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MTH > SEC Filings for MTH > Form 10-Q on 1-Nov-2011All Recent SEC Filings

Show all filings for MERITAGE HOMES CORP

Form 10-Q for MERITAGE HOMES CORP


1-Nov-2011

Quarterly Report


Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Overview and Outlook
During the three months ended September 30, 2011, we achieved some encouraging operational results as our sales volume comparisons turned positive year-over-year, indicating improved demand in 2011 over 2010. We anticipate that the remainder of 2011 will continue with overall positive comparative trends in sales and backlog, which we expect to result in higher comparative closings in the fourth quarter. Yet, despite these improvements, overall sales volume are still significantly below historical levels and our financial results remain uneven. We also believe our investments in new communities and an efficient operating model will help us achieve profitability at lower closing volumes and will help us take advantage of opportunities as the market recovers. We are also continuing to evaluate our overhead structure and are initiating additional cost-cutting measures where possible. Although we have had some indications that the homebuilding cycle may have reached a bottom and certain of our markets are experiencing positive operational results, we do not yet know when or at what pace the national recovery will gain momentum. Summary Company Results
While our third quarter 2011 closings stayed relatively consistent with 2010, the lower backlog numbers entering the first and the second quarters of 2011 resulted in decreased year-over-year closings for the first nine months of 2011 when compared to the same period a year ago. We believe our third quarter results indicate the start of positive trends for 2011 and beyond and that buyers now believe that this is an opportune time to commit to a home purchase with attractive pricing and historically-low interest rates. Despite these initial positive sales and backlog results, the timing and pace of a full recovery will continue to directly impact the pace at which we sell and close homes. We remain focused on extending the positive sequential trends experienced recently, gaining momentum as we enter the fourth quarter and 2012. Total home closing revenue was $217.5 million and $615.2 million for the three and nine months ended September 30, 2011, decreasing 7.0% and 15.2% from the same periods last year. Year-to-date decreases are mostly attributable to difficult comparisons in the first half of 2011 due to the incremental closings in the first half of 2010 generated by the federal home buyer tax credit. The decrease in closing units for the quarter was minimal with only eight fewer closing units but was exacerbated by a 6.1% decrease in average sales price down to $259,000, primarily due to geographical mix of closings, lower starting backlog and continued weakness in our California markets. We reported net losses of $3.2 and $9.3 million for the three- and nine-month periods ended September 30, 2011, respectively, as compared to net income of $1.2 million and $8.0 million for the same periods in 2010. The losses in the periods were primarily driven by the reduced revenue and slight decrease in gross margin. At September 30, 2011, our backlog of $288.5 million reflects an increase of 19.0% or $46.1 million when compared to the backlog at September 30, 2010. The backlog improvement reflects our increasing sales units of 28.3% in the third quarter, as well as higher average sales price on homes sold of 4.1% for the quarter as compared to the same period a year ago. In the third quarter of 2011, we were also able to maintain our low cancellation rate on sales orders at 17% of gross orders as compared to 24% in the same period a year ago. Company Actions and Positioning
Throughout this continued difficult homebuilding market, we have remained focused on our main goals: return to and maintain profitability, and strengthen our balance sheet. In order to meet these goals, over the past several years we began and continue to execute on the following initiatives:
• Utilizing our enhanced market research to capitalize on the knowledge of our buyers' demands in each community, tailoring our pricing, product and amenities offered;

• Continuing to innovate and promote the Meritage Green energy efficiency program, so that every new home we construct, at a minimum, meets ENERGY STAR® standards, including the construction of our first net-zero production home that produces as much energy as it uses annually;


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• Managing our total lot supply and future growth of our communities by actively contracting new well-priced lots in strategic submarkets;

• Adapting sales and marketing efforts to generate additional traffic and compete with resale homes;

• Renegotiating construction costs with our subcontractors where possible;

• Exercising tight control over cash flows;

• Monitoring our customer satisfaction scores and working toward improving them based on the results of the surveys;

• Executing our company-wide operating strategy, Meritage Forward, and the roll-out of associated initiatives such as the Simply Smart SeriesTM and 99-day closing guarantee; and

• Continuing to consolidate overhead functions at all of our divisions and corporate offices to hold down general and administrative cost burden.

