Meritage Homes Corporation (MTH)
Q2 2010 Earnings Conference Call
July 28, 2010 11:30 am ET
Brent Anderson - VP IR
Steve Hilton - Chairman of the Board
Larry Seay, Executive VP and CFO
Nishu Sood - Deutsche Bank
Josh Levin - Citigroup
Stephen East - Ticonderoga Securities
Jade Romani - Keefe, Bruyette and Woods
Carl Reichardt - Wells Fargo Securities
Joshua Pollard - Goldman Sachs
Alan Ratner - Zelman Associates
David Goldberg - UBS
Dan Oppenheim - Credit Suisse
Jim Wilson - JMP Securities
Jay McCanless - Guggenheim Partners
Michael Kim - CRT Capital Group
Joel Locker - FBN Securities
Previous Statements by MTH
» Meritage Homes Corporation Q1 2010 Earnings Call Transcript
» Meritage Homes Corporation Q4 2009 Earnings Call Transcript
» Meritage Homes Corporation Q1 2009 Earnings Call Transcript
Greetings and welcome to the Meritage Homes Second Quarter 2010 Conference Call. At this time, all participants are in a listen only mode. A brief question-and-answer session will follow the formal presentation. (Operator Instructions) As a reminder, this conference is being recorded. It is now my pleasure to introduce to your host Brent Anderson, Vice President Investor Relations. Thank you, Mr. Anderson you may begin.
Thank you, Rob. Good morning, I would like to welcome you to the Meritage Home second quarter 2010 earnings call and webcast. Our quarter ended on June 30 and we issued a press release with our results for the quarter after the market closed yesterday. A new copy of the press release or the slides that accompanying our webcast today, you can find them on our website at investors.meritagehomes.com or by selecting the investor's 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 most recent filings with the Securities and Exchange Commission specifically our 2009 annual report on Form 10-K and subsequent quarterly reports on Form 10-Q. Today's presentation also includes certain non-GAAP financial measures as defined by the SEC. to comply with the SEC's 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 VP and CFO.
We expect our call to run about an hour this morning and replay of the 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 will now turn it over to Mr. Hilton to review our second quarter results. Steve?
Thank you, Brent. I would like to welcome everyone to our call today. I will begin with an overview of our second quarter 2010 operating results as shown on slide 4. When we reported our final result for 2009, we stated that our number one goal for 2010 was to return new profitability as soon as possible and to be profitable for the entire year. We achieved the first part of that goal last quarter as we are one of the first publicly traded home builders to report profit for the first quarter of 2010.
We just reported our second profitable quarter and are successfully executing our strategy to achieve our goal of profitability for the entire year. We generated net income of $4 million against the prior year net loss of $74 million which include $67 million of real estate impairments in 2009 compared to only about $300,000 of impairment in the second quarter of this year. Our net income in 2010 was reduced by $3.5 million loss on the early extinguishment of debt associated with the refinancing of approximately $200 million of our senior notes in the second quarter.
Our second quarter 2009 net loss benefited from $6.5 million gain on the early extinguishment of debt associated with our stock for debt exchange last year. If we exclude the effects of the impairments and our gains or losses is associated with the financing transactions, our adjusted pre-tax income for the second quarter of 2010 was approximately $8 million, reversing a pre-tax loss of approximately $12 million for the same period last year.
The increase in our second quarter net income was largely driven by improved margins on an increased numbers of closing. We close 36% more homes in the prior year second quarter resulted in the 32% increase in home closing revenue as average price on closing were 3% lower than 2009. We believe the increase in closing was partially due to acceleration of closings to meet the initial June 30th deadline for the home buyer tax credit as well as stronger sales in our first quarter.
Florida closed 88% more homes year-over-year, California closings were up 66% with Arizona coming in third with the 40% year-over-year increase. We nearly doubled our gross profit on that greater number of home closings generating $53 million in gross profit for the second quarter of 2010, compared to $27 million gross profit before impairments and last years second quarter.
Including the effect of the impairments in the prior years second quarter 2009, reported a gross loss of $39 million closed in which translates to a $92 million improvement in gross margins year-over-year.
Please turn to slide five, our strategy to improve profitability centers around increasing our gross margins by reducing our cost and opening new communities on lower price lots. We increased our home closing gross margin by approximately 600 basis points over the second quarter of 2009, bringing it to 18.3% from 12.3% excluding impairments from the cost of sales.