Meritage Homes CORP 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations Overview and Outlook The macroeconomic landscape continued to challenge the homebuilding sector in the third quarter of 2025 due to elevated mortgage interest rates, an increase in the supply of resale inventory and diminished consumer confidence. We were able to navigate these conditions by leaning in to our strategy to more effectively compete with the resale market with a sufficient inventory of affordable, move-in ready homes ready to close within 60 days, and a commitment to partner with third party brokers, who facilitate most residential real estate transactions in the U.S. We believe this strategy allows us to effectively align prospective homebuyers with immediately available homes with a comfortable monthly mortgage payment. Although we expect that mortgage rates will remain volatile and macroeconomic concerns will continue to impact consumer psychology for the near to mid-term, we believe that our interest rate buy-downs, other financing incentives and affordable price points provide us with a competitive advantage, particularly over resale homes as individual home sellers are not typically able to provide such incentives. In addition to the challenging sales environment, the homebuilding sector continues to experience elevated land costs following several years of historically high land development costs. These elevated land costs are negatively impacting our margins, although we have seen offsetting improvements in margin due to construction cycle times and material costs returning to normalized levels in the third quarter of 2025 after stabilizing in late 2024. We believe that our strategy has, and will continue to drive strong performance of key financial measures, including home closing volume, home closing gross margin, selling, general and administrative cost leveraging, balance sheet management and long-term community count growth. Summary Company Results Home closing volume of 3,685 homes in the three months ended September 30, 2025 was down 6.5% from 3,942 homes in the same prior year period. The lower closing volume combined with a 5.6% decrease in average sales price ("ASP") on closings for $1.4 billion in home closing revenue, an 11.8% decrease from $1.6 billion in the three months ended September 30, 2024. The lower ASP is a result of increased cost and utilization of incentives and geographic mix shift, and contributed to the third quarter 2025 home closing gross margin decline of 570 basis points to 19.1%, compared to 24.8% in the prior year period. The decrease in home closing gross margin was also attributable to real estate-related impairments and charges incurred related to terminated land contracts, higher lot costs, and reduced leverage of fixed costs on lower home closing revenue. These increased costs were partially offset by savings in direct costs, leading to home closing gross profit of $267.0 million in the third quarter 2025 compared to $392.6 million in the prior year period. Land closing gross profit was $0.2 million and $0.7 million in the three months ended September 30, 2025 and 2024, respectively. Financial services profit of $4.5 million in the three months ended September 30, 2025 increased from $3.1 million in the same period of 2024 due to fewer charges in the current period related to the expiration of interest rate forward commitments. Commissions and other sales costs of $99.7 million in the three months ended September 30, 2025 increased $1.8 million due to higher commission rates and broker participation, and higher maintenance and utility costs as a result of having more spec homes in inventory. General and administrative expenses of $51.8 million in the three months ended September 30, 2025 decreased $7.4 million from $59.2 million in the same period of 2024 primarily from lower compensation expense. Earnings before income taxes for the three months ended September 30, 2025 of $128.2 million decreased $121.7 million year over year from $249.9 million in the same period of 2024. The effective income tax rate of 22.6% for the three months ended September 30, 2025 increased from 21.6% in 2024 due to fewer homes qualifying for energy tax credits under the Inflation Reduction Act ("IRA") in 2025. The decrease in year-over-year profitability resulted in net earnings of $99.3 million in the three months ended September 30, 2025 versus $196.0 million in the three months ended September 30, 2024. For the nine months ended September 30, 2025, home closing volume and ASP on closings decreased 2.6% and 5.8%, respectively, for a combined decrease in home closing revenue of 8.2%. Home closing gross margin of 20.7% declined 480 basis points year over year, for a $306.1 million decrease in home closing gross profit due to greater utilization and higher cost of incentives, higher lot costs, reduced leverage of fixed costs on lower home closing revenue, and to a lessor extent, real estate-related impairments and charges incurred related to terminated land contracts, all of which were partially offset by savings in direct costs and improved construction cycle times. Year to date, commissions and other sales costs were in line with the comparable 2024 period despite the lower home closing volume. General and administrative expenses for the nine months ended September 30, 2025 increased $0.9 million year over year as lower compensation expense was more than offset by increased spend on new technology and expenses associated with start-up costs for our new divisions. Lower revenue, gross 31 margin and profitability, combined with flat selling, general and administrative expenses and an effective tax rate of 23.4% led to net income of $369.0 million for the nine months ended September 30, 2025, compared to $613.5 million for the comparable 2024 period. Home orders of 3,636 for the three months ended September 30, 2025 increased 3.5% from 3,512 home orders in the prior year quarter due to a 14.3% increase in average active communities. The higher community count was partially offset by a decrease in orders pace of 3.8 net homes per month in the third quarter of 2025, down from 4.1 in the prior year period. Home order value during