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| MTH > SEC Filings for MTH > Form 10-Q on 3-May-2012 | All Recent SEC Filings |
3-May-2012
Quarterly Report
Overview and Outlook
During the three months ended March 31, 2012, we reported positive year-over-year results in our sales, closings and backlog. We believe the improvements are being driven by improved consumer sentiment and continued excellent housing affordability, as well as significant decreases in existing housing inventory levels in most of our markets. Nevertheless, the resale market continues to be our biggest competition; however, we feel we successfully differentiate ourselves from these homes through our energy efficient offerings, innovative technology, ability to personalize our homes and by providing a home warranty.
We recorded our strongest sales order value since 2008, and assuming a continued economic recovery, we anticipate that the remainder of 2012 will result in overall positive comparative year-over-year trends in sales and backlog, which we expect to translate to higher closings year over year. We have also experienced an increase in our average sales per community in the first quarter of 2012 of 29.3% versus the same period in 2011, which in addition to overall improving demand, we attribute to our investments in new communities in more desirable submarkets. As buyer demand has strengthened, we have been able to initiate modest price increases in many communities, which we expect will improve our bottom-line results. We continue to work on streamlining operations that we believe will help us achieve profitability as the year progresses.
Summary Company Results
In the first quarter of 2012, we achieved significant improvements in sales, closings and backlog year over year. Aided by a higher beginning backlog at the start of 2012 and coupled with increased sales in the first three months, we believe our first quarter results are indicative of increased demand and consumer confidence, which should translate into higher profitability throughout the year. As interest rates and selling prices are still attractively low and while our current operating results indicate a recovering and stronger housing market, we recognize that we are still operating in a volatile economic environment and are cautiously optimistic about our future operational outlook. We believe the housing market will continue to gradually strengthen to the extent the overall economy continues to improve.
Total home closing revenue was $204.0 million for the three months ended March 31, 2012, increasing 14.9% from the same period last year. The increase in closings of 81 units was further aided by a 2.7% increase in average sales price of $7,000. We reported net loss of $4.8 million for the three months ended March 31, 2012, as compared to net loss of $6.7 million for the same period in 2011. Although closings increased over the prior year, we still did not generate sufficient closing volume and gross profit to fully cover our overhead costs. Our first quarter closings are typically our lowest due to seasonality, and based on our historical trends and our high ending backlog, we expect improved results for the remainder of 2012.
At March 31, 2012, our backlog of $353.2 million reflects an increase of 44.2% or $108.2 million when compared to the backlog at March 31, 2011. The backlog improvement reflects a 36.2% increase in unit sales in the first quarter, as well as higher average sales prices on homes sold of 2.6% for the quarter as compared to the same period a year ago. In the first quarter of 2012, we were also able to maintain our low cancellation rate on sales orders at 15% of gross orders as compared to 17% in the same period a year ago.
Company Actions and Positioning
Over the last several years and continuing through the stabilization of the homebuilding market, which we believe is currently underway, we remain focused on our main goals of generating profit and maintaining a strong 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, where every new home we construct, at a minimum, meets ENERGY STAR® standards, including the recent construction of the only triple-certified homes in the country, certified by the U.S. Environmental Protection Agency, for indoor air quality, water conservation and overall energy efficiency;
• Aggressively acquiring well-priced lot positions to fund future growth;
• Focusing our purchasing efforts to manage pricing changes as the economy recovers and demand rises;
• Growing our inventory balance while ensuring sufficient liquidity through exercising tight control over cash flows; and
• Monitoring our customers' satisfaction as measured by survey scores and working toward improving them based on the results of the surveys.
We have also consolidated overhead functions in all of our divisions and at our corporate offices to hold down general and administrative cost burden.
Additionally, we are evaluating opportunities for expansion into new markets that were 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. In connection with these efforts, in 2011 we announced our entry into the Raleigh-Durham, North Carolina and Tampa, Florida markets and our intention to wind down operations in the hard-hit Las Vegas, Nevada market.
We believe that the investments in our new communities and product offerings have lessened the impact of the economic conditions over recent years and improved our operating leverage. In the first quarter of 2012, we opened 7 new communities while closing out 14 older communities, ending the quarter with 150 active communities. The dip in our actively-selling communities is the direct result of our improved sales pace in 2012, which has resulted in closing out communities faster than we can open new replacement communities.
In the first quarter of 2012, we also took steps to strengthen our balance sheet and improve liquidity through the announcement of a new senior note issuance. In April 2012, we concurrently issued $300.0 million of 7.00% senior notes due 2022 and completed an initial tender for approximately $259.0 million of our $285.0 million senior notes due 2015 and approximately $26.1 million of our $125.9 million of senior subordinated notes due 2017. We expect to redeem the remaining $26.0 million of the 2015 notes in early May 2012, which collectively will extinguish all of our $285 million of notes due 2015 and extend our earliest debt maturities to 2017. See Note 12 to the accompanying consolidated financial statements for further discussion. We believe such initiatives help support our goals and, coupled with the improving economy and homebuilding market, will allow us to be well positioned to take advantage of a full recovery as it occurs.
