notes
175,000
426,500
Proceeds from sale of common stock, net
-
87,125
Other
11,298
(5,600
)
Net cash provided by financing activities
83,476
192,945
Net increase in cash and cash equivalents
7,127
131,437
Beginning cash and cash equivalents
170,457
173,612
Ending cash and cash equivalents (2)
$
177,584
$
305,049
Meritage Homes Corporation and Subsidiaries
Operating Data
(Dollars in thousands)
(unaudited)
Three Months Ended
September 30, 2013
September 30, 2012
Homes
Value
Homes
Value
Homes Closed:
Arizona
301
$
96,562
243
$
59,519
California
259
113,954
244
88,748
Colorado
104
43,033
83
27,639
Nevada
1
245
22
4,113
West Region
665
253,794
592
180,019
Texas
509
136,249
434
104,041
Central Region
509
136,249
434
104,041
Carolinas
62
24,361
40
14,459
Florida
176
66,464
131
36,361
Tennessee
6
2,279
-
-
East Region
244
93,104
171
50,820
Total
1,418
$
483,147
1,197
$
334,880
Homes Ordered:
Arizona
234
$
80,748
229
$
70,315
California
165
84,741
248
94,974
Colorado
96
44,178
88
28,925
Nevada
-
-
22
4,384
West Region
495
209,667
587
198,598
Texas
545
157,868
425
106,116
Central Region
545
157,868
425
106,116
Carolinas
72
28,971
36
12,709
Florida
177
74,312
156
49,329
Tennessee
11
3,106
-
-
East Region
260
106,389
192
62,038
Total
1,300
$
473,924
1,204
$
366,752
Nine Months Ended
September 30, 2013
September 30, 2012
Homes
Value
Homes
Value
Homes Closed:
Arizona
744
$
233,447
593
$
153,190
California
784
329,414
489
172,575
Colorado
298
112,238
227
75,816
Nevada
38
8,900
39
7,402
West Region
1,864
683,999
1,348
408,983
Texas
1,312
343,924
1,190
277,436
Central Region
1,312
343,924
1,190
277,436
Carolinas
153
57,849
84
30,513
Florida
456
161,846
376
103,310
Tennessee
6
2,279
-
-
East Region
615
221,974
460
133,823
Total
3,791
$
1,249,897
2,998
$
820,242
Homes Ordered:
Arizona
886
$
284,139
738
$
200,258
California
730
331,933
714
258,053
Colorado
358
154,251
266
88,012
Nevada
24
5,795
61
11,455
West Region
1,998
776,118
1,779
557,778
Texas
1,689
472,507
1,370
332,007
Central Region
1,689
472,507
1,370
332,007
Carolinas
218
87,461
109
38,841
Florida
568
228,527
443
132,284
Tennessee
11
3,106
-
-
East Region
797
319,094
552
171,125
Total
4,484
$
1,567,719
3,701
$
1,060,910
Order Backlog:
Arizona
391
$
131,508
303
$
92,300
California
261
127,107
307
113,126
Colorado
202
92,102
109
35,689
Nevada
-
-
27
5,129
West Region
854
350,717
746
246,244
Texas
877
260,900
576
148,065
Central Region
877
260,900
576
148,065
Carolinas
114
46,953
49
16,944
Florida
315
137,691
247
78,269
Tennessee
30
9,319
-
-
East Region
459
193,963
296
95,213
Total
2,190
$
805,580
1,618
$
489,522
Meritage Homes Corporation and Subsidiaries
Operating Data
(unaudited)
Three Months Ended
September 30, 2013
September 30, 2012
Beg.
End
Beg.
End
Active Communities:
Arizona
36
39
32
34
California
13
18
20
19
Colorado
12
12
8
8
Nevada
-
-
2
2
West Region
61
69
62
63
Texas
71
73
68
68
Central Region
71
73
68
68
Carolinas
13
15
5
7
Florida
20
19
16
15
Tennessee
-
3
-
-
East Region
33
37
21
22
Total
165
179
151
153
Nine Months Ended
September 30, 2013
September 30, 2012
Beg.
End
Beg.
End
Active Communities:
Arizona
38
39
37
34
California
17
18
20
19
Colorado
12
12
10
8
Nevada
1
-
2
2
West Region
68
69
69
63
Texas
65
73
67
68
Central Region
65
73
67
68
Carolinas
7
15
3
7
Florida
18
19
18
15
Tennessee
-
3
-
-
East Region
25
37
21
22
Total
158
179
157
153
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 September 30, 2013, the company had 179 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; Denver, Colorado; Orlando and Tampa, Florida; Raleigh and Charlotte, North Carolina and Nashville, Tennessee.
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 for continued growth of the housing market, plans to enter new markets and expand in its existing markets, and management's projected home closings, 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.
Contact Information
Contacts:
Brent Anderson
VP Investor Relations
(972) 580-6360 (office)
Brent.Anderson@meritagehomes.com
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