Meritage Homes Reports Results for the First Quart

SCOTTSDALE, AZ--(Marketwired - Apr 24, 2013) -  Meritage Homes Corporation ( NYSE : MTH ), a leading U.S. homebuilder, today announced first quarter results for the period ended March 31, 2013.

Summary Operating Results (unaudited)
(Dollars in thousands, except per share amounts)
		Three Months Ended March 31,
		2013			2012				%Chg
Homes closed (units)			1,052			759			39	%
Home closing revenue		$	330,710		$	204,022			62	%
Average sales price - closings		$	314		$	269			17	%
Home orders (units)			1,547			1,144			35	%
Home order value		$	520,403		$	308,329			69	%
Average sales price - orders		$	336		$	270			25	%
Ending backlog (units)			1,967			1,300			51	%
Ending backlog value		$	668,959		$	353,161			89	%
Average sales price - backlog		$	340		$	272			25	%
Net income/(loss)		$	12,041		$	(4,754	)		n/m
Diluted EPS		$	0.32		$	(0.15	)		n/m

MANAGEMENT COMMENTS

"We continued to achieve significant gains in virtually every key metric we had targeted and across all of our states during the first quarter of 2013," said Steven J. Hilton, chairman and chief executive officer of Meritage Homes. "We grew our first quarter orders, closings, backlog, average prices, revenue, gross margin and pretax margin significantly over the prior year, with most of those metrics reaching heights we haven't seen for many years. I believe our strong performance is due to sound strategies and operational execution, as well as healthier market conditions evident during this spring selling season.

"Housing demand is greater than the supply of homes available for sale in many of the areas where we operate, causing home prices to increase," Mr. Hilton explained. "To meet the higher demand, we opened 24 new communities during the first quarter and also grew our active community count to its highest point in almost four years. In addition, our 9.5 orders per average community for the quarter was a 27% increase over 2012 even as we raised prices in many communities. As a result, we received orders for 35% more homes for a 69% increase in total order value compared to the first quarter of 2012. We are pricing our homes and limiting the number of lots we're releasing for sale in some communities to better manage our order volumes relative to our production capacity, and to maximize our profit from those communities."

STRONG GROWTH

• Meritage ended the quarter with 168 active communities, up from 150 at March 31, 2012, and 158 at the end of 2012.
• Meritage has established a solid position in its new Carolinas market since opening at the end of 2011, and ended the first quarter of 2013 with 11 actively selling communities, up from four at March 31, 2012.
• Orders per average community increased to 9.5 for the first quarter of 2013 from 7.5 in the prior year period.
• Order cancellation rate declined in the first quarter to 11% in 2013, compared to 15% in the first quarter of 2012.
• Closings and revenue, orders and order value, and ending backlog increased in every state over the first quarter of 2012. California led in most areas with a 172% increase in closing revenue, a 113% increase in total order value, and the company's highest average prices and orders per community for the first quarter of 2013.
• Average sales prices for home orders reached their highest point since the fourth quarter of 2005, largely reflective of the continuing shift in orders toward the states where Meritage's average home prices are highest, in California, Colorado, the Carolinas and Florida. Those four states made up 45% of the company's first quarter 2013 orders and 55% of the total order value, increasing from 37% of total orders and 45% of total order value in the first quarter last year.

OPERATING LEVERAGE

• Net income increased by $16.8 million for the first quarter to $12.0 million or $0.32 per diluted share, from a loss of $4.8 million or ($0.15) per share in the first quarter of 2012, primarily due to higher home closing revenue and gross margins, supplemented by leveraging overhead expenses.
• Home closing revenue increased 62% over the prior year as a result of 39% more closings and a 17% increase in the average price of homes closed during the quarter.
• Home closing gross margin increased to 19.5% in the first quarter of 2013, from 17.2% in the first quarter of 2012 and 18.9% in the fourth quarter of 2012.
• Commissions and other sales costs in the first quarter decreased as a percentage of home closing revenue to 7.8% in 2013 from 9.3% in 2012.
• General and administrative expenses declined to 5.9% of first quarter revenue in 2013, from 7.2% in 2012, as revenue grew at nearly twice the rate of increase in general and administrative expenses.
• Interest expense declined to 1.5% of first quarter revenue in 2013 compared to 3.6% in 2012.
• As a result, first quarter pre-tax margin increased 710 bps to 4.9% in 2013 from (2.2%) in 2012, or $16.5 million in 2013 pre-tax income compared to a pre-tax loss of $4.6 million in 2012.

