MTH Meritage Homes Corp

Meritage Homes Corporation (NYSE: MTH), a leading U.S. homebuilder, announced today second quarter results for the period ended June 30, 2015.

          Summary Operating Results (unaudited) (Dollars in thousands, except per share amounts)   Three Months Ended June 30, Six Months Ended June 30, 2015     2014     %Chg 2015     2014     %Chg Homes closed (units) 1,556 1,368 14 % 2,891 2,477 17 % Home closing revenue $ 591,027 $ 502,800 18 % $ 1,108,300 $ 908,579 22 % Average sales price - closings $ 380 $ 368 3 % $ 383 $ 367 5 % Home orders (units) 1,986 1,647 21 % 3,965 3,172 25 % Home order value $ 775,815 $ 618,435 25 % $ 1,558,627 $ 1,173,475 33 % Average sales price - orders $ 391 $ 375 4 % $ 393 $ 370 6 % Ending backlog (units) 3,188 2,548 25 % Ending backlog value $ 1,296,779 $ 951,568 36 % Average sales price - backlog $ 407 $ 373 9 % Net earnings $ 29,133 $ 35,079 (17 )% $ 45,533 $ 60,456 (25 )% Diluted EPS $ 0.70 $ 0.85 (18 )% $ 1.10 $ 1.48 (26 )%  

MANAGEMENT COMMENTS

“We achieved significant year-over-year growth in the second quarter of 2015, with an 18% increase in home closing revenue, a 21% increase in orders and a 36% increase in our total backlog value,” said Steven J. Hilton, chairman and chief executive officer of Meritage Homes. “Our earnings of $0.70 per diluted share for the second quarter of 2015 were lower than last year’s $0.85 per diluted share due to a decline in home closing margins from last year’s unusually high level of 21.9%.

“Additionally, our second quarter results were significantly stronger than our first quarter this year, with a 75% increase in earnings per diluted share, driven by a 14% increase in home closing revenue and a 19.3% home closing gross margin, compared to our first quarter 2015 margin of 18.5%. We believe we are on track to achieve our projected target margin of approximately 20% for the full year 2015.”

Mr. Hilton continued, “We’ve more than doubled our actively selling communities in the East region over the last year, which drove most of the growth in our second quarter orders, closings and backlog. Our West and Central regions were impacted by abnormally heavy and persistent rain in Texas and Colorado during much of the second quarter, which caused unavoidable delays in starting and completing homes. Our team is working closely with our contractors to catch up as soon as possible. Even so, we estimate that approximately 200 home closings that were expected this year will be pushed out until next year. As a result, we're adjusting our projections for 2015 home closing revenue to $2.65-2.75 billion -- an increase of 24-28% over 2014 -- compared to our previous expectation for 25-30% growth, and we're estimating earnings per diluted share of $3.60-3.90 for the year, compared to our previous full year guidance of $3.75-4.00.

“The housing market continues to benefit from job growth, increasing household formations, consumer confidence and low interest rates. Considering those factors and our broadened position across many of the best housing markets in the country, our long-term outlook is for continued growth and earnings expansion for Meritage Homes,” concluded Mr. Hilton.