the three months ended September 30, 2025 of $1.4 billion was consistent year-over-year, as the higher order volume was offset by a 4.1% decrease in ASP on orders caused by the same factors that impacted ASP on closings, discussed previously. Our cancellation rate was 11% in the third quarter of 2025, compared to 10% in the third quarter of 2024. We ended the third quarter of 2025 with 1,699 homes in backlog valued at $670.0 million, decreases of 25.6% and 28.1%, respectively, from September 30, 2024. The lower backlog units is directly tied to the backlog conversion rate of 211% during the third quarter of 2025, compared to 145% in the same quarter of 2024. The decrease in backlog and higher backlog conversion rate is a direct output of our strategy of offering move-in ready homes with a 60-day closing ready commitment, as we are selling homes later in the construction cycle and are therefore able to shorten the time between home sale and home closing. Of the homes closed in third quarter of 2025, approximately 60% were sold within the same quarter, compared to approximately 44% in the prior year period. We ended the third quarter of 2025 with 334 active communities, up from 278 at September 30, 2024. We purchased approximately 12,200 lots for $719.6 million, spent $782.6 million on land development, net of reimbursements, and started construction on 10,756 homes during the nine months ended September 30, 2025. Company Positioning We believe that the investments in our new communities designed for the first-time and first move-up homebuyer, our move-in ready homes with a 60-day closing ready commitment, and our partnership with external realtors create a differentiated strategy that has aided us in our growth in the highly competitive new home market. Our focus on growing our community count and market share includes the following strategic initiatives: • Embracing external realtor relationships, as we view realtors as a strategic partner who assists with sourcing homebuyers, particularly first-time homebuyers who view the realtor as a trusted advisor; • Offering our customers affordable, move-in ready homes with a 60-day closing ready commitment; • Delivering affordable homes on a shorter timeline through simplification of production processes and maintaining levels of spec inventory that are aligned with our strategy; • Continuously improving the overall home buying experience through simplification and innovation; and • Increasing homeowner satisfaction by offering energy-efficient homes that are cleaner and healthier. In addition to these strategic initiatives, we also remain committed to the following: • Achieving or maintaining a top 5 market position in all of our markets, and maintaining our status as a top 5 national builder (based on homes closed in 2024); • Targeting a strong, yet sustainable, orders pace through the use of consumer and market research to ensure that we build homes that offer our buyers their desired features and amenities; • Maintaining and where possible, expanding, our home closing gross profit by growing closing volume, allowing us to better leverage our direct overhead; • Carefully managing our liquidity and maintaining a strong balance sheet. We ended the third quarter of 2025 with a 25.7% debt-to-capital ratio and a 17.2% net debt-to-capital ratio, after issuing $500.0 million of senior notes during the first quarter of 2025; 32 • Balancing return of capital to our stockholders with internal growth goals, utilizing both share repurchases and dividend payments; • Managing construction efficiencies and costs through national and regional vendor relationships with a focus on timely, quality construction and warranty management; and • Promoting a positive environment for our employees through our commitment to inclusion, culture, and belonging, and providing market-competitive benefits in order to develop and motivate our employees, minimize turnover and maximize recruitment efforts. Critical Accounting Estimates The critical accounting estimates that we deem to involve the most difficult, subjective or complex judgments include real estate valuation and cost of home closings and warranty reserves. There have been no significant changes to our critical accounting estimates during the nine months ended September 30, 2025 compared to those disclosed in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, included in our 2024 Annual Report on Form 10-K for the year ended December 31, 2024 (the "Annual Report"). 33 Home Closing Revenue, Home Orders and Order Backlog The composition of our closings, home orders and backlog is constantly changing and is based on a changing mix of communities with various price points between periods as new projects open and existing projects wind down and close-out. Further, individual homes within a community can range significantly in price due to differing square footage, option selections, lot sizes and quality and location of lots (e.g. cul-de-sac, view lots, greenbelt lots). These variations result in a lack of meaningful comparability between our home orders, closings and backlog due to the changing mix between periods. As previously disclosed in Note 1, effective January 1, 2025, all segment information included in this Quarterly Report on Form 10-Q has been recast for all periods presented to reflect Tennessee in the Central Region. The tables on the following pages present operating and financial data that we consider most critical to managing our operations (dollars in thousands): Home Closing Revenue Three Months Ended September 30, Quarter over Quarter 2025 2024 Change $ Change % Total Dollars $ 1,399,335 $ 1,585,784 $ (186,449) (11.8) % Homes closed 3,685 3,942 (257) (6.5) % Average sales price $ 379.7 $ 402.3 $ (22.6) (5.6) % West Region Dollars $ 420,658 $ 594,509 $ (173,851) (29.2) % Homes closed 883 1,220 (337) (27.6) % Average sales price $ 476.4 $ 487.3 $ (10.9) (2.2) % Central Region Dollars $ 443,086 $ 484,739 $ (41,653) (8.6) % Homes closed 1,260 1,346 (86) (6.4) % Average sales price $ 351.7 $ 360.1 $ (8.4) (2.3) % East Region Dollars $ 535,591 $ 506,536 $ 29,055 5.7 % Homes closed 1,542 1,376 166 12.1 % Average sales price $ 347.3 $ 368.1 $ (20.8) (5.7) % Nine