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 three months ended March 31, 2012 compared to those disclosed in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations, included in our 2011 Annual Report on Form 10-K.
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 Quarter over
March 31, Quarter
2012 2011 Chg $ Chg %
Total
Dollars $ 204,022 $ 177,489 $ 26,533 14.9 %
Homes closed 759 678 81 11.9 %
Avg sales price $ 268.8 $ 261.8 $ 7.0 2.7 %
West Region
California
Dollars $ 33,306 $ 21,171 $ 12,135 57.3 %
Homes closed 97 62 35 56.5 %
Avg sales price $ 343.4 $ 341.5 $ 1.9 0.6 %
Nevada
Dollars $ 1,196 $ 2,979 $ (1,783 ) (59.9 )%
Homes closed 6 15 (9 ) (60.0 )%
Avg sales price $ 199.3 $ 198.6 $ 0.7 0.4 %
West Region Totals
Dollars $ 34,502 $ 24,150 $ 10,352 42.9 %
Homes closed 103 77 26 33.8 %
Avg sales price $ 335.0 $ 313.6 $ 21.4 6.8 %
Central Region
Arizona
Dollars $ 38,899 $ 31,967 $ 6,932 21.7 %
Homes closed 142 127 15 11.8 %
Avg sales price $ 273.9 $ 251.7 $ 22.2 8.8 %
Texas
Dollars $ 71,651 $ 84,810 $ (13,159 ) (15.5 )%
Homes closed 317 354 (37 ) (10.5 )%
Avg sales price $ 226.0 $ 239.6 $ (13.6 ) (5.7 )%
Colorado
Dollars $ 21,300 $ 15,629 $ 5,671 36.3 %
Homes closed 64 49 15 30.6 %
Avg sales price $ 332.8 $ 319.0 $ 13.8 4.3 %
Central Region Totals
Dollars $ 131,850 $ 132,406 $ (556 ) (0.4 )%
Homes closed 523 530 (7 ) (1.3 )%
Avg sales price $ 252.1 $ 249.8 $ 2.3 0.9 %
East Region
North Carolina
Dollars $ 6,547 N/A $ 6,547 N/M
Homes closed 18 N/A 18 N/M
Avg sales price $ 363.7 N/A $ 363.7 N/M
Florida
Dollars $ 31,123 $ 20,933 $ 10,190 48.7 %
Homes closed 115 71 44 62.0 %
Avg sales price $ 270.6 $ 294.8 $ (24.2 ) (8.2 )%
East Region Totals
Dollars $ 37,670 $ 20,933 $ 16,737 80.0 %
Homes closed 133 71 62 87.3 %
Avg sales price $ 283.2 $ 294.8 $ (11.6 ) (3.9 )%
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N/M = Not Meaningful
Home Orders (1)
Three Months Ended Quarter over
March 31, Quarter
2012 2011 Chg $ Chg %
Total
Dollars $ 308,329 $ 220,612 $ 87,717 39.8 %
Homes ordered 1,144 840 304 36.2 %
Avg sales price $ 269.5 $ 262.6 $ 6.9 2.6 %
West Region
California
Dollars $ 62,647 $ 27,149 $ 35,498 130.8 %
Homes ordered 187 78 109 139.7 %
Avg sales price $ 335.0 $ 348.1 $ (13.1 ) (3.8 )%
Nevada
Dollars $ 1,456 $ 4,022 $ (2,566 ) (63.8 )%
Homes ordered 8 19 (11 ) (57.9 )%
Avg sales price $ 182.0 $ 211.7 $ (29.7 ) (14.0 )%
West Region Totals
Dollars $ 64,103 $ 31,171 $ 32,932 105.6 %
Homes ordered 195 97 98 101.0 %
Avg sales price $ 328.7 $ 321.4 $ 7.3 2.3 %
Central Region
Arizona
Dollars $ 59,612 $ 34,342 $ 25,270 73.6 %
Homes ordered 249 149 100 67.1 %
Avg sales price $ 239.4 $ 230.5 $ 8.9 3.9 %
Texas
Dollars $ 108,863 $ 109,681 $ (818 ) (0.7 )%
Homes ordered 463 446 17 3.8 %
Avg sales price $ 235.1 $ 245.9 $ (10.8 ) (4.4 )%
Colorado
Dollars $ 30,313 $ 22,182 $ 8,131 36.7 %
Homes ordered 91 71 20 28.2 %
Avg sales price $ 333.1 $ 312.4 $ 20.7 6.6 %
Central Region Totals
Dollars $ 198,788 $ 166,205 $ 32,583 19.6 %
Homes ordered 803 666 137 20.6 %
Avg sales price $ 247.6 $ 249.6 $ (2.0 ) (0.8 )%
East Region
North Carolina
Dollars $ 12,079 N/A $ 12,079 N/M
Homes ordered 33 N/A 33 N/M
Avg sales price $ 366.0 N/A $ 366.0 N/M
Florida
Dollars $ 33,359 $ 23,236 $ 10,123 43.6 %
Homes ordered 113 77 36 46.8 %
Avg sales price $ 295.2 $ 301.8 $ (6.6 ) (2.2 )%
East Region Totals
Dollars $ 45,438 $ 23,236 $ 22,202 95.6 %
Homes ordered 146 77 69 89.6 %
Avg sales price $ 311.2 $ 301.8 $ 9.4 3.1 %
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(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.