SECOND QUARTER RESULTS

• Net earnings were $29.1 million or $0.70 per diluted share for the second quarter of 2015, compared to $35.1 million or $0.85 per diluted share in the second quarter of 2014, resulting from higher home closing revenue offset by lower gross margins on closings.
• Home closing revenue increased 18% over the prior year’s second quarter, resulting from a 14% increase in home closings and a 3% increase in the average price of homes closed during the quarter. East region home closing revenue grew 77% and the Central region grew 9% year over year, while West region home closing revenue was down 5% due to a 15% decline in Arizona, where our beginning backlog was reduced by weaker demand and orders in the latter half of 2014.
• Home closing gross margin improved sequentially to 19.3% in the second quarter of 2015, up from 18.5% in the first quarter of 2015, though lower than the 21.9% achieved a year ago. High margins in 2014 were driven by home price appreciation that exceeded cost inflation in 2013 through the first half of 2014. Purchase accounting adjustments from the acquisition of Legendary Communities last August reduced second quarter total home closing gross margin by 28 bps.
• General and administrative expenses as a percentage of total second quarter closing revenue decreased slightly to 4.6% from 4.9% in 2015 compared to 2014, while commissions and other sales costs as a percentage of home closing revenue rose slightly in the second quarter to 7.6% in 2015 from 7.2% in 2014.
• Interest expense increased by $3.2 million year over year to 0.8% of second quarter 2015 total closing revenue, compared to 0.3% of second quarter closing revenue in 2014, primarily due to intra-quarter borrowings on the credit facility and the issuance of $200 million of new senior notes in early June 2015.
• The effective tax rate was 30% in the second quarter of 2015 compared to 36% in 2014. The difference was primarily due to a tax benefit of approximately $1.3 million in this year's second quarter for increases in estimated federal energy tax credits from prior years’ home closings.
• Total order value grew 25% to $775.8 million in the second quarter of 2015, compared to $618.4 million in the prior year. Total orders increased 21% and average sales prices rose 4% year over year. The increases were primarily driven by community count growth in the East and West regions over the past year, as well as stronger demand in the West, including Arizona. The two regions grew total order value by 81% and 28%, respectively. Higher sales per average active community in Texas were offset by fewer actively selling communities in 2015 compared to 2014, though Texas is rebuilding and has added seven net new communities in 2015.
• Average orders per active community during the quarter slowed to 8.5 in the second quarter of 2015 compared to 9.0 in 2014, primarily due to the East region, where average orders per community were 6.7 in the second quarter of 2015, compared to 9.0 in the second quarter of 2014. Georgia and South Carolina, acquired from Legendary in the third quarter of 2014, have historically operated at a lower sales velocity than Meritage’s other markets, and Florida has also experienced a slower sales pace in 2015.
• Ending community count at June 30, 2015 was 240, compared to 175 at June 30, 2014. The East region added 59 net new communities including 36 in Georgia and South Carolina combined, associated with the acquisition of Legendary Communities in August 2014. The West region grew by nine net new communities over the prior year’s quarter-end count.
• Ending backlog value at June 30 was 36% higher in 2015 than in 2014, with 25% more units in backlog and a 9% increase in the average price of orders in backlog.

YEAR TO DATE RESULTS

• Net earnings were $45.5 million for the first half of 2015, compared to $60.5 million for the first half of 2014, as a 22% increase in revenue year to date was more than offset by lower home closing gross margins.
• Home closings for the first half of the year increased 17% over 2014, with a 5% increase in average prices.
• Year-to-date home closing gross margin in 2015 was 18.9%, compared to 22.3% for 2014, which exceeded underwriting target levels of approximately 20% due to a rapid rise in home prices in 2013 and early 2014. In contrast, higher land and construction costs in 2015 were not fully offset by modest home price appreciation this year, resulting in reduced margins. Additionally, 2015 home closing margins were negatively impacted by 32 bps due to purchase accounting adjustments on closings from lots acquired from Legendary.
• Total commissions and selling expenses were 7.8% of year-to-date 2015 home closing revenue, compared to 7.4% in 2014, while general and administrative expenses were flat at 5.1% of total closing revenue in both years.

