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Meritage Homes Corp. Reports Operating Results (10-Q)

October 31, 2012 | About:
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10qk

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Meritage Homes Corp. (MTH) filed Quarterly Report for the period ended 2012-09-30.

Meritage Homes Corporation has a market cap of $1.27 billion; its shares were traded at around $36.45 with a P/E ratio of 58.8 and P/S ratio of 1.5.

Highlight of Business Operations:

Total home closing revenue was $334.9 million and $820.2 million for the three and nine months ended September 30, 2012, increasing 53.9% and 33.3%, respectively, from the same periods last year. The quarterly increase is mainly driven by the 357 additional closing units for the quarter ended September 30, 2012 as compared to the same period last year and was further aided by an 8.0% increase in average sales prices of $20,800, increasing total revenue by $117.3 million over prior year. For the nine months ended September 30, 2012, increased closings of 624 units were boosted by a 5.6% increase in average sales price of $14,500 as compared to the nine months ended September 30, 2011. The increased sales prices were driven primarily by a shift in order mix to higher priced states and larger homes. We reported net income of $6.8 million and $10.0 million for the three and nine months ended September 30, 2012, as compared to net loss of $3.2 million and $9.3 million for the same periods in 2011, respectively. Our quarterly and year-to-date income in 2012 included a one-time charge related to a litigation accrual of $8.7 million. Additionally, our year-to-date 2012 results include a $5.8 million loss from early extinguishment of debt and a $5.2 million tax benefit primarily due to the reversal of most of the company s deferred state tax asset in Florida. There were no similar charges in 2011. We expect improving bottom-line results for the remainder of 2012, as indicated by our higher ending backlog, improved sales pace and average sales prices.

Companywide. Home closing revenue for the three months ended September 30, 2012 increased $117.3 million or 53.9% when compared to the same period in the prior year, due to 357 additional closing units and an increase in average sales prices of $20,800, or 8.0%. During the third quarter of 2012, we also experienced a significant increase in both units and average sales prices for home orders. The 298-unit increase in orders and $33,900 increase in average sales price for the quarter ended September 30, 2012 over the prior year period increased total order value by $121.5 million, or 49.6%. These increases reflect a shift in mix to higher-priced states, our ability to increase sales prices in many of our communities throughout the country as well as the higher prices of our newer better-located communities with larger square footage homes. The higher orders and average sales prices led to an increase in ending backlog to 1,618 units, a 52.6% unit increase valued at $489.5 million as compared to 1,060 homes at September 30, 2011 valued at $288.5 million.

We believe the successes in Arizona and Colorado are a testament to our strategy that emphasizes well-located lot and land positions, innovative product design and our energy-efficient features. Arizona volumes increased with orders of 229 units for the three months ended September 30, 2012 versus 189 for the same period a year ago. Arizona has benefited from the shift to newer, closer-in communities offering extreme energy efficiency in larger square footage homes, contributing to a 10.2%, or $28,300 increase in average sales price per home on orders, which aided the overall increase in order dollars for the three months ended September 30, 2012 to $70.3 million. Sales pace on home orders improved in the third quarter of 2012 in Arizona with a 30.2% increase of orders per average community as compared to the same period a year ago which directly led to our year over year decrease in actively selling communities. During the quarter we commenced sales operations in several newly-acquired land positions to replace our recently sold-out communities and increase our community count as evidenced by our increase sequentially in active communities from the second quarter of 2012. Colorado contributed 83 closings and $27.6 million of associated revenue, a 28.6% increase in revenue over the same period a year ago. Colorado also experienced a modest increase in orders for the third quarter of 2012, rising to $28.9 million on 88 units, an 8.3% and 10.0% respective increase over 2011 and an improvement in average orders per community of 17.0% as compared to the same period a year ago.

East. In the third quarter of 2012, home closings in our East Region increased 78 units or 83.9% for total revenue of $50.8 million, an 83.7% increase as compared to the third quarter of 2011. The Region s orders increased to 192 units, a 47-unit or 32.4% increase from the quarter ended September 30, 2011. The Florida market was the largest contributor to the Region s results providing a 38 unit or 40.9% increase in closed units over the same period a year ago. This is partially attributable to our increase in the number of actively selling communities as well as our relatively flat average orders per community over prior year signaling the stability of this market. North Carolina also contributed 40 closed units totaling $14.5 million in revenue and added 36 units and $12.7 million in order volume and 49 units in backlog valued at $16.9 million to the Region s results. Our North Carolina operations currently build homes with some of our highest sales prices contributing to an average sales price on orders during the third quarter of $353,000. The performance in this market is a testament to our commitment of focusing our efforts to enter highly sought after markets with strong buyer demand. The Region s higher orders resulted in an increase in ending backlog to 296 units, or $95.2 million, a 110-unit or 59.1% increase over the same period a year ago. Operations in our recently opened Tampa division also provided orders and backlog, valued at $7.3 and $8.2 million, respectively, for the quarter ended September 30, 2012. Accordingly, we anticipate recording closing revenue for the Tampa division in the fourth quarter of 2012.

Home closing gross profit increased to a margin of 18.6% for the quarter ended September 30, 2012 as compared to 17.5% for the quarter ended September 30, 2011. Excluding impairments, gross margin was 18.7% versus 17.9% for the quarters ended September 30, 2012 and 2011, respectively. We also experienced a slight improvement in home closing gross profit sequentially from 18.5% in the second quarter of 2012, excluding impairments. For the nine months ended September 30, 2012, the gross profit was 18.2% as compared to 17.6% from the same period in the prior year. Excluding the impact of impairments of $0.9 and $2.2 million in the first nine months of 2012 and 2011, respectively, gross margins were 18.3% versus 17.9%, respectively. We have been successful in increasing gross profit despite direct cost increases experienced in the homebuilding industry recently. This is mainly attributable to sales price increases and construction overhead leverage as our volume has increased over the last several quarters. We believe that with our improving orders, sales price increases, and strong ending backlog numbers, we should continue to see gains in our gross profit throughout the remainder of 2012. We provide gross margins excluding impairments — a non-GAAP term — as we use it to evaluate our performance and believe it is a widely-accepted financial measure by users of our financial statements in analyzing our operating results and provides comparability to similar calculations by our peers in the homebuilding industry.

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