SOURCE: Meritage Homes

Meritage Homes Reports Results for the Fourth Quarter and Full Year 2013

Fourth Quarter EPS of $1.19 Reflects 47% Increase in Home Closing Revenue and 12% Pre-Tax Margin; Full Year Home Closing Revenue Increases 51% and Total Order Value Increases 40% Over 2012

SCOTTSDALE, AZ - February 5, 2014 - Meritage Homes Corporation (NYSE: MTH), a leading U.S. homebuilder, today announced fourth quarter results for the period ended December 31, 2013.

 

 

 

Summary Operating Results (unaudited)

 

(Dollars in thousands, except per share amounts)

 

 

 

 

 

Three Months Ended December 31,

 

 

Twelve Months Ended December 31,

 

 

 

2013

 

2012

 

%Chg

 

2013

 

2012

 

%Chg

Homes closed (units)

 

 

1,468

 

 

1,240

 

18

%

 

 

5,259

 

 

4,238

 

24

%

Home closing revenue

 

$

533,492

 

$

364,118

 

47

%

 

$

1,783,389

 

$

1,184,360

 

51

%

Average sales price - closings

 

$

363

 

$

294

 

24

%

 

$

339

 

$

279

 

21

%

Home orders (units)

 

 

1,131

 

 

1,094

 

3

%

 

 

5,615

 

 

4,795

 

17

%

Home order value

 

$

414,584

 

$

353,862

 

17

%

 

$

1,982,303

 

$

1,414,772

 

40

%

Average sales price - orders

 

$

367

 

$

323

 

13

%

 

$

353

 

$

295

 

20

%

Ending backlog (units)

 

 

 

 

 

 

 

 

 

 

 

1,853

 

 

1,472

 

26

%

Ending backlog value

 

 

 

 

 

 

 

 

 

 

$

686,672

 

$

479,266

 

43

%

Average sales price - backlog

 

 

 

 

 

 

 

 

 

 

$

371

 

$

326

 

14

%

Net earnings

 

$

46,089

 

$

95,128

 

(52)

%

 

$

124,464

 

$

105,163

 

18

%

Diluted EPS

 

$

1.19

 

$

2.49

 

(52)

%

 

$

3.25

 

$

3.00

 

8

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

MANAGEMENT COMMENTS

"2013 was another year of strong revenue growth and earnings acceleration for Meritage Homes, and the fourth quarter was our eleventh consecutive quarter of year-over-year growth in orders," said Steven J. Hilton, chairman and chief executive officer of Meritage Homes. "Our orders and closing volumes grew due to strong demand and a 19% increase in our active communities open at year-end. In addition, rising home prices pushed our total order value and closing revenue to their highest levels in more than five years. Price appreciation also contributed to our home closing gross margins expanding to 22.0% for the year and 23.2% in the fourth quarter.

 

"With those margin gains, we produced an 80% increase in full year home closing gross profit and grew our annual pre-tax earnings by a multiple of six times on a 51% increase in home closing revenue in 2013," he explained. "Our growth was less evident in our net earnings and earnings per share, as our 2012 annual results included a $76.3 million net tax benefit, while 2013 results included a provision for tax expense of $53.2 million."

 

Mr. Hilton continued, "The homebuilding market strengthened in 2013 as jobs, improved buyer confidence and a shortage of homes for sale drove housing starts higher," continued Mr. Hilton. "We believe market conditions remain positive for continued growth in 2014 and beyond. Based on our positive outlook, we invested approximately $565 million during the year in land and development, and contracted for approximately 11,200 new lots in great locations at attractive prices, ending the year with about 25,700 total lots under control. We raised approximately $280 million during 2013 through the issuance of senior unsecured notes and completed a $110 million stock offering in January 2014 to further solidify our balance sheet and fund additional growth.

 

"We closed 2013 with significantly higher backlog, total assets and stockholders' equity than we had at the end of 2012, and believe we have sufficient liquidity to grow as the housing market continues to improve," concluded Mr. Hilton. "At this time, we expect to grow our community count to 210-220 by the end of 2014."