Additionally, we are evaluating opportunities for expansion into new markets that have been less impacted by the homebuilding downturn over the past several years. We are looking to redeploy our capital into projects both within our geographic footprint and through entry into new markets. As a result, in April 2011 we announced our entry into the Raleigh-Durham, North Carolina market.
We believe that the investments in our new communities and product offerings create a differentiated strategy that has lessened the impact of the current economic conditions and improved our operating leverage. In the third quarter of 2011, we opened 18 new communities while closing out 14 older communities, ending the quarter with 149 active communities. We continue to believe in the long-term viability of the domestic homebuilding market and that builders with in-depth industry expertise, successful business and operational models and well-priced land positions will benefit when the housing market recovers. Critical Accounting Policies
The accounting policies we deem most critical to us and that involve the most difficult, subjective or complex judgments include revenue recognition, valuation of real estate, warranty reserves, off-balance-sheet arrangements, valuation of deferred tax assets and share-based payments. There have been no significant changes to our critical accounting policies during the nine months ended September 30, 2011 compared to those disclosed in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations, included in our 2010 Annual Report on Form 10-K.


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The tables below present operating and financial data that we consider most critical to managing our operations (dollars in thousands):

Home Closing Revenue

                                  Three Months Ended
                                     September 30,            Quarter over Quarter
                                  2011          2010           Chg $           Chg %

        Total
        Dollars                 $ 217,534     $ 233,803     $    (16,269 )       (7.0 )%
        Homes closed                  840           848               (8 )       (0.9 )%
        Avg sales price         $   259.0     $   275.7     $      (16.7 )       (6.1 )%

        West Region
        California
        Dollars                 $  28,708     $  43,803     $    (15,095 )      (34.5 )%
        Homes closed                   83           112              (29 )      (25.9 )%
        Avg sales price         $   345.9     $   391.1     $      (45.2 )      (11.6 )%
        Nevada
        Dollars                 $   4,222     $   3,404     $        818         24.0 %
        Homes closed                   19            17                2         11.8 %
        Avg sales price         $   222.2     $   200.2     $       22.0         11.0 %
        West Region Totals
        Dollars                 $  32,930     $  47,207     $    (14,277 )      (30.2 )%
        Homes closed                  102           129              (27 )      (20.9 )%
        Avg sales price         $   322.8     $   365.9     $      (43.1 )      (11.8 )%

        Central Region
        Arizona
        Dollars                 $  33,314     $  41,387     $     (8,073 )      (19.5 )%
        Homes closed                  137           167              (30 )      (18.0 )%
        Avg sales price         $   243.2     $   247.8     $       (4.6 )       (1.9 )%
        Texas
        Dollars                 $ 102,121     $ 107,663     $     (5,542 )       (5.1 )%
        Homes closed                  440           425               15          3.5 %
        Avg sales price         $   232.1     $   253.3     $      (21.2 )       (8.4 )%
        Colorado
        Dollars                 $  21,500     $  12,608     $      8,892         70.5 %
        Homes closed                   68            39               29         74.4 %
        Avg sales price         $   316.2     $   323.3     $       (7.1 )       (2.2 )%
        Central Region Totals
        Dollars                 $ 156,935     $ 161,658     $     (4,723 )       (2.9 )%
        Homes closed                  645           631               14          2.2 %
        Avg sales price         $   243.3     $   256.2     $      (12.9 )       (5.0 )%

        East Region
        Florida
        Dollars                 $  27,669     $  24,938     $      2,731         11.0 %
        Homes closed                   93            88                5          5.7 %
        Avg sales price         $   297.5     $   283.4     $       14.1          5.0 %


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Home Closing Revenue

                                    Nine Months Ended
                                      September 30,              Year over Year
                                   2011          2010          Chg $         Chg %
         Total
         Dollars                 $ 615,154     $ 725,790     $ (110,636 )     (15.2 )%
         Homes closed                2,374         2,863           (489 )     (17.1 )%
         Avg sales price         $   259.1     $   253.5     $      5.6         2.2 %