BALANCE SHEET

• The company ended the second quarter of 2015 with $217.0 million in cash and cash equivalents plus investments and securities, compared to $103.3 million at December 31, 2014 and $290.6 million at June 30, 2014. The year-over-year decrease in cash reflects the net impact of increased investments in land and homes under construction, partially offset by the proceeds from a new senior notes offering in June 2015.
• Real estate assets increased to $2.03 billion at June 30, 2015, compared to $1.88 billion at December 31 and $1.64 billion at June 30, 2014.
• Net debt-to-capital ratio at quarter-end was 44.1% compared to 42.9% at December 31, 2014 and 37.6% at June 30, 2014.
• In June 2015, the company issued $200 million of 6.0% senior unsecured notes with a maturity date of June 2025, and also extended the maturity of its $500 million revolving credit facility by one year to July 2019 in order to provide ample liquidity for future growth.
• Total lot supply at the end of the quarter was approximately 29,100, compared to approximately 25,800 a year earlier and 30,300 at year-end 2014. Based on trailing twelve months closings, total lots at June 30, 2015 represented approximately a 4.6 year supply of lots.

CONFERENCE CALL

Management will host a conference call today to discuss the Company's results at 10:30 a.m. Eastern Time (7:30 a.m. Arizona 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/10067831.

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.

A replay of the call will be available through August 12, 2015, beginning at 12:00 p.m. ET on July 29, 2015 on the website noted above, or by dialing 877-344-7529, and referencing conference number 10067831. For more information, visit www.meritagehomes.com.

          Meritage Homes Corporation and Subsidiaries Consolidated Income Statements (Unaudited) (In thousands, except per share data)   Three Months Ended June 30, Six Months Ended June 30, 2015     2014 2015     2014 Homebuilding: Home closing revenue $ 591,027 $ 502,800 $ 1,108,300 $ 908,579 Land closing revenue   6,774     2,804     8,213     5,370   Total closing revenue   597,801     505,604     1,116,513     913,949   Cost of home closings (476,790 ) (392,839 ) (898,576 ) (706,019 ) Cost of land closings   (6,262 )   (2,762 )   (7,547 )   (6,355 ) Total cost of closings   (483,052 )   (395,601 )   (906,123 )   (712,374 ) Home closing gross profit 114,237 109,961 209,724 202,560 Land closing gross profit/(loss)   512     42     666     (985 ) Total closing gross profit 114,749 110,003 210,390 201,575 Financial Services: Revenue 2,741 2,451 5,276 4,350 Expense (1,362 ) (1,131 ) (2,661 ) (2,206 ) Earnings from financial services unconsolidated entities and other, net   2,757     2,297     5,301     4,498   Financial services profit   4,136     3,617     7,916     6,642   Commissions and other sales costs (45,167 ) (36,105 ) (86,779 ) (67,039 ) General and administrative expenses (27,650 ) (24,571 ) (57,300 ) (46,242 ) Loss from other unconsolidated entities, net (169 ) (61 ) (292 ) (230 ) Interest expense (4,621 ) (1,396 ) (7,775 ) (4,109 ) Other income, net   136     3,749     551     4,397   Earnings before income taxes 41,414 55,236 66,711 94,994 Provision for income taxes   (12,281 )   (20,157 )   (21,178 )   (34,538 ) Net earnings $ 29,133   $ 35,079   $ 45,533   $ 60,456     Earnings per share: Basic Earnings per share $ 0.73 $ 0.90 $ 1.15 $ 1.55 Weighted average shares outstanding 39,648 39,118 39,520 38,904 Diluted Earnings per share $ 0.70 $ 0.85 $ 1.10 $ 1.48 Weighted average shares outstanding 42,145 41,598 42,079 41,487             Meritage Homes Corporation and Subsidiaries Consolidated Balance Sheets (In thousands) (unaudited)   June 30, 2015 December 31, 2014 Assets: Cash and cash equivalents $ 217,021 $ 103,333 Other receivables 64,659 56,763 Real estate (1) 2,027,064 1,877,682 Real estate not owned — 4,999 Deposits on real estate under option or contract 92,085 94,989 Investments in unconsolidated entities 10,303 10,780 Property and equipment, net 33,741 32,403 Deferred tax asset 65,651 64,137 Prepaids, other assets and goodwill   76,145   71,052 Total assets $ 2,586,669 $ 2,316,138 Liabilities: Accounts payable $ 103,145 $ 83,619 Accrued liabilities 137,602 154,144 Home sale deposits 38,728 29,379 Liabilities related to real estate not owned — 4,299 Loans payable and other borrowings 34,654 30,722 Senior and convertible senior notes   1,104,202   904,486 Total liabilities   1,418,331   1,206,649 Stockholders' Equity: Preferred stock — — Common stock 397 391 Additional paid-in capital 552,098 538,788 Retained earnings   615,843   570,310 Total stockholders’ equity   1,168,338   1,109,489 Total liabilities and stockholders’ equity $ 2,586,669 $ 2,316,138 (1) Real estate – Allocated costs: Homes under contract under construction $ 506,004 $ 328,931 Unsold homes, completed and under construction 251,067 302,288 Model homes 120,981 109,614 Finished home sites and home sites under development   1,149,012   1,136,849 Total real estate $ 2,027,064 $ 1,877,682            

