Meritage Homes Reports Record First Quarter 2006 Results

HIGHLIGHTS OF THE QUARTER:

-- Home Closing Revenue, Net Earnings and Diluted EPS Set First Quarter Records

-- Backlog of $2.17 Billion Increased 22% Year over Year

-- Company Repurchased 856,000 Shares During the Quarter, Representing 3% of Total Outstanding Shares

-- Company Projects 19th Consecutive Record Year and Reaffirms Guidance of $3.8-$3.9 Billion in Revenue and $11.25-$11.50 in Diluted EPS for 2006

Meritage Homes Corp. (NYSE: MTH) today announced first-quarterrecord results for the period ended March 31, 2006. Home closingrevenue increased 54% year-over-year to $846 million, net earningsincreased 82%(a) to $80 million, and diluted earnings per share (EPS)increased 85%(a) to $2.86, each setting new first quarter records forMeritage.

Summary Operating Results (Unaudited)
(dollars in thousands, except per share amounts)

Three Months Ended March 31,
2006 2005 % Change
---------------------------------------------------------------------
Homes closed (units) 2,528 1,787 41%
---------------------------------------------------------------------
Home closing revenue $846,374 $550,947 54%
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Sales orders (units) 2,590 2,639 -2%
---------------------------------------------------------------------
Sales orders $832,618 $881,346 -6%
---------------------------------------------------------------------
Ending order backlog $2,167,844 $1,781,196 22%
---------------------------------------------------------------------
Including one-time charge:
Net earnings $79,736 $24,196 230%
Diluted EPS $2.86 $0.86 233%
---------------------------------------------------------------------
Excluding one-time charge:
Net earnings $79,736 $43,742 (a) 82%
Diluted EPS $2.86 $1.55 (a) 85%
---------------------------------------------------------------------
(a) Excludes one-time charge of $19.5 million after-tax related to
first quarter 2005 debt refinancing. (See "Operating Results"
statement for reconciliation.)

Record home closing revenue was driven by a 41% increase in homesclosed, coupled with a 9% increase in average selling price (ASP).Meritage closed 2,528 homes in the first quarter 2006, compared to1,787 in the first quarter last year, reflecting the company'sexpansion into new markets and robust order demand in 2005. ASPs onhome closings increased to approximately $335,000 from $308,000year-over-year as a result of strong demand for homes in 2005 and agreater portion of closings in higher-priced markets.

Home closing gross margin increased to 25.3%, from 21.7% in thefirst quarter 2005, driven by record sales in 2005 and effective costmanagement. Pre-tax margin grew similarly to 15.5% from 12.7% a yearago, excluding a one-time charge related to refinancing of long-termdebt in the first quarter 2005.

"Our revenue and earnings in recent quarters reflect the robustselling conditions and positive mix of high-margin markets in 2005,"said Steven J. Hilton, Meritage co-chairman and chief executiveofficer. "Our strategy of focusing on markets in the South and Westhas allowed us to benefit from the positive homebuilding environmentin recent years and deliver record results to our stockholders. We arepositioned today in some of the best housing markets in the countryeven as certain markets have softened in recent months."

Aggregate orders in the first quarter of 2006 nearly matched thosefrom the first quarter of 2005, when Meritage experienced a 49%increase in order value over the first quarter of 2004. Of particularnote, total order value in Texas climbed 48% this quarter, led byespecially strong sales in Houston. The gains in Texas helped offsetdeclines in Northern California and Phoenix, where speculativeactivity and high price appreciation in 2005 has recently contributedto higher-than-average cancellation rates in those markets.

"Our diversification strategy is proving to be effective inpositioning us to better weather the ebb and flow of housing marketconditions in various markets," added John R. Landon, Meritageco-chairman and chief executive officer. "We believe we're located inmany of the best states for long-term homebuilding opportunities, andare optimistic about our prospects for the future. We now operatecoast to coast across the South and West in 14 markets in six states,whereas we were in seven markets in three states just four years ago."

The change in first quarter order ASP from approximately $334,000in 2005 to $321,000 in 2006 primarily reflects a mix shift with moresales in Texas and fewer in California. Texas includes Houston andDallas/Fort Worth, two of the company's four largest divisions. Therelative affordability of Texas and strong underlying economy hashelped improve housing demand and margins there.