 

FOURTH QUARTER RESULTS

-          Net earnings of $46.1 million ($1.19 per diluted share) were net of a $19.8 million provision for income taxes, while prior year net earnings of $95.1 million ($2.49 per diluted share) included a $71.5 million net tax benefit primarily due to the reversal of a majority of our deferred tax asset valuation allowances.

 

-          Home closing revenue increased 47% due to an 18% increase in home closings combined with a 24% increase in average price over the prior year period. The strongest growth was in the expanded East Region (Florida, the Carolinas and Tennessee), which grew closings and home closing revenue by 58% and 116%, respectively, compared to 31% growth in home closing revenue in both the West and Central Regions.

 

-          The total value of homes ordered increased 17%, primarily due to a 13% increase in average selling price combined with a 3% increase in order volume. Average sales price for the fourth quarter increased to $367,000 from $323,000 in 2012. The fourth quarter of 2013 was Meritage's eleventh consecutive quarter of year-over-year growth in home orders, and monthly sales improved sequentially every month throughout the quarter, before including the Company's new Tennessee division, which added 26 orders in the fourth quarter of 2013.

 

-          An average of 6.2 orders per community during the fourth quarter 2013 was the second highest fourth quarter in the last eight years, exceeded only by 2012's 7.0 average orders per community. California and Colorado sold the highest number of homes per average community.

 

-          Cancellation rates increased to 15% in the fourth quarter of 2013, compared to 13% in the fourth quarter of 2012, but still remained well below historical rates for the Company.

 

-          Ending backlog of orders was up 26% over the prior year, and the total value of orders in backlog was up 43%, aided by a 14% increase in the average sales price per home.

 

-          Home closing gross profit increased 80% over the prior year, and home closing gross margin increased by 430 basis points to 23.2% in the fourth quarter of 2013 compared to 18.9% in the fourth quarter of 2012. Increased margins reflected the Company's success in managing smaller increases in its cost of sales relative to rising home prices.

 

-          Commissions and selling expenses decreased by 60 basis points from the prior year, to 6.8% of home closing revenue in the fourth quarter of 2013, compared to 7.4% of home closing revenue in the fourth quarter of 2012, as higher closing revenue resulted in greater leverage of the fixed components within selling costs.

 

-          General and administrative expenses for the fourth quarter of 2013 decreased by 30 basis points to 4.6% of total closing revenue in 2013, compared to 4.9% of total closing revenue in 2012, despite increasing by $7.2 million over the prior year, primarily due to hiring of additional employees and higher compensation expense.

 

-          Interest expense decreased to $2.0 million or 0.4% of closing revenue in the fourth quarter of 2013, compared to $5.5 million or 1.5% of closing revenue in the fourth quarter of 2012, as more interest was capitalized to assets under development.

 

-          Earnings before income taxes increased 179% to $65.9 million from $23.6 million in the fourth quarters of 2013 and 2012, respectively. Pretax margin for the fourth quarter increased 570 basis points to 12.2% in 2013 compared to 6.5% in 2012.

 

FULL YEAR RESULTS

-          Net income of $124.5 million for the full year of 2013 included a $53.2 provision for income taxes and a $3.8 million loss on early extinguishment of debt, compared to 2012's net income of $105.2 million, which included a net tax benefit of $76.3 million and a $5.8 million loss on early extinguishment of debt.

 

-          Home closings and closing revenue increased 24% and 51%, respectively, for 2013 as compared to 2012.

 

-          2013 home closing gross margins improved by 360 basis points to 22.0% compared to 18.4% for 2012.

 

-          Net orders for the year increased 17% in 2013 over 2012, and total order value increased 40% year over year, aided by a 20% increase in average sales prices.

 

-          The total value of orders in backlog at year-end 2013 was 43% higher than the prior year's ending backlog.