BALANCE SHEET STRENGTH

• Meritage replenished its land pipeline by spending approximately $75 million on land acquisition and development in the first quarter of 2013, and added approximately 1,600 lots under contract during the quarter.
• Total lot supply at the end of the quarter was approximately 21,000, compared to approximately 17,200 a year earlier. Based on trailing twelve months closings, the March 31, 2013 balance represents a 4.6 year supply of lots.
• In March, Meritage issued $175 million of 4.50% senior notes due 2018, in anticipation of retiring $100 million of 7.731% notes due 2017, thereby securing $75 million of additional capital for growth with minimal added interest expense. Of the $100 million 7.731% issue, $17 million was retired in the first quarter and the remaining $83 million balance was retired in the second quarter of 2013.
• The company ended the first quarter of 2013 with $453 million in cash and cash equivalents, restricted cash and securities, an increase of $176 million over the March 31, 2012 total of $277 million. Net debt to total capital ratio decreased to 37.6% at March 31, 2013, from 40.4% at March 31, 2012.

SUMMARY

"We believe job growth in most of our markets has increased demand for homes, and the limited supply of available resale homes has driven more prospective home buyers to new construction. Existing homeowners are also choosing to take advantage of historically low interest rates and very affordable prices to trade up, increasing the demand for new homes in already constrained markets," said Mr. Hilton. "We expect increasing prices to help regulate orders to some degree, but we believe the homebuilding market is poised for continued growth for years to come, and Meritage is well positioned to capture much of that growth.

"Based on our projections for opening new communities, coupled with a modest increase in average sales per community and higher average sales prices, we are projecting approximately a 40-45% year-over-year increase in home closing revenue for each of the three remaining quarters of 2013. Assuming some additional improvement in margins -- which are being somewhat constrained by rising construction costs -- and the operating leverage demonstrated in our first quarter results, we would anticipate earnings per diluted share in the range of $2.20-$2.45 for the year, representing a 350%-400% increase in pretax earnings."

CONFERENCE CALL

Management will host a conference call today to discuss the Company's first 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/DiamondPassReg...213bae13e1

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 April 24, 2013 on the website noted above, or by dialing 877-344-7529 , and referencing conference number 10027059. For more information, visit meritagehomes.com.

Meritage Homes Corporation and Subsidiaries
Operating Results
(Unaudited)
(In thousands, except per share data)
						Three Months Ended March 31,
						2013				2012
Homebuilding:
	Home closing revenue					$	330,710			$	204,022
	Land closing revenue						5,725				328
		Total closing revenue					336,435				204,350
	Cost of home closings						(266,350	)			(168,909	)
	Cost of land closings						(5,550	)			(205	)
		Total cost of closings					(271,900	)			(169,114	)
	Home closing gross profit						64,360				35,113
	Land closing gross profit						175				123
		Total closing gross profit					64,535				35,236
Financial Services:
	Revenue						842				--
	Expense						(573	)			(25	)
	Earnings from financial services unconsolidated entities and other, net						2,787				1,606
			Financial services profit				3,056				1,581
Commissions and other sales costs							(25,879	)			(18,977	)
General and administrative expenses							(19,724	)			(14,721	)
Loss from other unconsolidated entities, net							(155	)			(183	)
Interest expense							(5,128	)			(7,371	)
Other income/(expense), net							470				(139	)
Loss on early extinguishment of debt							(700	)			--
Income/(loss) before income taxes							16,475				(4,574	)
Provision for income taxes							(4,434	)			(180	)
Net income/(loss)						$	12,041			$	(4,754	)
Income/(loss) per share:
	Basic
				Income/(loss) per share		$	0.34			$	(0.15	)
				Weighted average shares outstanding			35,798				32,634
	Diluted
				Income/(loss) per share		$	0.32			$	(0.15	)
				Weighted average shares outstanding			38,440				32,634