         West Region
         California
         Dollars                 $  77,930     $ 114,498     $  (36,568 )     (31.9 )%
         Homes closed                  228           323            (95 )     (29.4 )%
         Avg sales price         $   341.8     $   354.5     $    (12.7 )      (3.6 )%
         Nevada
         Dollars                 $  10,360     $  12,628     $   (2,268 )     (18.0 )%
         Homes closed                   49            65            (16 )     (24.6 )%
         Avg sales price         $   211.4     $   194.3     $     17.1         8.8 %
         West Region Totals
         Dollars                 $  88,290     $ 127,126     $  (38,836 )     (30.5 )%
         Homes closed                  277           388           (111 )     (28.6 )%
         Avg sales price         $   318.7     $   327.6     $     (8.9 )      (2.7 )%

         Central Region
         Arizona
         Dollars                 $ 100,230     $ 119,147     $  (18,917 )     (15.9 )%
         Homes closed                  418           548           (130 )     (23.7 )%
         Avg sales price         $   239.8     $   217.4     $     22.4        10.3 %
         Texas
         Dollars                 $ 302,536     $ 382,592     $  (80,056 )     (20.9 )%
         Homes closed                1,269         1,578           (309 )     (19.6 )%
         Avg sales price         $   238.4     $   242.5     $     (4.1 )      (1.7 )%
         Colorado
         Dollars                 $  55,757     $  32,721     $   23,036        70.4 %
         Homes closed                  175           110             65        59.1 %
         Avg sales price         $   318.6     $   297.5     $     21.1         7.1 %
         Central Region Totals
         Dollars                 $ 458,523     $ 534,460     $  (75,937 )     (14.2 )%
         Homes closed                1,862         2,236           (374 )     (16.7 )%
         Avg sales price         $   246.3     $   239.0     $      7.3         3.1 %

         East Region
         Florida
         Dollars                 $  68,341     $  64,204     $    4,137         6.4 %
         Homes closed                  235           239             (4 )      (1.7 )%
         Avg sales price         $   290.8     $   268.6     $     22.2         8.3 %


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Home Orders (1)

                                  Three Months Ended
                                     September 30,            Quarter over Quarter
                                  2011          2010           Chg $           Chg %
        Total
        Dollars                 $ 245,235     $ 183,571     $    61,664          33.6 %
        Homes ordered                 906           706             200          28.3 %
        Avg sales price         $   270.7     $   260.0     $      10.7           4.1 %

        West Region
        California
        Dollars                 $  41,146     $  29,614     $    11,532          38.9 %
        Homes ordered                 121            86              35          40.7 %
        Avg sales price         $   340.0     $   344.3     $      (4.3 )        (1.2 )%
        Nevada
        Dollars                 $   2,182     $   2,279     $       (97 )        (4.3 )%
        Homes ordered                  10            11              (1 )        (9.1 )%
        Avg sales price         $   218.2     $   207.2     $        11           5.3 %
        West Region Totals
        Dollars                 $  43,328     $  31,893     $    11,435          35.9 %
        Homes ordered                 131            97              34          35.1 %
        Avg sales price         $   330.7     $   328.8     $       1.9           0.6 %

        Central Region
        Arizona
        Dollars                 $  52,684     $  39,214     $    13,470          34.3 %
        Homes ordered                 189           156              33          21.2 %
        Avg sales price         $   278.8     $   251.4     $      27.4          10.9 %
        Texas
        Dollars                 $  82,758     $  82,584     $       174           0.2 %
        Homes ordered                 361           347              14           4.0 %
        Avg sales price         $   229.2     $   238.0     $      (8.8 )        (3.7 )%
        Colorado
        Dollars                 $  26,715     $  12,603     $    14,112         112.0 %
        Homes ordered                  80            39              41         105.1 %
        Avg sales price         $   333.9     $   323.2     $      10.7           3.3 %
        Central Region Totals
        Dollars                 $ 162,157     $ 134,401     $    27,756          20.7 %
        Homes ordered                 630           542              88          16.2 %
        Avg sales price         $   257.4     $   248.0     $       9.4           3.8 %

        East Region
        Florida
        Dollars                 $  39,750     $  17,277     $    22,473         130.1 %
        Homes ordered                 145            67              78         116.4 %
        Avg sales price         $   274.1     $   257.9     $      16.2           6.3 %

(1) Home orders and home order dollars for any period represent the aggregate units or sales price of all homes ordered, net of cancellations. We do not include orders contingent upon the sale of a customer's existing home or any other material contingency as a sales contract until the contingency is removed.


