Highlights of the Quarter:
- Home closing revenue, net earnings and diluted EPS set secondquarter records
- Diluted earnings per share increases 38% to $2.82 on revenue of$915 million
- After-tax return on assets of 17% and return on equity of 40%
- Sales and backlog decline due to slower demand and increasedcancellations
- 19th consecutive record year expected in 2006 with $3.5-3.6 billionrevenue and $10.00-10.25 diluted earnings per share
SCOTTSDALE, Ariz., July 26, 2006 (PRIMEZONE) -- Meritage Homes Corporation (NYSE:MTH) today announced second-quarter results for the period ended June 30, 2006.
Summary Operating Results (Unaudited)
(dollars in millions, except per share amounts)
---------------------------------------------------------------------
As of and for the
Three Months Ended Six Months Ended
June 30, June 30,
--------------------------------------------
2006 2005 %Chg 2006 2005 %Chg
------ ------ ---- ------ ------ ----
Homes closed (units) 2,722 2,095 30% 5,250 3,882 35%
Home closing revenue $ 903 $ 652 39% $1,749 $1,203 45%
------ ------ ---- ------ ------ ----
Sales orders (units) 2,116 2,931 -28% 4,706 5,570 -16%
Sales order value $ 694 $1,006 -31% $1,527 $1,887 -19%
------ ------ ---- ------ ------ ----
Ending backlog (units) 5,849 6,463 -10%
Ending backlog value $1,959 $2,135 -8%
------ ------ ---- ------ ------ ----
Net Earnings(a,b) $ 77 $ 59 30% $ 157 $ 83 88%
Diluted EPS(a,b) $ 2.82 $ 2.05 38% $ 5.68 $ 2.92 95%
------ ------ ---- ------ ------ ----
(a) The three and six-month periods ended June 30, 2006 include
stock-based compensation expense of $2.4 million and $5.0
million, respectively, related to the 2006 implementation of FAS
123R, which was not effective in 2005. Additionally, these
periods include $11.7 million in severance and other employee
departure related costs.
(b) The six-month period ended June 30, 2005 includes a charge of
$31.5 million related to a series of refinancing transactions
that reduced after-tax net earnings by $19.7 million, or $.69 per
diluted share.
Home closings and revenue, net earnings and diluted earnings per share each set second quarter records for Meritage, and were second only to fourth quarter 2005 results as the best quarter in Meritage history. Closings this quarter largely reflected orders taken last year during a period of more robust demand and a stronger pricing environment. Record second quarter home closing revenue resulted from a 30% increase in homes closed and a 7% increase in average selling price (ASP) over the second quarter 2005, as Meritage closed 2,722 homes at an average price of $332,000, compared to 2,095 at an average price of $311,000 in the same period a year ago.
Second quarter net earnings and diluted earnings per share reflect this increase in revenue and an increase in gross margins, partially offset by additional selling, general and administrative expenses. Home closing gross margins increased to 24.3% from 23.4% in the second quarter 2005, reflecting the favorable pricing environment last year when most of these homes were sold. Margins increased despite write-offs of $7.3 million included in cost of sales for certain deposits and land acquisition costs. In addition, second quarter 2006 pre-tax earnings were reduced by $11.7 million in expenses related to severance and other employee departure related costs, and an additional $2.4 million of stock-based compensation expense related to the 2006 implementation of SFAS 123R.
For the first half of 2006, total home closings increased 35% and related revenue increased 45% over the first half of 2005. Net earnings increased 88%, or 52% excluding a $19.7 million after-tax charge for refinancing debt in the first half of 2005.
"We face difficult comparisons to last year's sales, when strong demand drove total orders to an all-time high in the second quarter 2005, and rapid price appreciation combined to drive a 44% quarter-over-quarter increase in total order value," said Steven J. Hilton, Meritage chairman and chief executive officer. "We did very well selling into high demand at the time, but those conditions were not sustainable long-term."
Overall slower demand and increased cancellations reduced home sales by 28% in the second quarter and homes in backlog declined 10% year-over-year. The strong underlying economy and relative affordability in Texas contributed to increases of 10% in both home sales and ASPs, and resulted in a 21% increase in total order value there compared to a year ago. These increases were offset by significant declines in home sales in Arizona, California, Nevada and Florida, reflecting recent weaker demand in those areas.