Months Ended September 30, Quarter over Quarter 2025 2024 Change $ Change % Total Dollars $ 4,357,148 $ 4,745,618 $ (388,470) (8.2) % Homes closed 11,271 11,567 $ (296) (2.6) % Average sales price $ 386.6 $ 410.3 $ (23.7) (5.8) % West Region Dollars $ 1,449,499 $ 1,732,978 $ (283,479) (16.4) % Homes closed 3,046 3,499 $ (453) (12.9) % Average sales price $ 475.9 $ 495.3 $ (19.4) (3.9) % Central Region Dollars $ 1,336,048 $ 1,496,889 $ (160,841) (10.7) % Homes closed 3,821 4,081 $ (260) (6.4) % Average sales price $ 349.7 $ 366.8 $ (17.1) (4.7) % East Region Dollars $ 1,571,601 $ 1,515,751 $ 55,850 3.7 % Homes closed 4,404 3,987 $ 417 10.5 % Average sales price $ 356.9 $ 380.2 $ (23.3) (6.1) % 34 Home Orders (1) Three Months Ended September 30, Quarter over Quarter 2025 2024 Change $ Change % Total Dollars $ 1,415,089 $ 1,425,610 $ (10,521) (0.7) % Homes ordered 3,636 3,512 124 3.5 % Average sales price $ 389.2 $ 405.9 $ (16.7) (4.1) % West Region Dollars $ 426,509 $ 521,029 $ (94,520) (18.1) % Homes ordered 867 1,067 (200) (18.7) % Average sales price $ 491.9 $ 488.3 $ 3.6 0.7 % Central Region Dollars $ 468,690 $ 428,660 $ 40,030 9.3 % Homes ordered 1,289 1,184 105 8.9 % Average sales price $ 363.6 $ 362.0 $ 1.6 0.4 % East Region Dollars $ 519,890 $ 475,921 $ 43,969 9.2 % Homes ordered 1,480 1,261 219 17.4 % Average sales price $ 351.3 $ 377.4 $ (26.1) (6.9) % Nine Months Ended September 30, Quarter over Quarter 2025 2024 Change $ Change % Total Dollars $ 4,520,704 $ 4,630,261 $ (109,557) (2.4) % Homes ordered 11,426 11,302 124 1.1 % Average sales price $ 395.7 $ 409.7 $ (14.0) (3.4) % West Region Dollars $ 1,450,859 $ 1,659,130 $ (208,271) (12.6) % Homes ordered 2,961 3,351 (390) (11.6) % Average sales price $ 490.0 $ 495.1 $ (5.1) (1.0) % Central Region Dollars $ 1,433,125 $ 1,455,883 $ (22,758) (1.6) % Homes ordered 3,952 3,958 (6) (0.2) % Average sales price $ 362.6 $ 367.8 $ (5.2) (1.4) % East Region Dollars $ 1,636,720 $ 1,515,248 $ 121,472 8.0 % Homes ordered 4,513 3,993 520 13.0 % Average sales price $ 362.7 $ 379.5 $ (16.8) (4.4) % (1) Home orders for any period represent the aggregate sales price of all homes ordered, net of cancellations. We do not include orders contingent upon the sale of a customer’s existing home or a mortgage pre-approval as a sales contract until the contingency is removed. 35 Order Backlog (1) At September 30, Quarter over Quarter 2025 2024 Change $ Change % Total Dollars $ 670,007 $ 931,656 $ (261,649) (28.1) % Homes in backlog 1,699 2,284 (585) (25.6) % Average sales price $ 394.4 $ 407.9 $ (13.5) (3.3) % West Region Dollars $ 176,493 $ 286,336 $ (109,843) (38.4) % Homes in backlog 350 598 (248) (41.5) % Average sales price $ 504.3 $ 478.8 $ 25.5 5.3 % Central Region Dollars $ 232,018 $ 267,890 $ (35,872) (13.4) % Homes in backlog 612 718 (106) (14.8) % Average sales price $ 379.1 $ 373.1 $ 6.0 1.6 % East Region Dollars $ 261,496 $ 377,430 $ (115,934) (30.7) % Homes in backlog 737 968 (231) (23.9) % Average sales price $ 354.8 $ 389.9 $ (35.1) (9.0) % (1) Our backlog represents net home orders that have not closed. Active Communities and Cancellation Rates Active Communities Three Months Ended September 30, Nine Months Ended September 30, 2025 2024 2025 2024 Ending Average Ending Average Ending Average Ending Average Total 334 323.0 278 282.5 334 307.5 278 278.1 West Region 85 85.0 86 85.5 85 86.7 86 83.2 Central Region 97 91.0 83 86.5 97 88.6 83 91.7 East Region 152 147.0 109 110.5 152 132.2 109 103.2 Cancellation Rates (2) Three Months Ended September 30, Nine Months Ended September 30, 2025 2024 2025 2024 Total 11 % 10 % 10 % 9 % West Region 9 % 10 % 8 % 10 % Central Region 10 % 10 % 10 % 10 % East Region 12 % 10 % 10 % 9 % (2) Cancellation rates are computed as the number of canceled units for the period divided by the gross sales units for the same period. 36 Operating Results Companywide . In the three months ended September 30, 2025, we closed 3,685 homes, 6.5% lower than 3,942 closings in the three months ended September 30, 2024. The decrease in home closing volume combined with a 5.6% lower ASP on closings led to $1.4 billion in home closing revenue for the three months ended September 30, 2025, 11.8% lower than the same period in 2024. Home order volume in the three months ended September 30, 2025 of 3,636 homes was 3.5% higher than 3,512 homes in the three months ended September 30, 2024, due to a 14.3% increase in average active communities, which was partially offset by a 7.3% lower orders pace of 3.8 net homes per month in the three months ended September 30, 2025 compared to 4.1 in the same period in 2024. The improvement in home order volume was offset by a 4.1% lower ASP on orders, leading to home order value of $1.4 billion for the three months ended September 30, 2025, which was relatively flat with the prior year period. The decline in ASP on both closings and orders was caused by increased cost and utilization of incentives and shift in geographic mix. Order cancellations of 11% for the three months ended September 30, 2025 was up just slightly from the same period of the prior year. The current run rate for cancellations across the company is below our historical company average and we believe that this demonstrates the benefits of a shorter timeline between home order and home closing that is a product of our move-in ready homes with a 60-day closing ready commitment. For the nine months ended September 30, 2025, home closing volume of 11,271 closings was 2.6% lower than the prior year period, and ASP on closings decreased 5.8%, generating home closing revenue of $4.4 billion, an 8.2% decline from $4.7 billion in the prior year period. Home order volume of 11,426 for the nine months ended September 30, 2025 was up 1.1% over the prior year period, while a 3.4% lower ASP on orders led to a 2.4% decrease in home order value of $4.5 billion. We ended the third quarter of 2025 with our highest ever community count of 334 actively selling communities, up from 278 at September 30, 2024. The quarter ended with 1,699 homes in backlog valued at $670.0 million, compared to 2,284 units valued at $931.7 million at September 30, 2024. The lower backlog year over year is a result of our backlog