Meritage Homes Reports 1st Qtr 2005 Diluted EPS of $0.86

    Business Editors

    DALLAS & SCOTTSDALE, Ariz.--(BUSINESS WIRE)--April 25, 2005--

Excluding One-Time Bond Refinancing Charge, Diluted EPS is $1.55(a);
    Increases 2005 Diluted EPS Guidance

SUMMARY OPERATING RESULTS (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

Excluding One-Time Bond Refinancing Charge (a) As Reported ------------------------------------------ --------------------------- Three Months Ended Three Months Ended March 31, March 31, ------------------------------------------ --------------------------- 2005 2004 % Change 2005 2004 % Change ------------------------------------------ --------------------------- Home closing revenue n/a n/a n/a $550,947 $423,502 30% ------------------------------------------ --------------------------- Net earnings $43,742 $26,919 62% $24,196 $26,919 (10%) ------------------------------------------ --------------------------- Diluted EPS $1.55 $0.96 61% $0.86 $0.96 (10%) ------------------------------------------ ---------------------------

    (a) Excludes a one-time bond refinancing charge related to repurchasing $276.8 million of our 9.75% senior notes due 2011. The funds to repurchase these bonds came from our new $350.0 million 6.25% senior notes due 2015. This one-time bond refinancing charge reduced pre-tax earnings by $31.3 million, reduced net earnings by $19.5 million and reduced diluted EPS by $0.69.

    Note: All share, EPS and share price amounts in this press release reflect a 2-for-1 stock split effective Jan.7, 2005.