"While our Texas markets are strong and represented a larger component of our total home orders this quarter, we experienced much softer conditions in other areas, as have other homebuilders," explained Mr. Hilton. "Demand from investors and speculative buyers has decreased dramatically; inventories are up; and price concessions have increased. These conditions not only increase competition for homebuilders, but make it more difficult for our buyers to sell their existing homes, resulting in higher order cancellations. While gross orders for the second quarter of 2006 were down 17% compared to the previous year's quarter, higher cancellation rates reduced net orders by 28% for the same period."
"Our Northern California markets, which first began slowing in the fall of 2005, appear to have begun to stabilize, with cancellation rates decreasing," Mr. Hilton continued. "However, Arizona, Nevada and Florida began weakening early in 2006 and are still in transition. The changing conditions in many of our markets make it challenging to accurately predict order demand going forward."
"In response to these conditions, we are actively re-assessing our land positions in every market and have reduced our total lot supply since the beginning of the year. We're carefully managing lot take-downs, reducing overhead in markets experiencing slower sales to more closely match projected revenue, and constantly monitoring changing market conditions to ensure that we are able to compete successfully and maximize our operating profits," said Mr. Hilton.
The Company maintained a strong balance sheet and liquidity throughout the quarter, reporting a net debt-to-capital ratio of 42% at June 30, 2006, despite the repurchase of one million shares of stock in the quarter. The Company has repurchased approximately 7% of its outstanding stock in the first half of 2006. Meritage increased its bank credit facility by $250 million to a total of $850 million, and at quarter-end, had remaining borrowing capacity of $496 million, after considering the most restrictive covenants.
After-tax return on assets improved year-over-year to approximately 17% from 13%, and return on equity improved to approximately 40% from 31%, based on trailing four quarters' results this year compared to one year ago.
"Our earnings performance for the first half of 2006 surpassed our expectations and position us to achieve our 19th consecutive year of record revenue and net earnings," concluded Mr. Hilton. "However, demand continued to slow during the second quarter in many of our markets, and we therefore expect that earnings trends will be weaker for the next several quarters. Based on our reduced backlog, higher cancellations and slower order trends, we now expect total revenue of $3.5-3.6 billion in 2006, and diluted EPS of $10.00-10.25, including third quarter revenues of approximately $875-900 million and earnings of $2.15-2.40 per diluted share. This implies a full year increase of 5-7% in earnings per share (excluding the 2005 refinancing charge) and approximately a 25% return on equity for our stockholders in 2006. While the market transitions to more sustainable sales levels, we remain committed to growing our market share while carefully managing our balance sheet to produce superior returns for our stockholders."
The Company will host a conference call on Thursday, July 27, 2006, at 2:00 p.m. EDT to discuss the results of the quarter. The call will be webcast and accompanying materials will be accessible on the "Investor Relations" page of the Company's website at http://www.meritagehomes.com. The dial-in number is 800-322-5044, and participants are encouraged to dial in five minutes before the call begins. A replay of the call will be available after 4:00 p.m. EDT July 27, 2006, through midnight August 26, 2006, by dialing 888-286-8010 and referencing pass code 60515761. The webcast replay will also be available on the "Investor Relations" page of the Company's website, and through CCBN for two weeks at www.fulldisclosure.com.