conversion rate of 211% compared to 145% in the prior year period, as we are selling spec homes later in the construction cycle in order to meet our 60-day closing ready commitment. West . The West Region generated $420.7 million in home closing revenue in the three months ended September 30, 2025, a 29.2% decrease compared to the $594.5 million in the prior year period. The lower revenue was driven by 27.6% lower closing volume of 883 homes in the three months ended September 30, 2025, compared to 1,220 homes in the prior year coupled with a 2.2% lower ASP on closings resulting from higher utilization and cost of incentives. Home orders for the three months ended September 30, 2025 of 867 were down 18.7% from 1,067 in the prior year period, despite a relatively flat average active community count year over year. The Region had a 19.0% decrease in orders pace to 3.4 net homes per month, reflecting the tougher selling environment. Home order value of $426.5 million for the three months ended September 30, 2025 decreased 18.1% due entirely to lower order volume, as ASP on orders was slightly higher due to a shift in geographic mix within the region. The West Region cancellation rate of 9% in the three months ended September 30, 2025 was an improvement from 10% in the prior year period and the lowest rate in the Company. For the nine months ended September 30, 2025, home closing revenue of $1.4 billion decreased 16.4% due to a 12.9% decrease in home closing volume and a 3.9% lower ASP on closings for the same reasons as noted above for the third quarter. Home order volume in the West Region of 2,961 decreased 11.6% as orders pace declined to 3.8 net homes per month, partially offset by a 4.2% increase in the number of average actively selling communities. Home order value of $1.5 billion was down 12.6% due the lower volume and a slightly lower ASP. The year-to-date cancellation rate of 8% improved from 10% in the prior year period. The West Region ended the third quarter of 2025 with 350 homes in backlog valued at $176.5 million, compared to 598 units valued at $286.3 million at September 30, 2024. The lower backlog is the combined effect of the lower orders in the third quarter of 2025, along with a higher backlog conversion rate of 241% for the three months ended September 30, 2025 compared to 162% in the same period of 2024. Central . The Central Region closed 1,260 homes in the three months ended September 30, 2025, down 6.4% from 1,346 in the prior year period. Home closing revenue of $443.1 million in the three months ended September 30, 2025 was 8.6% lower than $484.7 million in the prior year period due to the combined impact of lower home closing volume and a 2.3% decrease in ASP on closings. The decline in ASP on closings is a result of higher cost and utilization of incentives. Home order volume increased 8.9% to 1,289 homes in the three months ended September 30, 2025 due to a 2.2% improvement in orders pace of 4.7 homes per month combined with a 5.2% increase in average active community count. The increase in volume and a slight increase in ASP on orders led to a 9.3% improvement in home order value of $468.7 million in the three months ended September 30, 2025. The Central Region cancellation rate of 10% in the three months ended September 30, 2025 was consistent with the prior year period. The Central Region had home closing revenue of $1.3 billion for the nine months ended September 30, 2025, 10.7% lower than the prior year due to a 6.4% decline in closing volume of 3,821 homes and a 4.7% decrease in ASP on closings. The 37 lower ASP on closings is due to increased use and cost of incentives during the nine months ended September 30, 2025. Home order volume for the nine months ended September 30, 2025 was consistent year over year, as a 4.2% increase in orders pace of 5.0 net homes per month was offset by a 3.4% decrease in average active communities. Home order value was $1.4 billion for the nine months ended September 30, 2025, below $1.5 billion in the prior year period, due to consistent order volume but a nominally lower ASP on orders. The year-to-date cancellation rate of 10% for the nine months ended September 30, 2025 was consistent with the prior year period. The Central Region ended the quarter with 612 units in backlog valued at $232.0 million, down 14.8% and 13.4%, respectively, compared to September 30, 2024, due to a higher backlog conversion rate of 216% in the third quarter of 2025 compared to 153% in the comparable prior year quarter. East . During the three months ended September 30, 2025, the East Region closed 1,542 homes for $535.6 million, up 12.1% and 5.7%, respectively from 1,376 closings and $506.5 million in home closing revenue in the comparable prior year period. The higher closing volume was the result of a 33.0% higher average active community count in the third quarter of 2025 and a greater percentage of homes selling and closing within the quarter. The higher volume was partially offset by a 5.7% lower ASP on home closings, resulting from greater utilization and higher cost of incentives. The Region improved home order volume over prior year by 17.4%, with orders of 1,480 for the three months ended September 30, 2025, due entirely to the higher average active community count which reflects our newer divisions and was partially offset by a 10.5% lower orders pace. The orders pace of 3.4 net homes per month compared to 3.8 in the prior year period, reflective of the tougher selling environment. Order value of $519.9 million in the three months ended September 30, 2025 increased 9.2% from $475.9 million in the prior year period due to the higher volume offset by a 6.9% decrease in ASP on orders year over year caused by increased cost and use of incentives as well as geographic mix within the Region. The East Region cancellation rate of 12% in the three months ended September 30, 2025 was up from 10% in the same prior year period but remains below our historical company average. For the nine months ended September 30, 2025, the East Region saw improvements in home closing volume and revenue of 10.5% and 3.7%, respectively, compared to the 2024 period, closing 4,404 homes for $1.6 billion in home closing