Supplemental Information and Non-GAAP Financial Disclosures (Dollars in thousands – unaudited):

  Three Months Ended June 30, Six Months Ended June 30, 2015     2014 2015     2014 Depreciation and amortization $ 3,517   $ 2,669   $

6,729

  $ 5,182     Summary of Capitalized Interest: Capitalized interest, beginning of period $ 56,843 $ 38,701 $ 54,060 $ 32,992 Interest incurred 16,526 14,382 31,808 28,638 Interest expensed (4,621 ) (1,396 ) (7,775 ) (4,109 ) Interest amortized to cost of home and land closings   (9,878 )   (7,332 )   (19,223 )   (13,166 ) Capitalized interest, end of period $ 58,870   $ 44,355   $ 58,870   $ 44,355     June 30, 2015 December 31, 2014 Notes payable and other borrowings $ 1,138,856 $ 935,208 Stockholders' equity   1,168,338     1,109,489   Total capital 2,307,194 2,044,697 Debt-to-capital 49.4 % 45.7 %   Notes payable and other borrowings $ 1,138,856 $ 935,208 Less: cash and cash equivalents   (217,021 )   (103,333 ) Net debt 921,835 831,875 Stockholders’ equity   1,168,338     1,109,489   Total net capital $ 2,090,173 $ 1,941,364 Net debt-to-capital 44.1 % 42.9 %         Meritage Homes Corporation and Subsidiaries Consolidated Statements of Cash Flows (In thousands) (unaudited)   Six Months Ended June 30, 2015     2014 Cash flows from operating activities: Net earnings $ 45,533 $ 60,456 Adjustments to reconcile net earnings to net cash used in operating activities: Depreciation and amortization 6,729 5,182 Stock-based compensation 8,465 5,264 Excess income tax benefit from stock-based awards (2,012 ) (2,194 ) Equity in earnings from unconsolidated entities

(5,009

) (4,268 ) Distribution of earnings from unconsolidated entities 5,769 6,119 Other

424

3,955 Changes in assets and liabilities: Increase in real estate (144,450 ) (229,805 ) Decrease/(increase) in deposits on real estate under option or contract 3,604 (7,986 ) Increase in receivables, prepaids and other assets (10,346 ) (15,121 ) Increase in accounts payable and accrued liabilities 4,996 2,247 Increase in home sale deposits   9,349     5,537   Net cash used in operating activities   (76,948 )   (170,614 ) Cash flows from investing activities: Investments in unconsolidated entities (282 ) (233 ) Purchases of property and equipment (7,829 ) (11,864 ) Proceeds from sales of property and equipment 62 146 Maturities of investments and securities — 65,388 Payments to purchase investments and securities   —     (35,614 ) Net cash (used in)/provided by investing activities   (8,049 )   17,823   Cash flows from financing activities: Repayment of loans payable and other borrowings (3,211 ) (4,036 ) Proceeds from issuance of senior notes 200,000 — Debt issuance costs (2,955 ) — Proceeds from issuance of common stock, net — 110,420 Excess income tax benefit from stock-based awards 2,012 2,194 Proceeds from stock option exercises   2,839     707   Net cash provided by financing activities   198,685     109,285   Net increase/(decrease) in cash and cash equivalents 113,688 (43,506 ) Beginning cash and cash equivalents   103,333     274,136   Ending cash and cash equivalents (2) $ 217,021   $ 230,630  

(2) Ending cash and cash equivalents excludes investments and securities of $59.9 million as of June 30, 2014.