Three Months Ended March 31,
2012 2011
Beginning Ending Beginning Ending
Active Communities
Total 157 150 151 141
West Region
California 20 21 14 14
Nevada 2 2 4 4
West Region Total 22 23 18 18
Central Region
Arizona 37 32 32 32
Texas 67 67 82 73
Colorado 10 8 9 9
Central Region Total 114 107 123 114
East Region
North Carolina 3 4 0 0
Florida 18 16 10 9
East Region Total 21 20 10 9
Three Months Ended March 31,
2012 2011
Cancellation Rates (1)
Total 15 % 17 %
West Region
California 15 % 14 %
Nevada 33 % 5 %
West Region Total 16 % 13 %
Central Region
Arizona 9 % 9 %
Texas 15 % 21 %
Colorado 10 % 11 %
Central Region Total 12 % 18 %
East Region
North Carolina 6 % N/A
Florida 29 % 22 %
East Region Total 25 % 22 %
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(1) Cancellation rates are computed as the number of cancelled units for the period divided by the gross sales units for the same period.
Order Backlog (1)
At March 31, Year over Year
2012 2011 Chg $ Chg %
Total
Dollars $ 353,161 $ 244,939 $ 108,222 44.2 %
Homes in backlog 1,300 940 360 38.3 %
Avg sales price $ 271.7 $ 260.6 $ 11.1 4.3 %
West Region
California
Dollars $ 56,989 $ 21,273 $ 35,716 167.9 %
Homes in backlog 172 61 111 182.0 %
Avg sales price $ 331.3 $ 348.7 $ (17.4 ) (5.0 )%
Nevada
Dollars $ 1,336 $ 3,412 $ (2,076 ) (60.8 )%
Homes in backlog 7 16 (9 ) (56.3 )%
Avg sales price $ 190.9 $ 213.3 $ (22.4 ) (10.5 )%
West Region Totals
Dollars $ 58,325 $ 24,685 $ 33,640 136.3 %
Homes in backlog 179 77 102 132.5 %
Avg sales price $ 325.8 $ 320.6 $ 5.2 1.6 %
Central Region
Arizona
Dollars $ 65,945 $ 34,355 $ 31,590 92.0 %
Homes in backlog 265 147 118 80.3 %
Avg sales price $ 248.8 $ 233.7 $ 15.1 6.5 %
Texas
Dollars $ 130,706 $ 136,478 $ (5,772 ) (4.2 )%
Homes in backlog 542 555 (13 ) (2.3 )%
Avg sales price $ 241.2 $ 245.9 $ (4.7 ) (1.9 )%
Colorado
Dollars $ 32,506 $ 23,517 $ 8,989 38.2 %
Homes in backlog 97 74 23 31.1 %
Avg sales price $ 335.1 $ 317.8 $ 17.3 5.4 %
Central Regional Totals
Dollars $ 229,157 $ 194,350 $ 34,807 17.9 %
Homes in backlog 904 776 128 16.5 %
Avg sales price $ 253.5 $ 250.5 $ 3.0 1.2 %
East Region
North Carolina
Dollars $ 14,148 N/A $ 14,148 N/M
Homes in backlog 39 N/A 39 N/M
Avg sales price $ 362.8 N/A $ 362.8 N/M
Florida
Dollars $ 51,531 $ 25,904 $ 25,627 98.9 %
Homes in backlog 178 87 91 104.6 %
Avg sales price $ 289.5 $ 297.7 $ (8.2 ) (2.8 )%
East Region Totals
Dollars $ 65,679 $ 25,904 $ 39,775 153.5 %
Homes in backlog 217 87 130 149.4 %
Avg sales price $ 302.7 $ 297.7 $ 5.0 1.7 %
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(1) Our backlog represented net sales that have not yet closed.