revenue for the nine months ended September 30, 2025. Home order volume increased 13.0% due to a 28.1% increase in average active communities, partially offset by an 11.6% lower orders pace of 3.8 net homes per month for the nine months ended September 30, 2025. The higher order volume led to an 8.0% increase in home order value of $1.6 billion. ASP on closing and orders both declined due to the increased cost and use of incentives and geographic mix within the region. Both home closing and order volumes include the first homes from our new divisions in Alabama and Mississippi. Similar to the third quarter, the Region's cancellation rate of 10% increased from 9% in the prior year period. The East Region ended the third quarter of 2025 with 737 homes in backlog valued at $261.5 million, down 23.9% and 30.7%, respectively, from 968 homes valued at $377.4 million at September 30, 2024. The East Region had a backlog conversion rate of 193% in the third quarter of 2025 compared to 127% in the prior year quarter, which contributed to our lower ending backlog and is an expected result of our strategy of shortening the timeline from order to close. Land Closing Revenue and Gross Profit (in thousands) Three Months Ended September 30, Nine Months Ended September 30, 2025 2024 2025 2024 Land closing revenue $ 16,068 $ 2,665 $ 39,766 $ 4,970 Land closing gross profit $ 192 $ 680 $ 2,638 $ 687 From time to time, we may sell certain lots or land parcels to other homebuilders, developers or investors if we feel the sale will provide a greater economic benefit to us than continuing home construction or where we are looking to diversify our land positions in a specific geography or divest of assets that no longer align with our strategy. Therefore, the timing of land closings is not typically consistent between periods. 38 Other Operating Information (dollars in thousands) Three Months Ended September 30, Nine Months Ended September 30, 2025 2024 2025 2024 Dollars Percent of Home Closing Revenue Dollars Percent of Home Closing Revenue Dollars Percent of Home Closing Revenue Dollars Percent of Home Closing Revenue Home Closing Gross Profit (1) Total $ 266,957 19.1 % $ 392,565 24.8 % $ 903,935 20.7 % $ 1,210,029 25.5 % Add: Real estate-related impairments 8,693 — 8,693 — Add: Write-off of terminated land deals 5,799 2,022 11,437 3,931 Adjusted Home Closing Gross Profit (2) $ 281,449 20.1 % $ 394,587 24.9 % $ 924,065 21.2 % $ 1,213,960 25.6 % West $ 82,447 19.6 % $ 138,338 23.3 % $ 301,880 20.8 % $ 401,730 23.2 % Add: Real estate-related impairments 543 — 543 — Add: Write-off of terminated land deals 2,544 976 3,667 2,182 Adjusted Home Closing Gross Profit (2) $ 85,534 20.3 % $ 139,314 23.4 % $ 306,090 21.1 % $ 403,912 23.3 % Central $ 94,816 21.4 % $ 124,326 25.6 % $ 292,132 21.9 % $ 400,838 26.8 % Add: Real estate-related impairments 1,243 — 1,243 — Add: Write-off of terminated land deals 104 474 663 623 Adjusted Home Closing Gross Profit (2) $ 96,163 21.7 % $ 124,800 25.7 % $ 294,038 22.0 % $ 401,461 26.8 % East $ 89,694 16.7 % $ 129,901 25.6 % $ 309,923 19.7 % $ 407,461 26.9 % Add: Real estate-related impairments 6,907 — 6,907 — Add: Write-off of terminated land deals 3,151 572 7,107 1,126 Adjusted Home Closing Gross Profit (2) $ 99,752 18.6 % $ 130,473 25.8 % $ 323,937 20.6 % $ 408,587 27.0 % (1) Home closing gross profit represents home closing revenue less cost of home closings, including impairments, if any. Cost of home closings includes land and associated development costs, direct home construction costs, an allocation of common community costs (such as architectural, legal and zoning costs), interest, sales tax, impact fees, warranty, construction overhead and closing costs. (2) Adjusted Home closing gross profit is a non-GAAP measure and should be considered in addition to, rather than as a substitute for, the comparable GAAP financial measures. We believe this non-GAAP financial measure is relevant and useful to investors in understanding our operating results and may be helpful in comparing the Company with other companies in the homebuilding and other industries to the extent they provide similar information. Companywide . Home closing gross profit for the three months ended September 30, 2025 was $267.0 million, with a home closing gross margin of 19.1% down 570 basis points from 24.8% in the three months ended September 30, 2024. The margin decline was due to the combined impact of increased cost and utilization of incentives that resulted in lower ASPs, higher lot costs and reduced leverage of fixed costs on lower home closing revenue, all of which were partially offset by savings in direct costs and improved construction cycle times. Additionally, home closing gross margin was negatively impacted by real estate-related impairments and charges related to terminated land contracts. Excluding these charges, adjusted 39 home closing gross margin was 20.1% for the three months ended September 30, 2025, compared to 24.9% for the three months ended September 30, 2024. For the nine months ended September 30, 2025, home closing gross profit was $903.9 million, or 20.7%, down 480 basis points from 25.5% in the three months ended September 30, 2024. The lower margin for the nine months ended September 30, 2025 resulted from the combined effect of greater utilization and higher cost of incentives, higher lot costs, reduced leverage of fixed costs on lower home closing revenue, all of which were partially offset by savings in direct costs and improved construction cycle times. Similar to the third quarter of 2025, the home closing gross margin for the nine months ended September 30, 2025 included real estate-related impairment charges and charges related to terminated land deals. Excluding these charges, adjusted home closing gross margin was 21.2% and 25.6% for the nine months ended September 30, 2025 and 2024, respectively. West. The West Region had home closing gross margin of 19.6% for the three months ended September 30, 2025, down 370 basis points from 23.3% in the three months ended September 30, 2024, due to increased cost and utilization of incentives, higher lot costs, and less leverage of fixed costs on lower home closing revenue, which were