"We believe it is important to maintain our relatively low-riskmanagement strategies as some of our markets adjust to moresustainable levels," concluded Hilton. "We continue to manage ourstrong balance sheet very carefully, which has both enabled our growthand affords us flexibility as we face the challenges and opportunitiesin a dynamic marketplace."

The company reported a net-debt-to-capital ratio of 40.5% at March31, 2006, a 331 basis-point improvement over 43.8% at March 31, 2005.Meritage also reported significant improvements in its interestcoverage and debt to EBITDA ratios, and continued to produce some ofthe best returns in the industry. After-tax return on assets improvedto 17.4% from 11.2%, and return on equity improved to 40.8% from27.3%, based on trailing four quarters' results this year compared toa year ago. Citing these factors and the company's relatively lowinventory levels, high inventory turnover and option strategy forcontrolling land, S&P Rating Services upgraded its outlook forMeritage from stable to positive and affirmed the company's debtratings of BB-.

Also during the first quarter of 2006, Meritage repurchased856,000 shares of its stock, representing approximately 3% of thecompany's outstanding shares, at an aggregate cost of $49.3 million oran average price of $57.59 per share. Approximately $86.3 millionremains available for additional share repurchases under the company'scurrent authorization.

"Our solid increase in first-quarter earnings, a healthy backlog,and the increase in active communities positions us to achieve furthergrowth in 2006 despite a slowing pace of sales in some of ourmarkets," stated Landon. Order backlog value held steady during thequarter at approximately $2.2 billion, a 22% increase year-over-yearat March 31, and equates to more than 70% of the company's projectedrevenue for the remainder of 2006. "A good portion of our springselling season lies ahead, and Meritage is well positioned with 26%more actively selling communities and a more diversified base than wehad one year ago.

"We continue to monitor and evaluate market conditions. Based oncurrent conditions, we expect home closing revenue to be up 35-40% ona year-over-year basis in the second quarter this year, whichcontributes to reaching our $3.8-$3.9 billion estimate for the fullyear, and represents 27-30% growth over 2005." Landon continued, "Asprices moderate in certain markets, and a greater mix of our salescomes from markets with lower margins, we expect our average marginsto trend lower toward more historic levels. Therefore, we currentlyproject diluted EPS in the range of $2.70-$2.80 next quarter, andmaintain our guidance of $11.25-$11.50 for the year, translating toour 19th consecutive record year for revenue and net earnings in2006."

A conference call will be held Wednesday, April 26, 2006, at 10a.m. EDT to discuss the results of the quarter. The dial-in number is800-510-0178, and participants are encouraged to dial in five minutesbefore the call begins. A webcast of the call and accompanyingmaterials will be accessible on the "Investor Relations" page of thecompany's Web site at http://www.meritagehomes.com.

A replay of the call will be available after 12 p.m. EDT April26, 2006, through midnight May 26, 2006, by dialing 888-286-8010, andreferencing passcode 57700829. The webcast replay will be available onthe "Investor Relations" page of the company's Web site, and throughCCBN for two weeks at www.fulldisclosure.com.
Meritage Homes Corp. and Subsidiaries
Operating Results
(Unaudited)
(In thousands, except per share data)

Three Months Ended
March 31,
2006 2005
---------- ----------
Operating Results

Home closing revenue $846,374 $550,947
Land closing revenue 51 221
---------- ----------
Total closing revenue 846,425 551,168

Home closing gross profit $214,063 $119,325
Land closing gross profit (loss) (22) 9
---------- ----------
Total closing gross profit 214,041 119,334

Commissions and other sales costs (48,027) (31,471)
General and administrative expenses (a) (42,722) (21,997)
Other income, net 7,499 4,135
Loss on extinguishment of debt - (31,280)
---------- ----------
Earnings before provision for income taxes 130,791 38,721
Provision for income taxes (51,055) (14,525)
---------- ----------
Net earnings $79,736 $24,196
========== ==========

Earnings per share:
Basic:
Earnings per share $2.96 $0.92
Weighted average shares outstanding 26,974 26,218

Diluted:
Earnings per share $2.86 $0.86
Weighted average shares outstanding 27,876 28,184

Reconciliation to exclude one-time charge (b):
---------------------------------------------
Earnings before provision for income taxes $38,721
Add: Loss on extinguishment of debt 31,280
----------
Adjusted amounts:
Earnings before provision of income taxes 70,001
Provision for income taxes (26,259)
----------
Net earnings $43,742
==========