Meritage Homes Corporation and Subsidiaries
Operating Results
(Unaudited)
(In thousands, except per share data)
Three Months Ended Six Months Ended
June 30, June 30,
2006 2005 2006 2005
-------- -------- ---------- ----------
Operating Results
-----------------
Home closing
revenue $902,851 $651,783 $1,749,225 $1,202,730
Land closing
revenue 11,809 1,788 12,706 2,009
-------- -------- ---------- ----------
Total closing
revenue 914,660 653,571 1,761,931 1,204,739
Home closing
gross profit 219,467 152,703 433,530 272,028
Land closing
gross profit 1,151 462 1,129 471
-------- -------- ---------- ----------
Total closing
gross profit 220,618 153,165 434,659 272,499
Commissions and other
sales costs (52,849) (35,869) (100,876) (67,340)
General and
administrative
expenses (a) (51,344) (26,672) (94,066) (50,635)
Other income, net 8,725 4,369 16,224 10,470
Loss on extinguishment
of debt -- (197) -- (31,477)
-------- -------- ---------- ----------
Earnings before
provision for income
taxes 125,150 94,796 255,941 133,517
Provision for income
taxes (48,095) (35,557) (99,150) (50,082)
-------- -------- ---------- ----------
Net earnings $ 77,055 $ 59,239 $ 156,791 $ 83,435
======== ======== ========== ==========
Earnings per share
------------------
Basic:
Earnings per share $ 2.90 $ 2.19 $ 5.85 $ 3.13
Weighted average
shares outstanding 26,609 27,110 26,792 26,664
Diluted:
Earnings per share $ 2.82 $ 2.05 $ 5.68 $ 2.92
Weighted average
shares outstanding 27,362 28,906 27,619 28,545
Reconciliation to
exclude one-time
charge (b):
-----------------
Earnings before
provision for
income taxes $ 133,517
Add: Loss on
extinguishment
of debt 31,477
----------
Adjusted amounts:
Earnings before provision
of income taxes 164,994
Provision for income taxes (61,889)
----------
Net earnings $ 103,105
==========
Basic earnings per share $ 3.87
Diluted earnings per share $ 3.61
(a) The three and six-month periods ended June 30, 2006 include
stock-based compensation expense of $2.4 million and $5.0
million, respectively, related to the 2006 implementation of FAS
123R, which was not effective in 2005. Additionally, these
periods include $11.7 million in severance and other employee
departure related costs.
(b) The six-month period ended June 30, 2005 includes a charge of
$31.5 million related to a series of refinancing transactions
that reduced after-tax net earnings by $19.7 million, or $.69 per
diluted share.
Meritage Homes Corporation and Subsidiaries
Non-GAAP Financial Disclosures
(Unaudited)
(Dollars in Thousands)
Three Months Ended Six Months Ended
June 30, June 30,
2006 2005 2006 2005
EBITDA Reconciliation:(a) ---- ---- ---- ----
---------------------
Net earnings $ 77,055 $ 59,239 $156,791 $ 83,435
Provision for
income taxes 48,095 35,557 99,150 50,082
Interest amortized
to cost of sales 9,518 9,583 20,279 17,511
Depreciation and
amortization 5,304 4,270 10,177 8,024
-----------------------------------------
EBITDA $139,972 $108,649 $286,397 $159,052
=========================================
As of and for Trailing
Twelve Months Ended
June 30,
2006 2005
EBITDA Reconciliation:(a) ---- ----
---------------------
Net earnings $ 329,021 $ 170,847
Provision for income taxes 209,628 104,139
Interest amortized to cost of sales 41,564 35,840
Depreciation and amortization 19,360 15,492
-----------------------------
EBITDA $ 599,573 $ 326,318
=============================
Interest coverage ratio:(b)
-----------------------
EBITDA $ 599,573 $ 326,318
Interest incurred $ 47,370 $ 41,062
Interest coverage ratio 12.7 7.9
Debt to EBITDA ratio:(c)
--------------------
Notes payable and other borrowings $ 721,566 $ 561,502
EBITDA $ 599,573 $ 326,318
Debt to EBITDA ratio 1.2 1.7
After-tax stockholder returns:(d)
-----------------------------
Net earnings $ 329,021 $ 170,847
Average assets $ 1,927,074 $ 1,329,804
Average equity $ 825,373 $ 549,514
After-tax return on assets 17.1% 12.8%
After-tax return on equity 39.9% 31.1%
Net debt-to-capital:(e)
-------------------
Notes payable and other borrowings $ 721,566 $ 561,502
Less: cash and cash equivalents (47,465) (34,104)
-----------------------------
Net debt $ 674,101 $ 527,398
Stockholders' equity 933,738 688,659
-----------------------------
Capital $ 1,607,839 $ 1,216,057
Net debt-to-capital 41.9% 43.4%
(a) EBITDA is a non-GAAP financial measure and represents net
earnings before interest expense amortized to cost of sales,
income taxes, depreciation and amortization. A non-GAAP financial
measure is a numerical measure of a company's historical or
future financial performance, financial position or cash flows
that excludes amounts, or is subject to adjustments that have the
effect of excluding amounts, that are included in the most
directly comparable measure calculated and presented in
accordance with GAAP in the statement of earnings, balance sheet,
or statement of cash flows (or equivalent statements) of the
Company; or includes amounts, or is subject to adjustments that
have the effect of including amounts, that are excluded from the
most directly comparable measure so calculated and presented. In
this regard, GAAP refers to generally accepted accounting
principles in the United States. We have provided a reconciliation
of this non-GAAP financial measure to the most directly comparable
GAAP financial measure.
