Meritage Corporation (MTH)

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Meritage Homes Corporation (MTH)

Q3 2012 Earnings Call

October 25, 2012 10:30 am ET

Executives

Brent Anderson – VP-Investor Relations

Steven J. Hilton – Chairman and Chief Executive Officer

Larry W. Seay – Executive Vice President and CFO

Analysts

Jason Marcus – JPMorgan

Stephen Kim – Barclays Capital Inc.

Ivy Zelman – Zelman & Associates

Dan Oppenheim – Credit Suisse

Stephen East – ISI Group

David Goldberg – UBS Securities

Joshua Pollard – Goldman Sachs

Robert Hansen – Deutsche Bank

Alex Barron – Housing Research Center

Jade Rahmani – Keefe, Bruyette & Woods

Adam Rudiger – Wells Fargo Securities, LLC

Joel Locker – FBN Securities

Presentation

Operator

Good day, and welcome to the Meritage Homes Third Quarter 2012 conference call. All participants will be in a listen-only mode. (Operator Instructions) After today’s presentation, there will be an opportunity to ask question. (Operator Instructions) Please note this event is being recorded.

I’d now like to turn the conference over to Mr. Brent Anderson. Mr. Anderson, the floor is yours sir.

Brent Anderson

Thank you, Mike. Good morning, everyone. I’d like to welcome you to our analyst conference call today. Third quarter 2012 ended on September 30 and we issued our press release with our results before the market open today. If you need a copy of the release or the slides that accompany our webcast, you can find them on our website at investors.meritagehomes.com or by selecting the Investors link at the top of our home page.

Turning to slide 2, the Safe Harbor language, 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 those risk factors, please see our press release and our most recent filings with the Securities and Exchange Commission specifically our 2010 Annual Report on Form 10-K and our 10-Qs for the first and second quarters of 2012.

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

Our speakers today are Mr. Steve Hilton, Chairman and CEO of Meritage Homes; and Larry Seay, our Executive Vice President and CFO. We expect our call to be concluded in about an hour and a replay will be available within an hour. So after that, we will remain active for at least 30 days.

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

Steven J. Hilton

Thank you, Brent. I’d like to welcome everyone to our call today. I’m pleased with our results for the third quarter. We reported net earnings of $6.8 million or diluted EPS of $0.19 a share, which could have been $0.43 a share if not for an $8.7 million non-cash charge related to our ongoing and unresolved litigation surrounding the old South Edge joint venture in Las Vegas.

By comparison, we reported a net loss of $3.2 million or negative $0.10 per diluted share last year. So our year-over-year improvement was $0.53 per diluted share if you exclude the charge for litigation reserve. Our other key performance metrics improved across the Board over the third quarter of 2011.

Home closings were up 43%, closing revenue was up 54%. Home closing gross margin was up 110 basis points. Orders were up 33% with a 13% increase in ASPs on top of that. We knew the quarter with a total backlog value of 17% and we grew our total lots supply and raise additional capital to continue to take advantage of opportunities for additional growth as the market improves.

The housing market continues to show strength this year over last year within our markets. Many buyers who were previously hesitant or unable to purchase a home have gained confidence and are beginning to enter the market again.

Where listings down, buyers looking for a home are finding fewer alternatives available and are seeing prices increase which creates urgency in turn. Other potential buyers who may have been living in existing home that was under water have now seen their value of their home appreciate allowing them to move to a new home which is good for move up homebuilders like Meritage. Because most of our customers are move up buyers who have an easier time getting a new mortgage. These recent trends have been positive for Meritage.

We’ve seen an increase in demand as orders were 39% higher through the first nine months of 2012 in a year-over-year comparison. In addition to improving customer demand, we’re achieving higher absorptions due to better locations of our communities with fresh new part designs and industrially energy efficiency. While the recovery in demand has been pretty broad across all markets with every state showing year-over-year gains in orders and backlog, the market is hard to set during the downturn continue to outperform.

Slide 5, California let again this quarter with the strongest sales per community at more than four per month, and more than double their orders from last years third quarter. Their ASP was also up about 13% which pushed their total order value up 131% over the prior year. For the first three quarters of 2012, California posted 144% increase in orders, and their backlog value at the end of September 2012 was 212% higher than a year ago.

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