Basic earnings per share $1.67
Diluted earnings per share $1.55

(a) 2006 includes approximately $2.7 million of stock-based
compensation expense related to implementing FAS123R which was not
effective in 2005.
(b) First quarter 2005 bond refinancing charge related to our
repurchase of $276.8 million of our 9.75% senior notes due 2011.
The funds to repurchase these bonds came from our concurrent
issuance of $350.0 million 6.25% senior notes due 2015.
Meritage Homes Corp. and Subsidiaries
Non-GAAP Financial Disclosures
(Unaudited)
(Dollars in Thousands)

Three Months Ended Four Quarters Ended
March 31, March 31,

2006 2005 2006 2005
---- ---- ---- ----
EBITDA Reconciliation: (1)
Net earnings $79,736 $24,196 $311,205 $136,245
Provision for income taxes 51,055 14,525 197,090 83,771
Interest amortized to cost
of sales 10,744 7,928 41,612 33,473
Depreciation and
amortization 4,873 3,754 18,326 14,240
--------------------------------------------
EBITDA $146,408 $50,403 $568,233 $267,729
============================================

Interest coverage
ratio: (2)
EBITDA $568,233 $267,729
Interest incurred $44,389 $40,792
Interest coverage ratio 12.8 6.6

Debt to EBITDA ratio: (3)
Loans payable and other borrowings $648,413 $528,524
EBITDA $568,233 $267,729
Debt to EBITDA ratio 1.1 2.0

After-tax stockholder returns: (4)
Net earnings $311,205 $136,245
Average assets $1,785,990 $1,213,247
Average equity $762,744 $499,955
After-tax return on assets 17.4% 11.2%
After-tax return on equity 40.8% 27.3%

Net debt-to-capital: (5) March 31, March 31,
2006 2005
-----------------------
Loans payable and other borrowings $648,413 $528,524
Less: cash and cash equivalents 41,662 44,828
-----------------------
Net debt $606,751 $483,696
Stockholders' equity 891,540 620,595
-----------------------
Capital $1,498,291 $1,104,291
Net debt-to-capital 40.5% 43.8%

(1) EBITDA is a non-GAAP financial measure and represents net earnings
before interest expense amortized to cost of sales, income taxes,
depreciation and amortization. A non-GAAP financial measure is a
numerical measure of a company'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 company; 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 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, 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 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 payable and other
borrowings divided by the trailing four quarters EBITDA.

(4) Return on assets is defined as net earnings for the trailing four
quarters divided by the average of beginning and ending total assets
for the same period. Return on equity is defined as net earnings for
the trailing four quarters divided by the average of beginning and
ending stockholders' equity for the same period.

(5) Net debt-to-capital is calculated as notes payable and other
borrowings less cash and cash equivalents, divided by the sum of
notes payable and other borrowings, less cash and cash equivalents,
plus stockholders' equity.
Meritage Homes Corp. and Subsidiaries
Balance Sheet Data
(Unaudited)
(Dollars in Thousands)

March 31, Dec. 31,
2006 2005
----------- -----------
Total assets $2,043,826 $1,971,357
Real estate 1,502,109 1,390,803
Cash and cash equivalents 41,662 65,812
Total liabilities 1,152,286 1,120,352
Loans payable and other borrowings 648,413 592,124
Stockholders' equity 891,540 851,005
Meritage Homes Corp. and Subsidiaries
Operating Data -- Unaudited
(in thousands)

As of and for the Three Months Ended March 31,
2006 2005
---- ----
Homes Value Homes Value
----- ----- ----- -----

Homes Closed:
Texas 952 $219,084 717 $155,955
Arizona 736 225,859 599 153,955
California 423 246,883 345 194,487
Nevada 189 74,156 88 31,189
Florida (a) 212 74,302 38 15,361
Colorado 16 6,090 n/a n/a
-------- ----------- -------- -----------
Total 2,528 $846,374 1,787 $550,947
======== =========== ======== ===========

Homes Ordered:
Texas 1,312 $315,147 973 $212,601
Arizona 733 259,810 925 272,849
California 237 137,356 474 288,206
Nevada 129 49,408 129 46,856
Florida (a) 137 53,903 138 60,834
Colorado 42 16,994 n/a n/a
-------- ----------- -------- -----------
Total 2,590 $832,618 2,639 $881,346
======== =========== ======== ===========