EBITDA is presented here because it is used by management to
analyze and compare Meritage with other homebuilding companies on
the basis of operating performance and we believe is a financial
measure widely used by investors and analysts in the homebuilding
industry. EBITDA as presented may not be comparable to similarly
titled measures reported by other companies because not all
companies calculate EBITDA in an identical manner and, therefore,
is not necessarily an accurate means of comparison between
companies. EBITDA is not intended to represent cash flows for the
period or funds available for management's discretionary use nor
has it been presented as an alternative to operating income or as
an indicator of operating performance and it should not be
considered in isolation or as a substitute for measures of
performance prepared in accordance with generally accepted
accounting principles in the United States of America.
(b) Interest coverage ratio is calculated as the trailing four
quarters EBITDA divided by the trailing four quarters interest
incurred.
(c) Debt to EBITDA ratio is calculated as notes payable and other
borrowings divided by the trailing four quarters EBITDA.
(d) Return on assets is defined as net earnings for the trailing four
quarters divided by the average of the trailing five quarters'
ending total assets. Return on equity is defined as net earnings
for the trailing four quarters divided by the average of the
trailing five quarters' ending stockholders' equity for the same
period.
(e) Net debt-to-capital is calculated as notes payable and other
borrowings less cash and cash equivalents, divided by the sum of
notes payable and other borrowings, less cash and cash
equivalents, plus stockholders' equity.
Meritage Homes Corporation and Subsidiaries
Balance Sheet Data
(Unaudited)
(Dollars in Thousands)
June 30, 2006 December 31, 2005
------------- -----------------
Total assets $2,128,352 $1,971,357
Real estate 1,548,822 1,390,803
Cash and cash equivalents 47,465 65,812
Total liabilities 1,194,614 1,120,352
Loans payable and other borrowings 721,566 592,124
Stockholders' equity 933,738 851,005
Meritage Homes Corporation and Subsidiaries
Operating Data -- Unaudited
(in thousands)
As of and for the Three Months Ended June 30,
2006 2005
----------------------- -----------------------
Homes Value Homes Value
---------- ---------- ---------- ----------
Homes Closed:
Texas 1,075 $ 252,386 856 $ 184,229
Arizona 888 290,124 745 194,108
California 361 208,111 379 228,412
Nevada 172 69,106 66 25,493
Florida(a) 189 69,486 49 19,541
Colorado 37 13,638 -- --
---------- ---------- ---------- ----------
Total 2,722 $ 902,851 2,095 $ 651,783
========== ========== ========== ==========
Homes Ordered:
Texas 1,170 $ 293,439 1,067 $ 243,490
Arizona 457 165,475 973 313,146
California 291 161,857 563 320,027
Nevada 82 33,241 221 80,788
Florida(a) 94 32,696 99 45,138
Colorado 22 7,652 8 3,022
---------- ---------- ---------- ----------
Total 2,116 $ 694,360 2,931 $1,005,611
========== ========== ========== ==========
2nd Qtr 2006 2nd Qtr 2005
----------------------- -----------------------
Beg. End Beg. End
Active ---------- ---------- ---------- ----------
Communities:
Texas 100 113 90 98
Arizona 36 40 25 30
California 23 26 19 22
Nevada 6 6 7 6
Florida(a) 15 14 6 6
Colorado 5 5 -- 1
---------- ---------- ---------- ----------
Total 185 204 147 163
========== ========== ========== ==========
As of and for the Six Months Ended June 30,
2006 2005
----------------------- -----------------------
Homes Value Homes Value
Homes Closed: ---------- ---------- ---------- ----------
Texas 2,027 $ 471,470 1,573 $ 340,184
Arizona 1,624 515,983 1,344 348,063
California 784 454,994 724 422,899
Nevada 361 143,262 154 56,682
Florida(a) 401 143,788 87 34,902
Colorado 53 19,728 -- --
---------- ---------- ---------- ----------
Total 5,250 $1,749,225 3,882 $1,202,730
========== ========== ========== ==========
Homes Ordered:
Texas 2,482 $ 608,586 2,040 $ 456,091
Arizona 1,190 425,285 1,898 585,995
California 528 299,213 1,037 608,233
Nevada 211 82,649 350 127,644
Florida(a) 231 86,599 237 105,972
Colorado 64 24,646 8 3,022
---------- ---------- ---------- ----------
Total 4,706 $1,526,978 5,570 $1,886,957
========== ========== ========== ==========
Order Backlog:
Texas 2,628 $ 646,581 1,952 $ 428,997
Arizona 1,993 748,004 2,545 775,319
California 457 265,183 1,008 576,605
Nevada 199 65,787 433 150,165
Florida(a) 529 217,058 517 200,916
Colorado 43 16,740 8 3,022
---------- ---------- ---------- ----------
Total 5,849 $1,959,353 6,463 $2,135,024
========== ========== ========== ==========
1st Half 2006 1st Half 2005
----------------------- -----------------------
Beg. End Beg. End
Active ---------- ---------- ---------- ----------
Communities:
Texas 108 113 89 98
Arizona 35 40 26 30
California 20 26 18 22
Nevada 6 6 6 6
Florida(a) 12 14 -- 6
Colorado 3 5 -- 1
---------- ---------- ---------- ----------
Total 184 204 139 163
========== ========== ========== ==========
(a) 2005 results for Florida do not include Greater Homes, acquired
in September 2005, and include Colonial Homes only since
acquisition in February 2005.
