MTH
$42.10
Meritage
$.50
1.20%
Earnings Details
1st Quarter March 2017
Thursday, April 27, 2017 8:01:11 AM
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Summary

Meritage Reaffirms

Meritage (MTH) reported 1st Quarter March 2017 earnings of $0.56 per share on revenue of $675.7 million. The consensus earnings estimate was $0.42 per share on revenue of $604.5 million. Revenue grew 12.6% on a year-over-year basis.

The company said it continues to expect 2017 revenue of $3.10 billion to $3.30 billion. The current consensus estimate is revenue of $3.26 billion for the year ending December 31, 2017.

Meritage Homes Corp is a designer and builder of single-family attached and detached homes in the historically high-growth regions of the southern and western United States.

Results
Reported Earnings
$0.56
Earnings Whisper
-
Consensus Estimate
$0.42
Reported Revenue
$675.7 Mil
Revenue Estimate
$604.5 Mil
Growth
Earnings Growth
Revenue Growth
Power Rating
Grade
Earnings Release

Meritage Homes reports first quarter 2017 diluted EPS of $0.56, increased community count and solid order growth

Meritage Homes Corporation (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.(TM) 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 revenue
12,155
2,149
Total closing revenue
672,772
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 profit
107,268
103,347
Land closing gross profit
2,495
449
Total closing gross profit
109,763
103,796
Financial Services:
Revenue
2,944
2,500
Expense
(1,379
)
(1,246
)
Earnings from financial services unconsolidated entities and other, net 2,725
2,792
Financial services profit
4,290
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, net
373
(157
)
Interest expense
(825
)
(3,288
)
Other income, net
1,110
283
Earnings before income taxes
36,769
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 outstanding
40,178
39,839
Diluted
Earnings per share
$
0.56
$
0.50
Weighted average shares outstanding
42,808
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
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
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 incurred
17,895
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’ equity
1,448,365
1,421,495
Total capital
2,619,791
2,548,809
Debt-to-capital
44.7
%
44.2
%
Notes payable and other borrowings
$
1,171,426
$
1,127,314
Less: cash and cash equivalents
$
(85,689
)
$
(131,702
)
Net debt
1,085,737
995,612
Stockholders’ equity
1,448,365
1,421,495
Total net capital
$
2,534,102
$
2,417,107
Net debt-to-capital
42.8
%
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

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