Meritage Homes Corporation and Subsidiaries
Condensed Consolidated Balance Sheets
(In thousands)
(unaudited)
					March 31, 2013			December 31, 2012
Assets:
	Cash and cash equivalents				$	325,021		$	170,457
	Investments and securities					88,901			86,074
	Restricted cash					38,938			38,938
	Other receivables					23,885			20,290
	Real estate (1)					1,152,139			1,113,187
	Deposits on real estate under option or contract					11,321			14,351
	Investments in unconsolidated entities					10,949			12,085
	Property and equipment, net					16,352			15,718
	Deferred tax asset					74,407			77,974
	Prepaid expenses and other assets					29,072			26,488
		Total assets			$	1,770,985		$	1,575,562
Liabilities:
	Accounts payable				$	60,283		$	49,801
	Accrued liabilities					100,102			96,377
	Home sale deposits					17,744			12,377
	Senior, senior subordinated, convertible senior notes and other borrowings					881,219			722,797
			Total liabilities			1,059,348			881,352
Stockholders' Equity:
	Preferred stock, par value $0.01. Authorized 10,000,000 shares; none issued and outstanding at March 31, 2013 and December 31, 2012					--			--
	Common stock, par value $0.01. Authorized 125,000,000 shares; issued 36,010,224 and 35,613,351 shares at March 31, 2013 and December 31, 2012, respectively					360			356
	Additional paid-in capital					395,631			390,249
	Retained earnings					315,646			303,605
			Total stockholders' equity			711,637			694,210
		Total liabilities and stockholders' equity			$	1,770,985		$	1,575,562
(1) Real estate - Allocated costs:
	Homes under contract under construction				$	247,682		$	192,948
	Unsold homes, completed and under construction					105,094			107,466
	Model homes					64,783			62,411
	Finished home sites and home sites under development					617,507			634,106
	Land held for development					57,081			56,118
	Land held for sale					22,430			21,650
	Communities in mothball status					37,562			38,488
			Total real estate		$	1,152,139		$	1,113,187

Supplemental Information and Non-GAAP Financial Disclosures (In thousands - unaudited):
			Three Months Ended March 31,
			2013				2012
Depreciation and amortization			$	2,158			$	1,693
Summary of Capitalized Interest:
Capitalized interest, beginning of period			$	21,600			$	14,810
Interest incurred				12,726				10,847
Interest expensed				(5,128	)			(7,371	)
Interest amortized to cost of home, land closings and impairments				(5,000	)			(2,378	)
Capitalized interest, end of period			$	24,198			$	15,908
			March 31, 2013				December 31, 2012
Notes payable and other borrowings			$	881,219			$	722,797
	Less: cash and cash equivalents, restricted cash, and investments and securities			(452,860	)			(295,469	)
Net debt				428,359				427,328
Stockholders' equity				711,637				694,210
Total capital			$	1,139,996			$	1,121,538
Net debt-to-capital				37.6	%			38.1	%

