Meritage Corporation (MTH)

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Meritage Homes Corporation (MTH)

Q1 2010 Earnings Call Transcript

April 29, 2010 10:30 a.m. ET


Brent Anderson - VP, IR

Steve Hilton - Chairman and CEO

Larry Seay - EVP and CFO


Joshua Pollard - Goldman Sachs

Steven East - Ticonderoga Securities

Nishu Sood - Deutsche Bank

Carl Reichardt - Wells Fargo

Dan Oppenheim - Credit Suisse

Alan Ratner - Zelman & Associates

Josh Levin - Citigroup

David Goldberg - UBS

Jade Rahmani - Keefe, Bruyette & Woods

Jim Wilson - JMP Securities

Ken Leon - Standard & Poor's



Greetings and welcome to the Meritage Homes first quarter 2010 earnings call. (Operator Instructions)

It is now my pleasure to introduce your host Mr. Brent Anderson, Vice President of Investor Relations for Meritage Homes.

Brent Anderson

Good morning. I'd like to welcome everyone to the Meritage Homes first quarter 2010 earnings call and webcast. Our quarter ended March 31 and we issued our press release with the 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 or by selecting the Investors link at the top of our homepage.

Please refer to slide two of our 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 these risk factors, please see our press release and the most recent filings with the Securities and Exchange Commission, specifically our 2009 Annual Report on Form 10-K.

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

With me today to discuss our results are Steve Hilton, Chairman and CEO of Meritage Homes; and Larry Seay, our Executive Vice President and CFO. We expect our call to run 45 to 50 minutes this morning, and a replay of this call should be available on our website within an hour or so after we conclude the call. It will remain active for 30 days.

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

Steve Hilton

Thank you, Brent. I'd like to welcome everyone to our call today. I'll begin with an overview of our first quarter 2010 operating highlights shown on slide four.

Our number one goal, as we've stated for the last couple of quarters, was to return to profitability in 2010. So we are pleased to report that we were profitable in the first quarter without a large tax benefit and without having to add back impairments to get there. After three long years of fighting to return to profitability, it feels good to say we're operating in the black for the first time since the housing downturn began.

As our first quarter results demonstrate, we've reduced our cost structure to a breakeven point of approximately 3,200 home closings, less than one-third of what we did in 2006. Accordingly, to the extent that we achieved closing volumes above that point or continuing to improve margins, greater profitability should follow.

Our profitability this quarter was largely driven by our improved margins on home closings. First quarter home closing gross margin improved to 18.9% in 2010 from 7.5% in 2009 or 19.2% versus 12% if we exclude impairments of $0.5 million this year and $10 million last year. We generated $38 million in gross profit on our home closing in the first quarter 2010, more than double of the $17 million of gross profit we reported last year.

We increased sales 8% year-over-year to 1,064 homes, which was 71% higher than the fourth quarter of 2009. Despite having a fewer open communities, we achieved 24% greater sales per community than in the first quarter of 2009. As a result, our ending backlog increased sequentially by 23% from the end of 2009.

These operating results highlight our successes in reducing cost. We design our homes and position the right product in the right communities. We opened 16 new communities in the first quarter of 2010, and we expect to open more than 20 within the next six months. We also contracted for approximately 1,600 lots in 21 communities, which we believe will lead to continued improvements in our sales pace and margins.

We reported net earnings of $3 million or $0.08 per diluted share for the first quarter of 2010 compared to a net loss of $18 million or a negative $0.60 per diluted share in the first quarter of 2009.

We had $10 million of pre-tax charges due to real estate impairments in the first quarter of 2009 and only about $0.5 million of impairments in 2010. Our first quarter 2010 results include a $2.4 million gain from a legal settlement, and our 2009 results include a $2.8 million gain on early extinguishment of debt.

Slide five. First quarter home closing gross margin improved significantly this quarter to 18.9% or 19.2% excluding a minor amount of impairments, as shown in the slide. On a comparable basis, we increased it from 12% in the first quarter of 2009 and 14.9% in the fourth quarter, surpassing even the first quarter of 2007 margin of 18.7%.

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