                  Meritage Homes Corporation and Subsidiaries Operating Data (Dollars in thousands) (unaudited)   Three Months Ended June 30, 2015 June 30, 2014 Homes Value Homes Value Homes Closed: Arizona 229 $ 71,878 252 $ 84,606 California 176 95,763 185 95,067 Colorado 113   52,133 115   52,292 West Region 518   219,774 552   231,965 Texas 509   174,397 524   159,562 Central Region 509   174,397 524   159,562 Florida 210 91,491 155 60,732 Georgia 42 13,057 — — North Carolina 135 50,214 89 36,127 South Carolina 91 27,258 — — Tennessee 51     14,836   48     14,414 East Region 529   196,856 292   111,273 Total 1,556 $ 591,027 1,368 $ 502,800 Homes Ordered: Arizona 320 $ 102,714 239 $ 77,372 California 237 131,814 205 107,608 Colorado 181   84,421 140   64,491 West Region 738   318,949 584   249,471 Texas 635   224,195 718   240,463 Central Region 635   224,195 718   240,463 Florida 218 92,663 180 67,891 Georgia 53 16,690 — — North Carolina 181 72,667 102 43,062 South Carolina 99 29,473 — — Tennessee 62     21,178   63     17,548 East Region 613   232,671 345   128,501 Total 1,986 $ 775,815 1,647 $ 618,435                     Meritage Homes Corporation and Subsidiaries Operating Data (Dollars in thousands) (unaudited)   Six Months Ended June 30, 2015 June 30, 2014 Homes Value Homes Value Homes Closed: Arizona 415 $ 134,479 463 $ 156,388 California 329 182,186 350 174,994 Colorado 241   109,987 204   92,214 West Region 985   426,652 1,017   423,596 Texas 949   326,984 927   277,761 Central Region 949   326,984 927   277,761 Florida 387 164,322 318 127,829 Georgia 94 28,515

—

— North Carolina 224 85,189 144 58,706 South Carolina 167 51,818 — — Tennessee 85   24,820 71   20,687 East Region 957   354,664 533   207,222 Total 2,891 $ 1,108,300 2,477 $ 908,579 Homes Ordered: Arizona 608 $ 193,305 467 $ 153,019 California 547 309,911 442 227,660 Colorado 370   169,828 264   119,249 West Region 1,525   673,044 1,173   499,928 Texas 1,192   409,327 1,352   432,694 Central Region 1,192   409,327 1,352   432,694 Florida 466 201,520 353 132,506 Georgia 130 40,908

