Meritage Homes Corp. Reports All-Time Earnings Records

Meritage Homes Corp. Reports All-Time Earnings Records

SCOTTSDALE, Arizona & DALLAS July 27, 2005–Meritage Homes Corp. (NYSE: MTH)

ALL-TIME QUARTERLY RECORDS

– 140% INCREASE IN NET EARNINGS OVER 2ND QTR 2004 TO $59.2 MILLION

– 130% RISE IN DILUTED EPS OVER 2ND QTR 2004 TO $2.05

– 44% ADVANCE IN VALUE OF SALES ORDERS OVER 2ND QTR 2004 TO $1.0 BILLION

Meritage Homes Corp. (NYSE: MTH) today announced all-time quarterly records for net earnings, diluted earnings per share and the dollar value of sales orders.

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

Three Months Ended June 30, Six Months Ended June 30,
———————————————————————-
2005 2004 % Change 2005 (a) 2004 % Change
———————————————————————-
Home closing
revenue $651,783 $431,275 51% $1,202,730 $854,777 41%
———————————————————————-
Net earnings $59,239 $24,637 140% $83,435 $51,556 62%
———————————————————————-
Diluted EPS $2.05 $0.89 130% $2.92 $1.84 59%
———————————————————————-

(a) Includes a first quarter 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 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.

“Meritage’s exceptional performance during the second quarter of 2005 reflects the successful execution of our growth strategy. It supports our belief that among the country’s largest public builders, we have a unique potential for growth,” said Steven J. Hilton, Meritage co-chairman and CEO. “We are now operating coast to coast in many of America’s most robust housing markets and believe we still have room for growth within our existing markets and many opportunities for expansion into untapped markets.”

The company increased net earnings and diluted earnings per share 140% and 130%, respectively, to $59.2 million and $2.05 for the second quarter of 2005 over the prior year’s second quarter. Home closing revenue for the quarter was up 51% to $652 million, with the number of homes closed up 29% to 2,095. The number of homes ordered during the second quarter of 2005 rose 15% over the same period a year ago to 2,931, while the dollar value of those homes advanced 44% to $1.0 billion. For the first half of 2005, net earnings were up 62% over the same period a year ago to $83.4 million. Diluted earnings per share increased 59% over the first half of 2004 to $2.92 in the first half of 2005. Home closing revenue reached $1.2 billion in the first six months of 2005, up 41% from the same period a year ago. For the first half of 2005, Meritage took orders for 5,570 homes valued at $1.9 billion, increases of 17% and 46%, respectively.

“This quarter has indeed been outstanding for Meritage,” said John R. Landon, Meritage co-chairman and CEO. “Demand for our homes continues to be very strong and our earnings growth and margin expansion are robust. For the first time in our company’s history we eclipsed $1.0 billion in sales orders for a quarter. In addition, our gross margin increased 500 basis points over the second quarter of 2004 to 23.4% and pre-tax margin rose 532 basis points to 14.5%. This margin expansion is the result of our ability to raise home prices while managing our construction costs and leveraging our SG&A expenses.”

“Second quarter home closing revenue in California and Arizona rose 84% and 68%, respectively, over the second quarter of 2004 as those housing markets continue to expand,” added Hilton. “In Texas, where the housing market remains very competitive, we are pleased with a 15% increase in home closing revenue. In Nevada, where our closings have been down somewhat recently due to communities closing out earlier than anticipated, new home orders rose 112% during the first half of 2005 over the first half of 2004. We anticipate generating growth in closings in Nevada during the second half of 2005.”

“We are also very excited to report that during the second quarter we took orders for our first homes in our recently established startup operations in Denver and Orlando,” said Landon. “In addition, order demand in our Fort Myers/Naples, Fla., division has exceeded our expectations thus far. We anticipate that we will deliver our first homes in Orlando and Denver in the fourth quarter of this year.”

The company’s balance sheet shows a net debt-to-capital ratio(b) of 43% at June 30, 2005, compared to 50% at June 30, 2004. For the second quarter of 2005, EBITDA(b) increased 117% over the second quarter of 2004 to $108.6 million. For the twelve months ending June 30, 2005, EBITDA rose 53%, resulting in an interest coverage ratio(b) of 7.9 times as compared to 6.7 times for the comparable period a year earlier. For the twelve months preceding June 30, 2005, our debt to EBITDA ratio(b) was 1.7 times, an improvement from 2.2 times a year ago. At June 30, 2005, the company had $38 million outstanding on its bank credit facility and $301 million available to borrow after considering the facility’s most restrictive debt covenants. ((b) A definition and discussion of Meritage’s use of non-GAAP measures are included with the summary financial information at the end of this release).

“In order to support our future growth, we increased our actively selling community count to 163 at June 30, 2005, a rise of 19% over June 30, 2004 and 17% higher than at the end of 2004,” continued Landon. “At the end of the second quarter 2005, we had approximately 50,200 lots under control, of which 90% were controlled through option contracts. This level of lot supply represents about a 5.5-year supply based on our anticipated 2005 closings and is 41% higher than a year ago at this time. Much of this increase was the result of adding lots in our newer markets, particularly in Florida, to drive their rapid growth,” added Landon. “Our strong earnings growth thus far this year has also yielded stronger returns for our shareholders. For the four quarters ended June 30, 2005, our after-tax return on average equity was 31.1%, up from 26.9% a year ago, and our after-tax return on average assets was 12.8%, up from 11.0% for the same period a year earlier.”