About Meritage Homes Corporation
Meritage Homes Corporation (NYSE:MTH) is a leader in the homebuilding industry. The Company is ranked by Builder magazine as the 13th largest homebuilder in the U.S. and has been perennially included on Forbes' "Platinum 400 - Best Big Companies in America", the Fortune 1000 and Fortune's "Fastest Growing Companies in America" lists, and the S&P SmallCap 600 Index. Meritage operates in fast-growing states of the southern and western United States, including six of the top 10 single-family housing markets in the country, and has reported 18 consecutive years of record revenue and net earnings. For more information about the Company, visit www.meritagehomes.com. Meritage is a member of the Public Home Builders Council of America (www.phbca.org).
The Meritage Homes Corporation logo is available at http://www.primezone.com/newsroom/prs/?pkgid=2624
This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements include statements concerning our estimated revenue, margins, earnings and diluted EPS for the third quarter and full year 2006, as well as expectations of market trends and their potential impacts, including that our Northern California markets have begun to stabilize, that earnings trends will be weaker for the next several quarters, and that our Arizona, Florida and Nevada markets are still in transition. Such statements are based upon a number of assumptions, which are subject to significant risks and uncertainties. These assumptions may change at any time, and actual results may differ from those set forth in the forward-looking statements. As disclosed in this press release and our recent SEC filings, demand has declined significantly and cancellations have increased in some of our key markets. We continue to monitor these developments and their potential impacts on our operations. To the extent there is an extended or more pronounced slowdown in one or more of our significant markets, it could have a material adverse effect on our projections and results of operations. 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, including: fluctuations in demand, pace of sales orders, cancellation rates and home prices in our markets; interest rates and changes in the availability and pricing of residential mortgages; a decline in housing affordability; our success in locating and negotiating favorably with possible acquisition candidates; the success of our program to integrate existing operations with any new operations or those of past or future acquisitions including Colonial Homes of Florida and Greater Homes, Inc.; our increased investments in land acquisitions and development joint ventures; our dependence on key personnel and the availability of satisfactory subcontractors; our ability to take certain actions because of restrictions contained in the indentures for our senior notes and the agreement for our unsecured credit facility; our lack of geographic diversification; the cost and availability of insurance, including the unavailability of insurance for the presence of mold; our potential exposure to natural disasters; the impact of inflation; the impact of construction defect and home warranty claims; the strength and competitive pricing of the single-family housing market; demand for and acceptance of our homes; changes in the availability and pricing of real estate in the markets in which we operate, our ability to acquire additional land or options to acquire additional land on acceptable terms, particularly in our start-up markets; general economic slow downs; consumer confidence, which can be impacted by economic and other factors such as terrorism, war, or threats thereof and changes in energy prices or stock markets; inflation in the cost of materials used to construct our homes; our level of indebtedness and our ability to raise additional capital when and if needed; legislative or other initiatives that seek to restrain growth or new housing construction or similar measures and other factors identified in documents filed by us with the Securities and Exchange Commission, including those set forth in our Form 10-K for the year ended December 31, 2005 under the caption "Risk Factors." As a result of these and other factors, the Company's stock and note prices may fluctuate dramatically.