•Net income increased by $16.8 million for the first quarter to $12.0 million or $0.32 per diluted share, from a loss of $4.8 million or ($0.15) per share in the first quarter of 2012, primarily due to higher home closing revenue and gross margins, supplemented by leveraging overhead expenses. •Home closing revenue increased 62% over the prior year as a result of 39% more closings and a 17% increase in the average price of homes closed during the quarter. •Home closing gross margin increased to 19.5% in the first quarter of 2013, from 17.2% in the first quarter of 2012 and 18.9% in the fourth quarter of 2012. •Commissions and other sales costs in the first quarter decreased as a percentage of home closing revenue to 7.8% in 2013 from 9.3% in 2012. •General and administrative expenses declined to 5.9% of first quarter revenue in 2013, from 7.2% in 2012, as revenue grew at nearly twice the rate of increase in general and administrative expenses. •Interest expense declined to 1.5% of first quarter revenue in 2013 compared to 3.6% in 2012. •As a result, first quarter pre-tax margin increased 710 bps to 4.9% in 2013 from (2.2%) in 2012, or $16.5 million in 2013 pre-tax income compared to a pre-tax loss of $4.6 million in 2012.
BALANCE SHEET STRENGTH
•Meritage replenished its land pipeline by spending approximately $75 million on land acquisition and development in the first quarter of 2013, and added approximately 1,600 lots under contract during the quarter. •Total lot supply at the end of the quarter was approximately 21,000, compared to approximately 17,200 a year earlier. Based on trailing twelve months closings, the March 31, 2013 balance represents a 4.6 year supply of lots. •In March, Meritage issued $175 million of 4.50% senior notes due 2018, in anticipation of retiring $100 million of 7.731% notes due 2017, thereby securing $75 million of additional capital for growth with minimal added interest expense. Of the $100 million 7.731% issue, $17 million was retired in the first quarter and the remaining $83 million balance was retired in the second quarter of 2013. •The company ended the first quarter of 2013 with $453 million in cash and cash equivalents, restricted cash and securities, an increase of $176 million over the March 31, 2012 total of $277 million. Net debt to total capital ratio decreased to 37.6% at March 31, 2013, from 40.4% at March 31, 2012.
"We believe job growth in most of our markets has increased demand for homes, and the limited supply of available resale homes has driven more prospective home buyers to new construction. Existing homeowners are also choosing to take advantage of historically low interest rates and very affordable prices to trade up, increasing the demand for new homes in already constrained markets," said Mr. Hilton. "We expect increasing prices to help regulate orders to some degree, but we believe the homebuilding market is poised for continued growth for years to come, and Meritage is well positioned to capture much of that growth.
"Based on our projections for opening new communities, coupled with a modest increase in average sales per community and higher average sales prices, we are projecting approximately a 40-45% year-over-year increase in home closing revenue for each of the three remaining quarters of 2013. Assuming some additional improvement in margins -- which are being somewhat constrained by rising construction costs -- and the operating leverage demonstrated in our first quarter results, we would anticipate earnings per diluted share in the range of $2.20-$2.45 for the year, representing a 350%-400% increase in pretax earnings."
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