 

BALANCE SHEET

-          Cash and cash equivalents, restricted cash and securities at December 31, 2013, totaled $363.8 million, compared to $295.5 million at December 31, 2012. During 2013, Meritage received approximately $280 million from the sale of $175 million of 4.50% senior notes due 2018 and $100 million of its 7.15% senior notes due 2020 (sold at a premium of $106.699 for a yield of 5.875%). Approximately $100 million of the capital raised was used to fully retire the Company's 7.731% senior subordinated notes due 2017. In January 2014, the company also issued approximately 2.53 million shares of common stock for net proceeds of approximately $110 million.

 

-          Meritage Homes expanded into the Nashville, Tennessee market through the acquisition of Phillips Builders in August 2013, which added approximately 500 lots to Meritage's total lot inventory.

 

-          Real estate assets increased by $292.1 million for the year 2012, ending at $1.4 billion at December 31, 2013, compared to $1.1 billion at December 31, 2012. Approximately 61% of the increase was in finished home sites (lots) and home sites under development, as Meritage acquired and developed lots for new communities in growing markets.

 

-          Meritage ended the quarter with approximately 25,700 total lots under control, of which 74% were owned and 26% controlled under option and purchase contracts, compared to approximately 20,800 total lots at December 31, 2012. Based on its trailing twelve months' closings, Meritage controlled a 4.9 year supply of lots at the end of 2013.

 

-          Net debt-to-capital ratio at December 31, 2013 was 39.1%, compared to 38.1% at December 31, 2012. Giving effect to the January equity offering, Meritage's pro forma -net debt-to-capital ratio would have been 31.2%.

 

-          The Company increased the borrowing capacity under its revolving credit facility to $200 million from $135 million during the fourth quarter, providing additional liquidity for working capital and growth, while also eliminating all restrictions on cash previously required under its letters of credit facilities. 

 

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. 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 registration link: http://dpregister.com/10038596.

 

Telephone participants who are unable to pre-register may dial in to 888-317-6016 on the day of the call. International dial-in number is 1-412-317-6016.

 

A replay of the call will be available for fifteen days, beginning at 12:30 p.m. ET on February 5, 2014 on the website noted above, or by dialing 877-344-7529, and referencing conference number 10038596. For more information, visit meritagehomes.com.

 

 

Meritage Homes Corporation and Subsidiaries

 

Operating Results

 

(Unaudited)

 

(In thousands, except per share data)

 

 

 

 

 

Three Months Ended December 31,

 

 

Twelve Months Ended December 31,

 

 

 

2013

 

 

2012

 

 

2013

 

 

2012

 

Homebuilding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Home closing revenue

 

$

533,492

 

 

$

364,118

 

 

$

1,783,389

 

 

$

1,184,360

 

 

Land closing revenue

 

 

2,702

 

 

 

468

 

 

 

31,270

 

 

 

9,314

 

 

 

Total closing revenue

 

 

536,194

 

 

 

364,586

 

 

 

1,814,659

 

 

 

1,193,674

 

 

Cost of home closings

 

 

(409,918

)

 

 

(295,355

)

 

 

(1,391,475

)

 

 

(966,384

)

 

Cost of land closings

 

 

(2,627

)

 

 

(258

)

 

 

(26,766

)

 

 

(9,091

)

 

 

Total cost of closings

 

 

(412,545

)

 

 

(295,613

)

 

 

(1,418,241

)

 

 

(975,475

)

 

Home closing gross profit

 

 

123,574

 

 

 

68,763

 

 

 

391,914

 

 

 

217,976

 

 

Land closing gross profit

 

 

75

 

 

 

210

 

 

 

4,504

 

 

 

223

 

 

 

Total closing gross profit

 

 

123,649

 

 

 

68,973

 

 

 

396,418

 

 

 

218,199

 

Financial Services:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue

 

 

2,077

 

 

 

526

 

 

 

6,037

 

 

 

779

 

 

Expense

 

 

(1,037

)

 

 

(497

)

 

 

(3,266

)

 

 

(981

)

 

Earnings from financial services unconsolidated entities and other, net

 

 

3,399