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Home Orders (1)

                                     Nine Months Ended
                                       September 30,             Year over Year
                                    2011          2010          Chg $        Chg %
          Total
          Dollars                 $ 701,861     $ 680,666     $  21,195         3.1 %
          Homes ordered               2,656         2,670           (14 )      (0.5 )%
          Avg sales price         $   264.3     $   254.9     $     9.4         3.7 %

          West Region
          California
          Dollars                 $  98,859     $ 108,156     $  (9,297 )      (8.6 )%
          Homes ordered                 293           312           (19 )      (6.1 )%
          Avg sales price         $   337.4     $   346.7     $    (9.3 )      (2.7 )%
          Nevada
          Dollars                 $  11,072     $  11,651     $    (579 )      (5.0 )%
          Homes ordered                  51            59            (8 )     (13.6 )%
          Avg sales price         $   217.1     $   197.5     $    19.6         9.9 %
          West Region Totals
          Dollars                 $ 109,931     $ 119,807     $  (9,876 )      (8.2 )%
          Homes ordered                 344           371           (27 )      (7.3 )%
          Avg sales price         $   319.6     $   322.9     $    (3.3 )      (1.0 )%

          Central Region
          Arizona
          Dollars                 $ 128,592     $ 126,743     $   1,849         1.5 %
          Homes ordered                 499           560           (61 )     (10.9 )%
          Avg sales price         $   257.7     $   226.3     $    31.4        13.9 %
          Texas
          Dollars                 $ 296,886     $ 330,582     $ (33,696 )     (10.2 )%
          Homes ordered               1,252         1,375          (123 )      (8.9 )%
          Avg sales price         $   237.1     $   240.4     $    (3.3 )      (1.4 )%
          Colorado
          Dollars                 $  71,345     $  36,903     $  34,442        93.3 %
          Homes ordered                 221           118           103        87.3 %
          Avg sales price         $   322.8     $   312.7     $    10.1         3.2 %
          Central Region Totals
          Dollars                 $ 496,823     $ 494,228     $   2,595         0.5 %
          Homes ordered               1,972         2,053           (81 )      (3.9 )%
          Avg sales price         $   251.9     $   240.7     $    11.2         4.7 %

          East Region
          Florida
          Dollars                 $  95,107     $  66,631     $  28,476        42.7 %
          Homes ordered                 340           246            94        38.2 %
          Avg sales price         $   279.7     $   270.9     $     8.8         3.2 %

(1) Home orders and home order dollars for any period represent the aggregate units or sales price of all homes ordered, net of cancellations. We do not include orders contingent upon the sale of a customer's existing home or any other material contingency as a sales contract until the contingency is removed.


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                                          Three Months Ended September 30,
                                         2011                            2010
                               Beginning         Ending         Beginning       Ending
      Active Communities
      Total                           145            149               148          150


      West Region
      California                       18             22                12           13
      Nevada                            3              3                 5            5

      West Region Total                21             25                17           18

      Central Region
      Arizona                          35             37                33           32
      Texas                            68             65                78           82
      Colorado                          8              9                 7            8

      Central Region Total            111            111               118          122

      East Region (Florida)            13             13                13           10



                                           Nine Months Ended September 30,
                                          2011                           2010
                                Beginning         Ending        Beginning       Ending
       Active Communities
       Total                           151            149              153          150


       West Region
       California                       14             22                7           13
       Nevada                            4              3                6            5

       West Region Total                18             25               13           18

       Central Region
       Arizona                          32             37               26           32
       Texas                            82             65               98           82
       Colorado                          9              9                6            8

       Central Region Total            123            111              130          122

       East Region (Florida)            10             13               10           10



                                    Three Months Ended           Nine Months Ended
                                      September 30,                September 30,
                                   2011             2010        2011            2010
        Cancellation Rates (1)
        Total                           17 %           24 %          17 %          20 %


        West Region
        California                      20 %           20 %          20 %          16 %
        Nevada                          29 %           27 %          19 %          18 %
        West Region Total               21 %           20 %          19 %          16 %

        Central Region
        Arizona                         11 %           14 %           9 %          13 %
        Texas                           19 %           30 %          19 %          25 %
        Colorado                        12 %           22 %          11 %          18 %
        Central Region Total            16 %           26 %          16 %          22 %

        East Region (Florida)           18 %           14 %          17 %          15 %

(1) Cancellation rates are computed as the number of cancelled units for the period divided by the gross sales units for the same period.