“We are very encouraged by our results during the first half of 2005 and are excited about the growth in our existing markets, as well as the new markets we’ve entered recently,” added Hilton. “As a result of our excellent order activity during the first half of 2005, order backlog at June 30, 2005 reached $2.1 billion, up 83% over $1.2 billion at June 30, 2004, providing strong earnings visibility for the balance of the year. Accordingly, we are raising our full-year 2005 diluted EPS guidance by approximately 25% from a range of $6.15 to $6.40(c) to a range of $7.75 to $8.00(c), on our previously announced revenue guidance of $2.9 to $3.0 billion. This level of diluted EPS also represents an increase of 54% to 59% over the full-year 2004. We also anticipate our third quarter 2005 diluted EPS to approximate $2.20 to $2.30, an increase of 69% to 76% over the prior year’s third quarter,” concluded Hilton. ((c) These amounts include the impact of the first quarter bond refinancing charge of $0.69.)

Meritage will hold its second quarter earnings call on Thursday, July 28, 2005, at 10 a.m. EST. 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 conference call and presentation can be accessed through the company’s Web site at www.meritagehomes.com and through CCBN for two weeks at www.fulldisclosure.com. A replay of the call will be available from 11 a.m. EST July 28, 2005, through midnight, Aug. 4, 2005. The domestic replay telephone number is 800-642-1687, and the international replay telephone number is 706-645-9291 (passcode 7630526).

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 39,000 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
June 30,
2005 2004
————- ———–
Operating Results
Home closing revenue $651,783 $431,275
Land closing revenue 1,788 2,660
————- ———–
653,571 433,935

Home closing gross profit 152,703 79,067
Land closing gross profit 462 929
————- ———–
153,165 79,996

Commissions and other sales costs (35,869) (26,356)
General and administrative expenses (26,671) (16,794)
Other income, net 4,368 2,980
Loss on extinguishment of debt (197) -
———— ———–
Earnings before provision for income taxes 94,796 39,826
Provision for income taxes (35,557) (15,189)
———— ———–
Net earnings $59,239 $24,637
============ ===========

Earnings per share:
Basic:
Earnings per share $2.19 $0.94
Weighted average shares outstanding 27,110 26,292

Diluted:
Earnings per share $2.05 $0.89
Weighted average shares outstanding 28,906 27,824

Six Months Ended
June 30,
2005 2004
———— ———–
Operating Results
Home closing revenue $1,202,730 $854,777
Land closing revenue 2,009 2,660
———— ———–
1,204,739 857,437

Home closing gross profit 272,028 162,230
Land closing gross profit 471 929
———— ———–
272,499 163,159

Commissions and other sales costs (67,340) (52,189)
General and administrative expenses (48,668) (32,850)
Other income, net 8,503 5,169
Loss on extinguishment of debt (31,477) -
———— ———–
Earnings before provision for income
taxes 133,517 83,289
Provision for income taxes (50,082) (31,733)
———— ———–
Net earnings $83,435 $51,556
============ ===========

Earnings per share:
Basic:
Earnings per share $3.13 $1.95
Weighted average shares outstanding 26,664 26,380

Diluted:
Earnings per share $2.92 $1.84
Weighted average shares outstanding 28,545 27,964

MERITAGE HOMES CORP. AND SUBSIDIARIES
NON-GAAP FINANCIAL DISCLOSURES
(UNAUDITED)
(DOLLARS IN THOUSANDS)

Three Months Ended Six Months Ended
June 30, June 30,
2005 2004 2005 2004
——————- ——————–
EBITDA Reconciliation:(1)
Net earnings $59,239 $24,637 $83,435 $51,556
Provision for income taxes 35,557 15,189 50,082 31,733
Interest amortized to cost
of sales 9,582 7,217 17,511 13,899
Depreciation and amortization 4,270 3,017 8,024 5,764
——— ——— ——— ———-
EBITDA $108,648 $50,060 $159,052 $102,952
========= ========= ========= ==========

Interest coverage ratio:(2)
EBITDA
Interest incurred
Interest coverage ratio

Debt to EBITDA ratio:(3)
Notes payable and other
borrowings
EBITDA
Debt to EBITDA ratio

After-tax stockholder returns:
(4)
Net earnings
Average assets
Average equity
After-tax return on assets
After-tax return on equity

Net debt-to-capital: (5)
Notes payable and other
borrowings
Less: cash and cash
equivalents
Net debt
Stockholders’ equity
Capital
Net debt-to-capital

MERITAGE HOMES CORP. AND SUBSIDIARIES
NON-GAAP FINANCIAL DISCLOSURES
(UNAUDITED)
(DOLLARS IN THOUSANDS)