offset by savings in direct costs. Charges related to terminated land contracts and impairment charges also had a negative impact on the Region's home closing gross margin in the third quarter of 2025. Excluding these charges, adjusted home closing gross margin was 20.3% and 23.4% for the three months ended September 30, 2025 and 2024, respectively. For the nine months ended September 30, 2025, the West Region home closing gross margin of 20.8% declined 240 basis points primarily due to lower ASPs, higher lot costs, with some benefit from direct costs savings. Year-to-date home closing gross margin also included contract termination and impairment charges. Adjusted home closing gross margin was 21.1% and 23.3% for the nine months ended September 30, 2025 and 2024, respectively, when excluding these charges. Central. The Central Region Home closing gross margin of 21.4% for the three months ended September 30, 2025 decreased 420 basis points from 25.6% in the prior year period due to increased utilization and higher cost of incentives, and lot cost increases, which were partially offset by improvements in construction cycle times. Real estate-related impairments and charges for terminated contracts also had a negative impact on home closing gross margin for both third quarter periods. Excluding these charges, adjusted home closing gross margin was 21.7% and 25.7% for the three months ended September 30, 2025 and 2024, respectively. For the nine months ended September 30, 2025, the Central Region home closing gross margin of 21.9% declined 490 basis points primarily due to increased cost and utilization of incentives, higher lot costs, and lower leverage of fixed costs on lower home closing revenue, all of which were partially offset by direct cots savings. Real estate-related impairments and contract termination charges had a nominal impact on the Central Region home closing gross margin for the nine months ended September 30, 2025 and 2024. East. The East Region Home closing gross margin was 16.7% and 25.6% for the three months ended September 30, 2025 and 2024, respectively, an 890 basis point decrease. For the nine months ended September 30, 2025, the East Region home closing gross margin of 19.7% decreased 720 basis points from 26.9% in the same period of 2024. The margin decline in both periods was due to the increased cost and utilization of incentives, and higher lot costs, which more than offset the savings in direct costs. The impact of real estate-related impairments and charges incurred related to terminated land contracts on East Region home closing gross was 190 basis points and 90 basis points for the three and nine months ended September 30, 2025, respectively. When excluding these items from all periods presented, adjusted home closing gross margin was 18.6% and 25.8% for the three months ended September 30, 2025 and 2024, respectively, and 20.6% and 27.0% for the nine months ended September 30, 2025 and 2024, respectively. Financial Services Profit (in thousands) Three Months Ended September 30, Nine Months Ended September 30, 2025 2024 2025 2024 Financial services profit $ 4,480 $ 3,101 $ 13,654 $ 7,248 Financial services profit represents the net profit of our financial services operations, including the operating profit generated by our wholly-owned title and insurance companies, Carefree Title Agency, Inc. and Meritage Homes Insurance Agency, Inc., respectively, as well as our portion of earnings from a mortgage joint venture. The improvement in financial services profit for both the three and nine months ended September 30, 2025 was due to fewer charges related to expired interest rate forward commitments in the current year as compared to the respective prior year periods. 40 Selling, General and Administrative Expenses and Other Expenses (dollars in thousands) Three Months Ended September 30, Nine Months Ended September 30, 2025 2024 2025 2024 Commissions and other sales costs $ (99,722) $ (97,898) $ (303,272) $ (304,113) Percent of Home closing revenue 7.1 % 6.2 % 7.0 % 6.4 % General and administrative expenses $ (51,787) $ (59,198) $ (163,967) $ (163,114) Percent of Home closing revenue 3.7 % 3.7 % 3.8 % 3.4 % Interest expense $ — $ — $ — $ — Other income, net $ 8,128 $ 10,682 $ 28,479 $ 31,202 Loss on early extinguishment of debt $ — $ — $ — $ (631) Provision for income taxes $ (28,951) $ (53,966) $ (112,485) $ (167,771) Commissions and Other Sales Costs. Commissions and other sales costs are comprised of internal and external commissions and related sales and marketing expenses such as advertising and sales office and completed spec home inventory costs. These costs increased $1.8 million, to $99.7 million, or 7.1% of home closing revenue in the three months ended September 30, 2025, up 90 basis points from the prior year period. The higher dollar spend is largely the result of higher external broker commission rates reflecting the tougher selling environment, coupled with a higher external broker participation rate, as well as higher costs for maintaining a larger number of completed homes. Similar to the third quarter of 2025, commissions and other sales costs for the nine months ended September 30, 2025 and 2024 were 7.0% and 6.4%, respectively, due to higher commission rates and greater spec maintenance and utility costs for higher levels of spec inventory. For both the three and nine month periods of 2025, commissions and other sales costs as a percentage of home closing revenue were higher due to reduced leverage on lower home closing revenue. The increase in spec home inventory and associated overhead expenses is an output of our new 60-day closing ready commitment in order to have sufficient inventory available. General and Administrative Expenses. General and administrative expenses represent corporate and divisional overhead expenses such as salaries and bonuses, occupancy, insurance and travel expenses. For the three months ended September 30, 2025, general and administrative expenses of $51.8 million decreased $7.4 million from $59.2 million in the prior year period, primarily due to lower compensation expense, while the percentage of home closing revenue held flat year over year at 3.7%, despite lower