Order Backlog:
Texas 2,533 $605,528 1,741 $369,736
Arizona 2,424 872,653 2,317 656,281
California 528 311,437 824 484,990
Nevada 289 101,652 278 94,870
Florida (a) 624 253,848 467 175,319
Colorado 58 22,726 n/a n/a
-------- ----------- -------- -----------
Total 6,456 $2,167,844 5,627 $1,781,196
======== =========== ======== ===========

1st Qtr 2006 1st Qtr 2005
------------ ------------
Beg. End Beg. End
Active ---- --- ---- ---
Communities:
Texas 108 100 89 90
Arizona 35 36 26 25
California 20 23 18 19
Nevada 6 6 6 7
Florida (a) 12 15 n/a 6
Colorado 3 5 n/a n/a
-------- ----------- -------- -----------
Total 184 185 139 147
======== =========== ======== ===========

(a) Results for Florida for the quarter ended March 31, 2005, do not
include Greater Homes, acquired in September 2005, and include
Colonial Homes only since acquisition in February 2005.

About Meritage Homes Corp.

Meritage Homes Corp. is a leader in the homebuilding industry. Thecompany is ranked by Builder magazine as the 13th largest homebuilderin the United States; was named to Forbes' "Platinum 400 - Best BigCompanies in America" for the third consecutive year; moved up theFORTUNE 1000 list the last three years and been on FORTUNE's "FastestGrowing Companies in America" list five of the last seven years; andis an S&P SmallCap 600 company. Meritage operates in fast-growingstates of the southern and western United States, including six of thetop 10 single-family housing markets in the country, and has reported18 consecutive years of record revenue and net earnings. For moreinformation about the company, visit www.meritagehomes.com. Meritageis a member of the Public Home Builders Council of America(www.phbca.org).

This press release contains forward-looking statements within themeaning of the Private Securities Litigation Reform Act of 1995. Suchstatements include statements concerning S&P's positive outlook forMeritage, our expectations of record results In 2006, our estimatedrevenue, earnings and diluted EPS for the second quarter and full year2006, our expectations of margin trends, our expectation of beneficialresults from our diversification strategy and increased number ofcommunities, and our prospects for the future. Such statements arebased upon a number of assumptions, which are subject to significantrisks and uncertainties. These assumptions may change at any time, andactual results may differ from those set forth in the forward-lookingstatements. As disclosed in this press release and our Form 10-K,demand has moderated in some of our markets with respect to orders andsales prices, order cancellations in certain markets have increased,and we expect prices in some of our other more robust markets willmoderate during the remainder of 2006 and beyond. We are monitoringthese developments and potential impacts. To the extent there is acontinued or more pronounced slowdown in one or more of oursignificant markets, it could have a material adverse effect on ourprojections and results of operations. The company makes nocommitment, and disclaims any duty, to update or revise anyforward-looking statements to reflect future events or changes inthese expectations.

Meritage's business is subject to a number of risks anduncertainties, including: fluctuations in demand, pace of salesorders, cancellation rates and home prices in our markets; interestrates and changes in the availability and pricing of residentialmortgages; a decline in housing affordability; our success in locatingand negotiating favorably with possible acquisition candidates; thesuccess of our program to integrate existing operations with any newoperations or those of past or future acquisitions including ColonialHomes of Florida and Greater Homes Inc.; our increased investments inland acquisitions and development joint ventures; our dependence onkey personnel and the availability of satisfactory subcontractors; ourability to take certain actions because of restrictions contained inthe indentures for our senior notes and the agreement for ourunsecured credit facility; our lack of geographic diversification; thecost and availability of insurance, including the unavailability ofinsurance for the presence of mold; our potential exposure to naturaldisasters; the impact of inflation; the impact of construction defectand home warranty claims; the strength and competitive pricing of thesingle-family housing market; demand for and acceptance of our homes;changes in the availability and pricing of real estate in the marketsin which we operate, our ability to acquire additional land or optionsto acquire additional land on acceptable terms, particularly in ourstartup 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 energy prices or stock markets;inflation in the cost of materials used to construct our homes; ourlevel of indebtedness and our ability to raise additional capital whenand if needed; legislative or other initiatives that seek to restraingrowth or new housing construction or similar measures and otherfactors identified in documents filed by us with the Securities andExchange Commission, including those set forth in our Form 10-K forthe year ended Dec. 31, 2005, under the caption "Risk Factors." Asa result of these and other factors, the company's stock and noteprices may fluctuate dramatically.