Meritage Homes Corporation and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(In thousands)
(unaudited)
					Three Months Ended March 31,
					2013				2012
Cash flows from operating activities:
	Net income/(loss)				$	12,041			$	(4,754	)
	Adjustments to reconcile net income/(loss) to net cash provided by/(used in) operating activities:
		Depreciation and amortization				2,158				1,693
		Stock-based compensation				1,844				1,653
		Loss on early extinguishment of debt				700				--
		Excess income tax benefit from stock-based awards				(464	)			--
		Equity in earnings from unconsolidated entities				(2,632	)			(1,423	)
		Distribution of earnings from unconsolidated entities				3,722				1,252
		Other				3,632				313
	Changes in assets and liabilities:
		Increase in real estate				(38,876	)			(52,722	)
		Decrease in deposits on real estate under option or contract				3,030				99
		(Increase)/decrease in receivables and prepaid expenses and other assets				(5,312	)			1,355
		Increase/(decrease) in accounts payable and accrued liabilities				14,671				(5,210	)
		Increase in home sale deposits				5,367				2,382
			Net cash used in operating activities			(119	)			(55,362	)
Cash flows from investing activities:
	Investments in unconsolidated entities					(28	)			(130	)
	Distributions of capital from unconsolidated entities					74				--
	Purchases of property and equipment					(2,704	)			(2,336	)
	Proceeds of sales from property and equipment					33				350
	Maturities of investments and securities					43,999				50,000
	Payments to purchase investments and securities					(46,826	)			(76,503	)
	Increase in restricted cash					--				(83	)
			Net cash used in investing activities			(5,452	)			(28,702	)
Cash flows from financing activities:
	Repayments of senior subordinated notes					(17,264	)			--
	Proceeds from issuance of new debt					175,000				--
	Debt issuance costs					(1,143	)			--
	Excess income tax benefit from stock-based awards					464				--
	Proceeds from stock option exercises					3,078				1,055
			Net cash provided by financing activities			160,135				1,055
Net increase/(decrease) in cash						154,564				(83,009	)
Beginning cash and cash equivalents						170,457				173,612
Ending cash and cash equivalents (2)					$	325,021			$	90,603

(2) Ending cash and cash equivalents as of March 31, 2013 and December 31, 2012 excludes investments and securities and restricted cash totaling $128 million and $125 million, respectively.

Meritage Homes Corporation and Subsidiaries
Operating Data
(Dollars in thousands)
(unaudited)
			Three Months Ended
			March 31, 2013					March 31, 2012
			Homes		Value			Homes		Value
Homes Closed:
	Arizona		192		$	57,149		142		$	38,899
	California		228			90,642		97			33,306
	Colorado		94			32,204		64			21,300
	Nevada		16			3,569		6			1,196
	West Region		530			183,564		309			94,701
	Texas		354			90,705		317			71,651
	Central Region		354			90,705		317			71,651
	Carolinas		40			14,215		18			6,547
	Florida		128			42,226		115			31,123
	East Region		168			56,441		133			37,670
	Total		1,052		$	330,710		759		$	204,022
Homes Ordered:
	Arizona		318		$	97,708		249		$	59,612
	California		314			133,631		187			62,647
	Colorado		141			56,795		91			30,313
	Nevada		23			5,506		8			1,456
	West Region		796			293,640		535			154,028
	Texas		503			131,130		463			108,863
	Central Region		503			131,130		463			108,863
	Carolinas		69			26,886		33			12,079
	Florida		179			68,747		113			33,359
	East Region		248			95,633		146			45,438
	Total		1,547		$	520,403		1,144		$	308,329

Order Backlog:
	Arizona		375		$	121,375		265		$	65,945
	California		401			167,577		172			56,989
	Colorado		189			74,680		97			32,506
	Nevada		21			5,042		7			1,336
	West Region		986			368,674		541			156,776
	Texas		649			172,742		542			130,706
	Central Region		649			172,742		542			130,706
	Carolinas		78			30,012		39			14,148
	Florida		254			97,531		178			51,531
	East Region		332			127,543		217			65,679
	Total		1,967		$	668,959		1,300		$	353,161

Meritage Homes Corporation and Subsidiaries
Operating Data
(unaudited)
			Three Months Ended
			March 31, 2013				March 31, 2012
			Beg.		End		Beg.		End
Active Communities:
	Arizona		38		40		37		32
	California		17		15		20		21
	Colorado		12		11		10		8
	Nevada		1		--		2		2
	West Region		68		66		69		63
	Texas		65		69		67		67
	Central Region		65		69		67		67
	Carolinas		7		11		3		4
	Florida		18		22		18		16
	East Region		25		33		21		20
	Total		158		168		157		150

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 March 31, 2013, the company had 168 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; Las Vegas, 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 expectations that increasing prices will help regulate demand for new homes and maximize profit from communities, that the homebuilding market is poised for years of continued growth, that Meritage is positioned to capture additional market growth, and management's projected revenue, pretax earnings and earnings per 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.