home closing revenue. For the nine months ended September 30, 2025, general and administrative expenses of $164.0 million were relatively flat with the prior year period, as lower compensation expense was offset by increased spend on new technology, and start-up expenses associated with our new divisions in Alabama and Mississippi. As a percentage of home closing revenue, general and administrative expenses increased 40 basis points, to 3.8% for the nine months ended September 30, 2025 as the lower compensation expense was more than offset by increased technology spend and new division start-up expenses. Interest Expense. Interest expense is comprised of interest incurred, but not capitalized, on our senior and convertible senior notes, loans payable and other borrowings, including our Credit Facility. We recognized no interest expense for the three and nine months ended September 30, 2025 and 2024, as all interest incurred was capitalized to qualifying assets. Other Income, Net. Other income, net, primarily consists of (i) sublease income, (ii) interest earned on our cash and cash equivalents, (iii) payments and awards related to legal settlements and (iv) our portion of pre-tax income or loss from non-financial services joint ventures. Other income, net was $8.1 million and $10.7 million for the three months ended September 30, 2025 and 2024, respectively, and $28.5 million and $31.2 million for the nine months ended September 30, 2025 and 2024, respectively. The decrease for both 2025 periods reflects less interest income on lower average cash balances. The nine months ended September 30, 2025 also includes $3.2 million of legal settlement awards. Loss on Early Extinguishment of Debt. For the three and nine months ended September 30, 2025 there was no loss on early extinguishment of debt. For the three months ended September 30, 2024, there was no loss on early extinguishment of debt, and for the nine months ended September 30, 2024, loss on early extinguishment of debt of $0.6 million was related to the $250.0 million redemption of our 6.00% Senior Notes due 2025 ("2025 Notes"). See Note 6 to the unaudited consolidated financial statements included in this report for more information related to the redemption of our 2025 Notes. Income Taxes. Our effective tax rate was 22.6% and 21.6% for the three months ended September 30, 2025 and 2024, respectively, and 23.4% and 21.5% for the nine months ended September 30, 2025 and 2024, respectively. The higher rate in the three and nine months ended September 30, 2025 reflects fewer homes qualifying for energy tax credits under the Internal Revenue Code ("IRC") §45L energy-efficient homes federal tax credit, given the new higher construction thresholds required to earn these tax credits beginning in 2025. 41 Liquidity and Capital Resources Overview We have historically generated cash and funded our operations primarily from cash flows from operating activities. Additional sources of funds may include additional debt or equity financing and borrowing capacity under our Credit Facility. We exercise strict controls and believe we have a prudent strategy for Company-wide cash management, including those related to cash outlays for land acquisition and development and spec home construction. Our principal uses of cash include acquisition and development of land and lots, home construction, operating expenses, share repurchases and the payment of interest, routine liabilities and dividends. We may also opportunistically repurchase our senior notes. Cash flows for each of our communities depend on their stage of the development cycle, and can differ substantially from reported earnings. Early stages of development or expansion require significant cash outlays for land acquisitions, zoning plat and other approvals, community and lot development, and construction of model homes, roads, utilities, landscape and other amenities. Because these costs are a component of our inventory and are not recognized in our income statement until a home closes, we incur significant cash outlays prior to recognition of earnings. In the later stages of a community, cash inflows may significantly exceed earnings reported for financial statement purposes, as the cash outflow associated with home and land construction was previously incurred. We strive to align our capital allocation and cash outlays with current market conditions. In times of community count growth, we incur significant outlays of cash through the land purchase, development and community opening stages whereas in in times of community count stability, these cash outlays are incurred in a more even-flow cadence with cash inflows from actively selling communities that are contributing closing volume and home closing revenue. Conversely, in a down turn environment, cash outlays for land and community count growth may be scaled back to preserve liquidity and we may curtail community count. At September 30, 2025, we had $728.9 million of cash and cash equivalents and $825.9 million available under the Credit Facility, thereby providing approximately $1.6 billion of total available capacity. Short-term Liquidity and Capital Resources Over the course of the next twelve months, we expect that our primary demand for funds will be for the construction of homes, as well as acquisition and development of both new and existing lots, operating expenses, including general and administrative expenses, interest and dividend payments and share repurchases. Although we don't anticipate any early redemptions in the near term, we may opportunistically retire or redeem a portion of our senior notes. We expect to meet these short-term liquidity requirements primarily through our cash and cash equivalents on hand and the net cash flows provided by our operations. Between our cash and cash equivalents on hand combined with the availability of liquidity from our Credit Facility, we believe that we currently have sufficient liquidity. Nevertheless, in the future, we may seek additional capital to strengthen our liquidity position, enable us to acquire additional land inventory in anticipation of improving market conditions, and/or strengthen our long-term capital structure. Long-term