Trailing Twelve Months
Ended June 30,
2005 2004
——————- —————–
EBITDA Reconciliation:(1)
Net earnings $170,847 $108,877
Provision for income taxes 104,139 66,202
Interest amortized to cost
of sales 35,840 27,326
Depreciation and amortization 15,492 10,554
——————- —————–
EBITDA $326,318 $212,959
=================== =================

Interest coverage ratio:(2)
EBITDA $326,318 $212,959
Interest incurred $41,508 $31,734
Interest coverage ratio 7.9 times 6.7 times

Debt to EBITDA ratio:(3)
Notes payable and other
borrowings $561,502 $466,935
EBITDA $326,318 $212,959
Debt to EBITDA ratio 1.7 times 2.2 times

After-tax stockholder returns:
(4)
Net earnings $170,847 $108,877
Average assets $1,329,804 $986,484
Average equity $549,514 $405,299
After-tax return on assets 12.8% 11.0%
After-tax return on equity 31.1% 26.9%

Net debt-to-capital: (5)
Notes payable and other
borrowings $561,502 $466,935
Less: cash and cash
equivalents 34,104 11,735
——————- —————–
Net debt $527,398 $455,200
Stockholders’ equity 688,659 447,438
——————- —————–
Capital $1,216,057 $902,638
Net debt-to-capital 43.4% 50.4%

(1) EBITDA represents net earnings before 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 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 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) 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.

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

June 30, Dec. 31,
2005 2004
———— ————
Total assets $1,603,197 $1,265,394
Real estate 1,184,206 867,218
Cash and cash equivalents 34,104 47,876
Consolidated real estate not owned 6,272 18,344
Total liabilities and minority interests 914,538 742,839
Notes and loans payable 561,502 471,415
Liabilities related to real estate not owned 5,429 14,780
Stockholders’ equity 688,659 522,555

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

For The
Three Months Ended June 30
————————————————–
2005 2004
———————— ————————-
Homes $ Homes $
———– ———— ———– ————-
Homes Ordered:
Texas 1,067 243,490 1,022 220,056
Arizona 973 313,146 1,056 262,004
California 563 320,027 387 185,725
Nevada 221 80,788 91 32,357
Florida 99 45,138 – -
Colorado 8 3,022 – -
———– ———— ———– ————-
Total 2,931 1,005,611 2,556 700,142
=========== ============ =========== =============

Homes Closed:
Texas 856 184,229 741 160,377
Arizona 745 194,108 473 115,535
California 379 228,412 294 123,840
Nevada 66 25,493 112 31,523
Florida 49 19,541 – -
———– ———— ———– ————-
Total 2,095 651,783 1,620 431,275
=========== ============ =========== =============

Order Backlog:
Texas
Arizona
California
Nevada
Florida (d)
Colorado
Total

As Of And For The
Six Months Ended June 30
—————————————————–
2005 2004
————————- —————————
Homes $ Homes $
————- ———– ———— ————-
Homes Ordered:
Texas 2,040 456,091 1,969 419,913
Arizona 1,898 585,995 1,863 470,392
California 1,037 608,233 752 345,556
Nevada 350 127,644 165 56,280
Florida 237 105,972 – -
Colorado 8 3,022 – -
————- ———– ———— ————-
Total 5,570 1,886,957 4,749 1,292,141
============= =========== ============ =============

Homes Closed:
Texas 1,573 340,184 1,471 317,649
Arizona 1,344 348,063 854 213,467
California 724 422,899 601 254,710
Nevada 154 56,682 263 68,951
Florida 87 34,902 – -
————- ———— ———— ————-
Total 3,882 1,202,730 3,189 854,777
============= ============ ============ =============

Order Backlog:
Texas 1,952 428,997 1,617 343,683
Arizona 2,545 775,319 1,841 495,284
California 1,008 576,605 631 289,175
Nevada 433 150,165 126 40,967
Florida (d) 517 200,916 – -
Colorado 8 3,022 – -
————- ———— ————- ————
Total 6,463 2,135,024 4,215 1,169,109
============= ============ ============ =============

(d) The number and dollar value of homes closed and order backlog include the effect of the Colonial Homes of Florida acquisition, which closed in February 2005.

2nd Qtr 2005 2nd Qtr 2004
———————– ———————–
Beg. End Beg. End
———– ———– ———– ———–
Active
Communities:
Texas 90 98 81 87
Arizona 25 30 31 30
California 19 22 16 17
Nevada 7 6 1 3
Florida 6 6 n/a n/a
Colorado n/a 1 n/a n/a
———– ———– ———– ———–
Total 147 163 129 137
=========== =========== =========== ===========

This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements include statements concerning our perceptions about our growth potential in existing and new markets; that we will generate growth in home closing revenue in Nevada during the second half of 2005; the timing of home deliveries in Orlando and Denver; the amount of our lot supply and our estimated revenue and earnings per share in 2005. 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 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 slowdowns; 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 by us 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” and in Exhibit 99.1 of Meritage’s Form 10-Q for the quarter ended March 31, 2005. As a result of these and other factors, the company’s stock and note prices may fluctuate dramatically.