    "Net earnings and diluted earnings per share declined 10% from the first quarter of 2004 to this year's first quarter to $24.2 million and $0.86 per share, respectively, due to our recent bond refinancing that resulted in a $19.5 million after-tax one-time charge. We believe the approximately $9 million of annual savings in interest payments achieved from retiring $276.8 million of 9.75% senior notes and replacing them with new $350.0 million of 6.25% senior notes is a very positive strategic move to support the company's future success. This refinancing also locks in the very favorable rate for 10 years and we believe the benefits far offset the impact of the one-time charge. Excluding the one-time charge, net earnings increased 62% to $43.7 million and diluted EPS rose 61% to $1.55. These impressive homebuilding results are even more tremendous considering that last year's first quarter net earnings and diluted EPS were 71% and 67% higher, respectively, than the first quarter of 2003," said Steven J. Hilton, Meritage co-chairman and CEO.
    "For the first quarter of 2005, our total gross margin rose 201 basis points over the same period a year earlier to 21.7%, reflecting pricing power in many of our markets due to increased demand and our ability to manage construction and land costs," added Landon. "Our pre-tax margin declined 325 basis points from the first quarter of last year to 7.0% this past quarter, including the one-time bond refinancing charge. However, excluding this charge, our pre-tax margin increased 243 basis points over the first quarter of 2004 to 12.7%, reflecting the improvement in gross margin and our ability to leverage SG&A expenses."
    "Demand for our homes remains strong in all of our markets. Most notably, the number of homes ordered and their dollar value increased 30% and 80%, respectively, in our California division from the first quarter of 2004 to the first quarter of 2005," said Hilton. "Rising population and housing demand, combined with a restricted land supply, are providing pricing power in the California and Nevada housing markets in general. In addition, the introduction of several higher-priced communities in those states and their strong sales rates contributed to the increases in average selling prices. However, we remain committed to generally offering homes in a moderate price range in both California and Nevada. In Arizona, where the housing market continues to be very healthy, the dollar value of orders rose 31%. In the very competitive Texas housing market, our orders were up slightly quarter over quarter," added Hilton. "Our active community count in Nevada rose to seven at March 31, 2005 from one at March 31, 2004, resulting in a 96% increase in the value of sales orders there. We are also very pleased to report that we exceeded our expectations by taking a total of 138 orders for homes in our Fort Myers/Naples, Fla., division in February and March as a result of our recent acquisition of Colonial Homes of Florida."
    "Home closing revenue increased 30% to $551 million in the first quarter of this year as compared to the same period a year ago, the result of a 14% rise in the number of homes closed to 1,787 and a 14% increase in the average selling price of those homes to approximately $308,000," added Landon. "While home closing revenue rose 57% in Arizona and 49% in California, extended wet weather conditions impacted closings in Texas, Arizona and California during the quarter. Some of the homes we expected to deliver in the first quarter will close later in the year."
    "Access to the public capital markets is a critical competitive advantage for large builders such as Meritage, as illustrated by our recent $350 senior note offering," noted Landon. "In addition, in order to support our growth strategy, we further expanded our capital position by issuing 1,035,000 shares of common stock at a public offering price of $70.35 before offering costs."
    "Our forward visibility is excellent, as Meritage ended the first quarter with 5,627 homes in backlog valued at $1.8 billion, increases of 72% and 98%, respectively, over March 31, 2004," said Hilton. "To support our future growth, we had 147 actively selling communities at the end of the first quarter of 2005, a 14% increase over March 31, 2004. We expect to end the year with 160 to 165 communities open for sales, numbers 15% to 19% higher than at the beginning of the year," added Hilton. "At March 31, 2005 we had approximately 44,300 lots under control, an increase of 26% as compared to 35,251 a year earlier, of which approximately 90% are controlled through option contracts. This is one of the highest option percentages in the public homebuilding sector, which we believe has helped Meritage generate high returns on capital with lower risk. Our trailing four-quarter return on average equity stands at 27.3%, off only slightly from 27.7% for the same period a year ago, despite the one-time charge and our recent equity offering."
    The company's balance sheet reflects a net debt-to-capital ratio of 43.8% at March 31, 2005, as compared to 45.6% for the same date in 2004. For the first quarter of 2005, EBITDA decreased 5% to $50.4 million, resulting in a trailing four-quarter interest coverage ratio of 6.6 times as compared to 7.0 times for the same period a year earlier. The first quarter 2005 debt-to-trailing four quarters EBITDA ratio of 2.0 times is slightly higher than 1.9 times for the same period a year earlier. (Note: EBITDA, trailing four quarters interest coverage ratio and debt-to-trailing four quarters EBITDA ratio were impacted by the one-time bond refinancing charge discussed throughout this press release.)
    "As previously disclosed, we anticipate our full-year 2005 revenue will approximate $2.7 to $2.8 billion," added Hilton. "We expect this level of revenue to generate diluted EPS of $6.15 to $6.40, including the $0.69 one-time bond refinancing charge, an increase of 22% to 27% over 2004. Excluding this charge, our diluted EPS guidance is $6.84 to $7.09, an increase of 36% to 41% over last year."
    "These results reflect the continued overall healthy business environment for public homebuilders and Meritage's successful execution of our growth program. Supporting our continued belief that the future is bright, we have entered five new markets during the past five quarters," added Landon. "In addition to our acquisitions in Southern California and Fort Myers/Naples, Fla., we entered the Denver and Orlando markets, and most recently the Reno, Nev., market in March of this year through startup operations. We remain committed to growing our company organically, but will also seek growth through selective acquisitions and startup operations in new markets."
    Meritage will hold a conference call on Tuesday, April 26, 2005, at 11 a.m. EST to discuss its 2005 first quarter results. To participate in the call, please dial in at least five minutes before the start time. The domestic dial-in number for the call is 800-291-3314 and the international dial-in number is 706-634-0844. The company will webcast a presentation along with the conference call, which can be accessed through the company's Web site at www.meritagehomes.com or through CCBN for two weeks at www.fulldisclosure.com. A replay of the call will be available from noon EST April 26, 2005, through midnight May 3, 2005. The domestic replay telephone number is 800-642-1687, and the international replay telephone number is 706-645-9291 (refer to Conference ID # 427063).
    Meritage will hold its annual meeting of stockholders at the Fairmont Scottsdale Princess hotel in Scottsdale, Ariz., on Wednesday, May 11, 2005, beginning at 9 a.m. Arizona time.

    About Meritage Homes Corp.