—

—

North Carolina 329 134,292 183 77,081 South Carolina 195 59,001

—

—

Tennessee 128   40,535 111   31,266 East Region 1,248   476,256 647   240,853 Total 3,965 $ 1,558,627 3,172 $ 1,173,475   Order Backlog: Arizona 385 $ 125,044 282 $ 93,870 California 430 251,688 317 160,129 Colorado 397   181,474 262   119,419 West Region 1,212   558,206 861   373,418 Texas 1,101   391,384 1,217   400,588 Central Region 1,101   391,384 1,217   400,588 Florida 316 139,768 243 93,949 Georgia 89 28,977 — — North Carolina 290 117,271 147 61,593 South Carolina 98 33,303 — — Tennessee 82   27,870 80   22,020 East Region 875   347,189 470   177,562 Total 3,188 $ 1,296,779 2,548 $ 951,568                   Meritage Homes Corporation and Subsidiaries Operating Data (unaudited)   Three Months Ended June 30, 2015 June 30, 2014 Ending Average Ending Average Active Communities: Arizona 43 43.5 42 41.5 California 20 20.5 15 16.0 Colorado 16 16.0 13 13.0 West Region 79 80.0 70 70.5 Texas 66 63.5 69 73.0 Central Region 66 63.5 69 73.0 Florida 30 28.0 18 17.5 Georgia 16 14.5 N/A N/A North Carolina 25 24.0 13 15.5 South Carolina 20 20.0 N/A N/A Tennessee 4 4.5 5 5.5 East Region 95 91.0 36 38.5 Total 240 234.5 175 182.0                     Six Months Ended June 30, 2015 June 30, 2014 Ending Average Ending Average Active Communities: Arizona 43 42.0 42 41.0 California 20 22.0 15 18.5 Colorado 16 16.5 13 13.5 West Region 79 80.5 70 73.0 Texas 66 62.5 69 69.5 Central Region 66 62.5 69 69.5 Florida 30 29.5 18 19.0 Georgia 16 14.5 N/A N/A North Carolina 25 23.0 13 15.0 South Carolina 20 20.0 N/A N/A Tennessee 4 4.5 5 5.0 East Region 95 91.5 36 39.0 Total 240 234.5 175 181.5  

About Meritage Homes Corporation

Meritage Homes is the eighth-largest public homebuilder in the United States, based on homes closed in 2014. 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. Meritage builds in markets including Sacramento, San Francisco's East Bay, the Central Valley and Orange County, California; Houston, Dallas-Ft. Worth, Austin and San Antonio, Texas; Phoenix/Scottsdale, Green Valley and Tucson, Arizona; Denver and Fort Collins, Colorado; Orlando and Tampa, Florida; Raleigh and Charlotte, North Carolina; Greenville-Spartanburg and York County, South Carolina; Nashville, Tennessee and Atlanta, Georgia.

Meritage has designed and built more than 85,000 homes in its 30-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 has received the U.S. Environmental Protection Agency's ENERGY STAR Partner of the Year for Sustained Excellence Award in 2013, 2014 and 2015, for 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 investors.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 2015 home closing gross margins, that a number of closings in Texas and Colorado may be delayed into 2016, estimates for home closing revenue and earnings per diluted share for 2015, and that the company expects to continue to grow revenue and expand earnings.

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. These risks and uncertainties include, but are not limited to, the following: the availability of finished lots and undeveloped land; interest rates and changes in the availability and pricing of residential mortgages; fluctuations in the availability and cost of labor; changes in or our failure to comply with tax laws that adversely impact our homebuyers; the ability of our potential buyers to sell their existing homes; cancellation rates and home prices in our markets; weakness in the homebuilding market resulting from an unexpected setback in the current economic recovery due to lower oil prices or other factors; inflation in the cost of materials used to develop communities and construct homes; the adverse effect of slower order absorption rates; potential write-downs or write-offs of assets; a change to the feasibility of projects under option or contract that could result in the write-down or write-off of option deposits; our ability to successfully integrate acquired companies and achieve anticipated benefits from these acquisitions; our potential exposure to natural disasters; competition; construction defect and home warranty claims; adverse legal rulings; 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; changes in, or our failure to comply with, laws and regulations; limitations of our geographic diversification; fluctuations in quarterly operating results; our financial leverage and level of indebtedness and our ability to take certain actions because of restrictions contained in the indentures for our senior notes and our ability to raise additional capital when and if needed; our credit ratings; successful integration of future acquisitions; our compliance with government regulations and the effect of legislative or other initiatives that seek to restrain growth of 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, 2014 and subsequent quarterly reports on Forms 10-Q under the caption "Risk Factors," which can be found on our website.

View source version on businesswire.com: http://www.businesswire.com/news/home/20150729005227/en/

Meritage Homes CorporationBrent Anderson, 972-580-6360VP Investor RelationsBrent.Anderson@meritagehomes.com