Meritage Homes at Securities Conference

JIM WILSON, ANALYST, JMP SECURITIES: We've now definitely realized we should have had homebuilder presentations in a larger room. So I apologize for that. So hopefully everybody can see or squeeze in a little further or anything else you can do -- we don't have anywhere to put more chairs.

Anyway, we are happy to have with us here again this year -- I think this is probably at least a good three or four years of coming to our conference -- Meritage Homes. Meritage has been one of the fastest-growing builders in the marketplace over the last few years. Was a pretty small company in 2000, 2001 and has done a tremendous job of expanding its operations to various parts of the country across the Sunbelt and we still think one of the best position companies in the industry for the long haul.

Happy to have here with us today the Company's CEO, Steve Hilton, and the company CFO, Larry Seay. Let me turn it over to Steve.

STEVE HILTON, CHAIRMAN AND CEO, MERITAGE HOMES CORPORATION: Thank you, Jim. We appreciate you inviting us to the conference and JMP's long history of writing research coverage for Meritage for your clients and investors and thank you for your interest and attention in Meritage today. Let's see if I can just slide this over real quick so I can get my notes on here. I apologize.

I must caution you of the usual, any projections or forward-looking statements that we offer today are subject to many risks which are described in our most recent 10-K and 10-Q and I encourage you to review these thoroughly.

Jim told us to assume that most of you are familiar with homebuilders and Meritage so I'll spend very little time on the typical background information and move quickly into the challenges we face and what we are doing to manage through these difficult market conditions.

Let me begin with just a brief profile of Meritage. Builder Magazine just published a list of the largest homebuilders, as expected Meritage moved up to the top 12 in the U.S. based on 2006 closings. Virtually all of our business is single-family detached houses primarily sold through move up homebuilders in the South and the West. We have been recognized by several publications as a well-managed company.

Our mantra is to build the right product at the right price in the right location with the right people which we believe has and will continue to make us successful.

I will address the current conditions we are facing within the context of changes we've seen in the last year or so. 2006 was a year of transition from a very strong housing market to a relatively weak one. We entered 2006 with a large backlog, nearly $2.2 billion, which drove our 2006 closings and revenue to all-time records and produced our second highest year of net earnings. Those results further strengthen our balance sheet and improved our credit ratios. However, demand for homes weakened significantly in 2006 across most of our markets as the year progressed. The notable exception was Texas where demand slowed later and more modestly.

The result was significantly lower sales, higher cancellation rates and increased discounting and incentives. These factors reduced our margins and caused us to record the first impairments and write-offs we've ever incurred.

Our first-quarter 2007 sales results were somewhat better for us than the fourth quarter of 2006 driven in part by an improved cancellation rates and in part by a normal seasonality. Our total home closings and revenue for the first quarter were close to the levels reported two years ago in 2005. Margins declined due to competitive pricing incentives, mix shifts and land related write-downs.

We remained profitable even after modest additional write-offs, reporting net earnings of $0.57 per diluted share, sales improved over the previous quarter and backlog increased accordingly. We also expanded our liquidity in February by utilizing $150 million private placement of 10 year, 7.73% senior subordinated notes to pay down a revolving bank line. Despite being in the midst of a much weaker housing market, we were upgraded to BB flat by Standard & Poor's.