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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%

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 revenue12,155 2,149
Total closing revenue672,772 597,766
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 profit107,268 103,347
Land closing gross profit2,495 449
Total closing gross profit109,763 103,796
Financial Services:
Revenue2,944 2,500
Expense(1,379) (1,246)
Earnings from financial services unconsolidated entities and other, net2,725 2,792
Financial services profit4,290 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, net373 (157)
Interest expense(825) (3,288)
Other income, net1,110 283
Earnings before income taxes36,769 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 outstanding40,178 39,839
Diluted
Earnings per share$0.56 $0.50
Weighted average shares outstanding42,808 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 incurred17,895 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' equity1,448,365 1,421,495
Total capital2,619,791 2,548,809
Debt-to-capital44.7% 44.2%
Notes payable and other borrowings$1,171,426 $1,127,314
Less: cash and cash equivalents$(85,689) $(131,702)
Net debt1,085,737 995,612
Stockholders’ equity1,448,365 1,421,495
Total net capital$2,534,102 $2,417,107
Net debt-to-capital42.8% 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

Source:Meritage Homes Corporation