Meritage Corporation (MTH)

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Meritage Homes Corporation (MTH)

Q1 2009 Earnings Call

April 28, 2009 11:00 am ET

Executives

Brent Anderson - VP, IR

Steve Hilton - Chairman and CEO

Larry Seay - EVP and CFO

Analysts

David Goldberg - UBS

Nishu Sood - Deutsche Bank

Russell Lane - Credit Suisse

Carl Reichardt - Wachovia Capital Markets

Joshua Pollard - Goldman Sachs

Timothy Jones - Wasserman & Associates

Jim Wilson - JMP Securities

Joel Locker - FBN Securities

Bose George - KBW

Presentation

Operator

At this time, I would like to welcome everyone to the Meritage Homes first quarter 2009 analyst conference call. (Operator Instructions).

I would now like to turn the call over to Mr. Brent Anderson, Vice President, Investor Relations. Mr. Anderson, you may begin your conference.

Brent Anderson

Thank you, Sarah. Good morning. I would like to welcome you to the Meritage Homes, first quarter 2009 earnings call and webcast. Our quarter ended on March 31, and we issued a press release with our results for the quarter after the market closed yesterday.

If you need a copy of the release or the slides that accompany our webcast today, you can find them on our website at www.investors.meritagehomes.com, or by selecting the Investor's link at the top of our homepage.

Refer to slide two in the presentation. Our statements during this call and the accompanying materials contain projections and forward-looking statements which are the current opinions of management and subject to change. We undertake no obligation to update these projections or opinions. Additionally, our actual results may be materially different than our expectations due to various risk factors.

For information regarding our risk factors, please see our press release and most recent filings with the Securities and Exchange Commission, specifically our 2008 Annual Report on Form 10-K and our first quarter 2009 report of Form 10-Q after it's filed.

Today's presentation also includes certain non-GAAP financial measures as defined by the SEC. To comply with their rules, we have published or provided a reconciliation of the non-GAAP measures in our earnings press release.

With me today to discuss the quarter are Steve Hilton, Chairman and CEO of Meritage Homes, and Larry Seay, our Executive Vice President and CFO. We expect our call to run about an hour this morning so that we end before noon Eastern Time.

I'll now turn the call over to Mr. Hilton to review our first quarter results. Steve?

Steve Hilton

Thank you, Brent. I would like to welcome everyone to our call today. I will begin with slide four, if you are following one on the webcast. The continued weakening of the housing market over last year was reflected in our revenue decline and net loss in the first quarter 2009.

However, despite harsh conditions, many of our results were positive this quarter. We ended the quarter with $344 million in cash, an increase of $138 million from our year-end 2008.We reduced our net debt to capital ratio to 35% at quarter end.

We lowered our general and administrative expenses by 35% year-over-year, and we generated $10 million of first quarter adjusted EBITDA. We nearly doubled our net orders over the fourth quarter of 2008, and we are positioned to take advantage of opportunities to acquire lots at lower prices will help us return to profitability more quickly.

Slide five. We generated positive cash flow of $139 million from operations during the first quarter. This is our sixth consecutive quarter of positive cash flow. We ended the quarter with $344 million of cash, the largest cash balance we have ever carried with no bank debt outstanding since we paid it off early last year.

Our cash balance includes the collection of $108 million of tax refunds in March, which we obtained by carrying back tax losses from 2008 to reclaim taxes paid in 2006. The increase in cash generated on our balance sheet proved our liquidity and reduced our leverage.

Our net debt to capital ratio decreased to 35% at March 31, 2009 from 45% at the end of 2008, and 47% at March 31, 2008. Considering that we are in compliance with all of our covenants and have no bond maturities until 2014, that includes liquidity represents additional capital available for selective future acquisitions of new lots at lower prices.

Slide seven. Our first quarter home closing revenue declined 38% year-over-year to the 30% fewer homes closed and 11% reduction in average closing price. We also had 21% fewer actively selling communities at the end of the first quarter than we had a year ago which contribute to our decreases in both closings and sales.

Our closing per communities were down just 12% year-over-year. We closed 932 homes at an average price of about $248,000 in the first quarter compared with 1,328 homes closed at an average price of about $280,000 in the first quarter of last year.

Slide eight. Our impairments this quarter were lower than they have been since the downturn began. Our charges for real estate related valuation adjustments were $10 million in the first quarter of 2009, 83% lower than the $60 million charges we incurred in the first quarter of 2008.

The lower impairments were the result of our greatly reduced lots in our option contracts and our minimal remain investment and joint ventures. Together, these accounted for approximately $30 million of impairments incurred in the first quarter 2008 and then our much lower inventories of lots and homes compared to last year. Nearly, all of our impairments in the first quarter this year related to specific homes or lots rather than impairing entire communities as we did in 2008.

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