    Meritage Homes Corp. is one of the nation's largest single-family homebuilders, and is traded on the NYSE, symbol: MTH. The company appears on Forbes' "Platinum 400" list as No. 1 in terms of five-year annualized total return, and is included in the S&P SmallCap 600 Index. Fortune magazine recently ranked Meritage 747th in its "Fortune 1000" list of America's largest corporations and included the Company as a "top pick from 50 great investors" in its Investor's Guide 2004. Additionally, Meritage is ranked as one of Fortune's Fastest Growing Companies in America, its fourth appearance on this list in six years. The company has built approximately 37,000 homes, ranging from entry-level to semi-custom luxury. 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. For more information about the company, please visit the Meritage Web site located at www.meritagehomes.com.

MERITAGE HOMES CORP. AND SUBSIDIARIES OPERATING RESULTS (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE DATA)

Three Months Ended March 31, 2005 2004 ---- ---- Operating Results Home closing revenue $550,947 $423,502 Land closing revenue 221 - --------- --------- 551,168 423,502

Home closing gross profit 119,325 83,163 Land closing gross profit 9 - --------- --------- 119,334 83,163

Commissions and other sales costs (31,471) (25,833) General and administrative expenses (21,997) (16,056) Other income, net 4,135 2,189 Loss from extinguishment of debt (a) (31,280) - --------- --------- Earnings before provision for income taxes 38,721 43,463 Provision for income taxes (14,525) (16,544) --------- --------- Net earnings (a) $24,196 $26,919 ========= =========

Earnings per share: Basic: Earnings per share $0.92 $1.02 Weighted average shares outstanding 26,218 26,468

Diluted: Earnings per share (a) $0.86 $0.96 Weighted average shares outstanding 28,184 28,104

    (a) Excludes a one-time bond refinancing charge related to repurchasing $276.8 million of our 9.75% senior notes due 2011. The funds to repurchase these bonds came from our new $350.0 million 6.25% senior notes due 2015. This one-time bond refinancing charge reduced pre-tax earnings by $31.3 million, reduced net earnings by $19.5 million and reduced diluted EPS by $0.69.

    Note: All share, EPS and share price amounts in this press release reflect a 2-for-1 stock split effective Jan. 7, 2005.

Trailing Four Quarter Ended Quarters Ended March 31, March 31, 2005 2004 2005 2004 ---- ---- ---- ---- EBITDA Reconciliation:(1) Net earnings $24,196 $26,919 $136,245 $105,552 Income taxes 14,525 16,544 83,771 63,765 Interest amortized to cost of sales 7,929 6,682 33,474 24,938 Depreciation and amortization 3,754 2,747 14,240 9,566 ------- -------- -------- --------- EBITDA $50,404 $52,892 $267,730 $203,821 ======= ======== ======== =========

Interest coverage ratio:(2) EBITDA $267,730 $203,821 Interest incurred $40,792 $29,110 Interest coverage ratio 6.6 times 7.0 times

Debt to EBITDA ratio:(3) Notes payable and other borrowings $528,524 $381,721 EBITDA $267,730 $203,821 Debt to EBITDA ratio 2.0 times 1.9 times

After-tax stockholder returns:(4) Net earnings $136,245 $105,552 Average assets $1,213,247 $918,705 Average equity $499,955 $381,407 After-tax return on assets 11.2% 11.5% After-tax return on equity 27.3% 27.7%

Net debt-to-capital:(5) Notes payable and other borrowings $528,524 $381,721 Less: cash and cash equivalents 44,828 11,690 -------- --------- Net debt 483,696 370,031 Stockholders' equity 620,595 440,868 -------- --------- Capital $1,104,291 $810,899 Net debt-to-capital 43.8% 45.6%

    (1) EBITDA represents net earnings before interest expense, interest amortized to cost of sales, income taxes, depreciation and amortization. EBITDA is a non-GAAP financial measure. A non-GAAP financial measure is a numerical measure of a registrant'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 issuer; 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 it 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, it 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 earnings 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.
    (2) Interest coverage ratio is calculated as the trailing four quarters EBITDA divided by the trailing four quarters interest incurred.
    (3) Debt to EBITDA ratio is calculated as notes and loans payable divided by the trailing four quarters EBITDA.
    (4) After-tax return on assets and equity are calculated as the trailing four quarters net earnings divided by the trailing four quarters average assets and equity, respectively.
    (5) Net debt-to-capital is calculated as notes payable and other borrowings less cash divided by notes payable and other borrowings less cash plus stockholders' equity.