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Order Backlog (1)

                                     At September 30,            Year over Year
                                    2011          2010          Chg $        Chg %
          Total
          Dollars                 $ 288,523     $ 242,411     $  46,112        19.0 %
          Homes in backlog            1,060           902           158        17.5 %
          Avg sales price         $   272.2     $   268.7     $     3.5         1.3 %

          West Region
          California
          Dollars                 $  36,224     $  27,980     $   8,244        29.5 %
          Homes in backlog              110            78            32        41.0 %
          Avg sales price         $   329.3     $   358.7     $   (29.4 )      (8.2 )%
          Nevada
          Dollars                 $   3,081     $   1,694     $   1,387        81.9 %
          Homes in backlog               14             8             6        75.0 %
          Avg sales price         $   220.1     $   211.8     $     8.3         3.9 %
          West Region Totals
          Dollars                 $  39,305     $  29,674     $   9,631        32.5 %
          Homes in backlog              124            86            38        44.2 %
          Avg sales price         $   317.0     $   345.0     $   (28.0 )      (8.1 )%

          Central Region
          Arizona
          Dollars                 $  60,342     $  39,706     $  20,636        52.0 %
          Homes in backlog              206           159            47        29.6 %
          Avg sales price         $   292.9     $   249.7     $    43.2        17.3 %
          Texas
          Dollars                 $ 105,957     $ 129,554     $ (23,597 )     (18.2 )%
          Homes in backlog              446           512           (66 )     (12.9 )%
          Avg sales price         $   237.6     $   253.0     $   (15.4 )      (6.1 )%
          Colorado
          Dollars                 $  32,552     $  15,638     $  16,914       108.2 %
          Homes in backlog               98            47            51       108.5 %
          Avg sales price         $   332.2     $   332.7     $    (0.5 )      (0.2 )%
          Central Region Totals
          Dollars                 $ 198,851     $ 184,898     $  13,953         7.5 %
          Homes in backlog              750           718            32         4.5 %
          Avg sales price         $   265.1     $   257.5     $     7.6         3.0 %

          East Region
          Florida
          Dollars                 $  50,367     $  27,839     $  22,528        80.9 %
          Homes in backlog              186            98            88        89.8 %
          Avg sales price         $   270.8     $   284.1     $   (13.3 )      (4.7 )%

(1) Our backlog represented net sales that have not yet closed.


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Operating Results
Companywide. Home closing revenue for the three months ended September 30, 2011 decreased $16.3 million or 7.0% when compared to the same period in the prior year, primarily due to the 6.1% decrease in average sales price to $259,000. The price decrease is mainly due to some shift in the mix of our home closings to geographies with lower average prices, as well as the general weakness of the California markets resulting in discounted home prices. During the third quarter of 2011, we experienced an increase in both units and average sales prices for home orders. The 200-unit increase in sales and $10,700 increase in average sales price for the quarter ended September 30, 2011 over the prior year period increased total order value by $61.7 million, or 33.6%. The increases in average sales prices reflect the higher prices earned by our newer closer-in communities and a shift to larger square footage homes with corresponding higher average sales prices in certain markets. The majority of these sales were comprised of move-up buyers who typically buy larger square footage homes at higher price points. The higher sales led to an increase in ending backlog of 158 units or 17.5% as compared to 902 homes at September 30, 2010, also up 66 units from June 30, 2011, ending the quarter with 1,060 units valued at $288.5 million. Closing units for the nine months ended September 30, 2011 decreased 489 homes or 17.1% over the same period in 2010. Sales volume of 2,656 units in the first nine months of 2011 as compared to 2,670 in the same period of 2010 reflects some improved demand as home orders have held steady throughout the first nine months of the year despite the absence of the federal homebuyer tax credit, which enhanced sales and closings in the first half of 2010. . . .

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