Operating Results
Companywide. Home closing revenue for the three months ended March 31, 2012 increased $26.5 million or 14.9% when compared to the same period in the prior year, primarily due to the increase in number of closings by 81 units and an increase in average sales prices of $7,000, or 2.7%. During the first quarter of 2012, we also experienced a significant increase in both units and average sales prices for home orders. The 304-unit increase in sales and $6,900 increase in average sales price for the quarter ended March 31, 2012 over the prior year period increased total order value by $87.7 million, or 39.8%. The increases in average sales prices reflect the higher prices of our newer closer-in communities and a shift to larger square footage homes with corresponding higher average sales prices in certain markets, in addition to our ability to modestly increase sales prices in many of our communities throughout the country. The higher sales led to an increase in ending backlog to 1,300 units, a 44.2% increase valued at $353.2 million as compared to 940 homes at March 31, 2011 valued at $244.9 million.
West. In the first quarter of 2012, home closings in our West Region increased 26 units or 33.8%, for total revenue of $34.5 million, reflecting more stabilized market conditions in the current year in California, where we experienced a 109-unit or 139.7% increase in orders year over year. Sales for the Region in the first quarter of 2012 increased to $64.1 million on 195 units as compared to $31.2 million on 97 units in the same quarter of last year. The increases in year-over-year sales activity is from our newer California communities, which led to a 102-unit or 132.5% increase in our ending backlog in the Region as of March 31, 2012 versus 2011. California had a 46.4% increase in active community count year over year that, together with an approximate 62.5% increase in average sales per community, resulted in our increased sales volume. The Nevada market saw declines in closings, orders and backlog in 2012, and this trend is expected to continue as we wind down our operations in this market.
Central. In the first quarter of 2012, home closing units and average sales prices in our Central Region remained relatively flat for total revenue of $131.9 million compared to $132.4 million the first quarter of 2011. Average sales per community in all states experienced significant improvements of 53.2%, 27.8%, and 19.0% in Arizona, Colorado and Texas, respectively as compared to the same period a year ago. We have been successful in capturing market share with our product offerings and well-located communities in this Region, allowing us to modestly increase sales prices in many communities. The overall increase in year-over-year sales in the Region resulted in 904 units in backlog, a 16.5% increase from March 31, 2011.
Texas remained our highest volume market in the Region, and the country, and accordingly was the driver of the Region's performance. Declines in Texas closings were primarily the result of our lower community count, mostly offset by increases in both Arizona and Colorado. Texas' average active community count dropped 13.5% in the first quarter as compared to the prior year, as our communities are closing out faster than we are replacing them with additional openings, which directly resulted from the 19.0% increase in our sales pace. We are actively working to open recently acquired replacement communities and we have about a dozen new communities with approximately 600 lots expected to open in the next six months.
Arizona orders of 249 units for the three months ended March 31, 2012 versus 149 for the same period a year ago represent a 67.1% increase. Arizona has benefitted from the shift to newer, closer-in communities with larger square footage homes, contributing to a 3.9%, or $8,900 increase in average sales price per home, which aided the overall increase in order dollars for the three months ended March 31, 2012 to $59.6 million. Colorado contributed 64 closings and $21.3 million of associated revenue, a 36.3% revenue increase over the same period a year ago. Colorado experienced the greatest increase in sales prices both in the Region as well as the entire company, recognizing a $13,800 and $20,700 increase on sales prices for closings and orders, respectively.
East. In the first quarter of 2012, home closings in our East Region increased 62 units or 87.3% with a decrease in average sales price to $283,200, for total revenue of $37.7 million, an 80.0% increase as compared to the first quarter of 2011. The Region's orders increased to 146 units, a 69-unit or 89.6% increase for the quarter ended March 31, 2012, with a $9,400 increase in average sales price. The Florida market was the largest contributor to the Region's results, although North Carolina provided its first full quarter of operations, which contributed 18 closed units totaling $6.5 million in revenue, 33 units, and $12.1 million in order volume and 39 units in backlog , valued at $14.1 million from four actively-selling communities. The average price increases for the Region for home orders are attributed to both the success of new communities opened over the past several quarters that are delivering a high volume of sales and closings, as well as the Region's introduction of larger home offerings with our Meritage Green features, particularly in the healthy North Carolina market. The Region's higher sales resulted in an increase in ending backlog to 217 units, or $65.7 million, a 130-unit or 149.4% increase over the same period a year ago. The Region's current community supply is primarily comprised of well-located lots purchased in the last several years at reasonable prices, and we believe the lower lot basis, desirability of our locations and the Meritage Green product offering has helped the overall performance of this Region to a greater extent than most of our other markets.
Operating Information (dollars in thousands)
Three Months Ended March 31,
2012 2011
Dollars Percent Dollars Percent
Home Closing Gross Profit
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