MERITAGE HOMES CORP. AND SUBSIDIARIES BALANCE SHEET DATA (UNAUDITED - IN THOUSANDS)

March 31, 2005 Dec. 31, 2004 -------------- ------------- Total assets $1,422,935 $1,265,394 Real estate 1,002,078 867,218 Cash and cash equivalents 44,828 47,876 Real estate not owned 8,185 18,344 Total liabilities and minority interest 802,340 742,839 Notes payable and other borrowings 528,524 471,415 Stockholders' equity 620,595 522,555

MERITAGE HOMES CORP. AND SUBSIDIARIES OPERATING DATA (UNAUDITED - $ IN THOUSANDS)

For the Three Months Ended March 31 ----------------------------- 2005 2004 ---- ---- Homes $ Homes $ ----- - ----- - Homes Ordered: Texas 973 212,601 947 199,857 Arizona 925 272,849 807 208,388 California 474 288,206 365 159,831 Nevada 129 46,856 74 23,923 Florida 138 60,834 n/a n/a ----- ------- ----- ------- Total 2,639 881,346 2,193 591,999 ===== ======= ===== =======

Homes Closed: Texas 717 155,955 730 157,272 Arizona 599 153,955 381 97,932 California 345 194,487 307 130,870 Nevada 88 31,189 151 37,428 Florida 38 15,361 n/a n/a ----- ------- ----- ------- Total 1,787 550,947 1,569 423,502 ===== ======= ===== =======

Order Backlog: Texas 1,741 369,736 1,336 284,004 Arizona 2,317 656,281 1,258 348,815 California 824 484,990 538 227,290 Nevada 278 94,870 147 40,133 Florida (b) 467 175,319 n/a n/a ----- --------- ----- ------- Total 5,627 1,781,196 3,279 900,242 ===== ========= ===== =======

    (b) March 31, 2005, backlog includes 367 homes with a sales value of approximately $130 million from our February 2005 acquisition of Colonial Homes of Florida.

1st Qtr 2005 1st Qtr 2004 ------------ ------------ Active Beg. End Beg. End ---- --- ---- --- Communities: Texas 89 90 73 81 Arizona 26 25 34 31 California 18 19 14 16 Nevada 6 7 2 1 Florida n/a 6 n/a n/a --- --- --- --- Total 139 147 123 129 === === === ===

    This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements include statements concerning the future prospects of Meritage, including the benefits of our refinancing transactions, and the homebuilding industry, our projected revenue and earnings per share for fiscal 2005 and our future growth plans and the number of communities we expect to end the year with. Such statements are based upon the current beliefs and expectations of our management and are subject to significant risks and uncertainties. Actual results may differ from those set forth in the forward-looking statements.
    Meritage's business is also subject to a number of risks and uncertainties including: interest rates and changes in the availability and pricing of residential mortgages; 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; 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 greenfield startup 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 stock markets; 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 with the Securities and Exchange Commission, including those set forth in our Form 10-K for the year ended Dec. 31, 2004 under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations--Factors That May Affect Our Future Results and Financial Condition." As a result of these and other factors, the company's stock and note prices may fluctuate dramatically.

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CONTACT: Meritage Homes Corp. Larry Seay, 480-609-3330 (Arizona) Jane Hays, 972-543-8123 (Texas) or Broadgate Consultants Chris Tofalli, 212-232-2222 (New York)

KEYWORD: NEVADA ARIZONA TEXAS FLORIDA INDUSTRY KEYWORD: REAL ESTATE BUILDING/CONSTRUCTION EARNINGS SOURCE: Meritage Homes Corp.

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