Liquidity and Capital Resources Beyond the next twelve months, our principal demands for funds will be for the construction of homes, land acquisition and development activities needed to maintain our lot supply and active community count, payments of principal and interest on our senior and convertible senior notes as they become due or mature, dividend payments and share repurchases. We expect our existing and future generated cash will be adequate to fund our ongoing operating activities as well as provide capital for investment in future land purchases and related development activities. To the extent the sources of capital described above are insufficient to meet our long-term cash needs, we may also conduct additional public offerings of our securities, refinance or secure new debt or dispose of certain assets to fund our operating activities. There can be no assurances that we would be able to obtain such additional capital on terms acceptable to us, if at all, and such additional equity or debt financing could dilute the interests of our existing stockholders or increase our interest costs. Material Cash Requirements We are a party to many contractual obligations involving commitments to make payments to third parties. These obligations impact both short-term and long-term liquidity and capital resource needs. Certain contractual obligations are reflected on our unaudited consolidated balance sheets as of September 30, 2025, while others are considered future commitments for materials or services not yet provided. Our contractual obligations primarily consist of principal and interest payments on our senior and convertible senior notes, loans payable and other borrowings, including our Credit Facility, letters 42 of credit and surety bonds and operating leases. We have no material debt maturities until 2027. We also have requirements for certain short-term lease commitments, funding working capital needs of our existing unconsolidated joint ventures and other purchase obligations in the normal course of business. Other material cash requirements include land acquisition and development costs, home construction costs and operating expenses, including our selling, general and administrative expenses, as previously discussed. We plan to fund these commitments primarily with cash flows generated by operations, but may also utilize additional debt or equity financing and borrowing capacity under our Credit Facility. Our maximum exposure to loss on our purchase and option agreements is generally limited to non-refundable deposits and capitalized or committed pre-acquisition costs. For information about our loans payable and other borrowings, including our Credit Facility and senior and convertible senior notes, reference is made to Notes 5 and 6 in the notes to unaudited consolidated financial statements included in this report and are incorporated by reference herein. For information about our lease obligations, reference is made to Note 4 - Leases in the consolidated financial statements included in our Annual Report. Reference is made to Notes 1, 3, 4, and 15 in the notes to unaudited consolidated financial statements included in this report and are incorporated by reference herein. These Notes discuss our off-balance sheet arrangements with respect to land acquisition contracts and option agreements, and land development joint ventures, including the nature and amounts of financial obligations relating to these items. In addition, these Notes discuss the nature and amounts of certain types of commitments that arise in connection with the ordinary course of our land development and homebuilding operations, including commitments of land development joint ventures for which we might be obligated, if any. We do not engage in commodity trading or other similar activities. We had no derivative financial instruments that required derivative accounting under ASC 815-10, Derivatives and Hedging , at September 30, 2025 or December 31, 2024. Operating Cash Flow Activities During the nine months ended September 30, 2025 and 2024, net cash used in operating activities totaled $125.4 million and $128.0 million, respectively. Net cash used in operating activities for the nine months ended September 30, 2025 consisted primarily of a $413.2 million increase in real estate and cash generated from net earnings of $369.0 million. Cash flows used in operations in the nine months ended September 30, 2024 reflected a $723.8 million increase in real estate and cash generated from net earnings of $613.5 million. Investing Cash Flow Activities During the nine months ended September 30, 2025 and 2024, net cash used in investing activities totaled $41.0 million and $31.4 million, respectively. Cash used in investing activities in both periods was mainly attributable to purchases of property and equipment and investments in unconsolidated entities. Financing Cash Flow Activities During the nine months ended September 30, 2025 and 2024, net cash provided by financing activities totaled $243.8 million and $69.8 million, respectively. The net cash provided by financing activities in 2025 primarily reflects the net proceeds of $492.1 million from the issuance of our 5.650% Senior Notes due 2035, offset by $145.0 million of share repurchases and $91.8 million of dividends paid. The net cash provided by financing activities in the 2024 period primarily reflects the net proceeds of $557.7 million from the issuance of our 1.75% Convertible Senior Notes due 2028, offset by the early redemption of our 2025 Notes of $250.0 million principal and $61.8 million for the purchase of capped calls, along with $85.9 million of share repurchases and $81.6 million of dividends paid. See 'Part II, Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds' for more information about our authorized share repurchase program. 43 We believe that our leverage ratios provide useful information to the users of our financial statements regarding our financial position and cash and debt management. Debt-to-capital and net debt-to-capital are calculated as follows (dollars in thousands): As of September 30, 2025 December 31, 2024 Senior and convertible senior notes, net, loans payable and other borrowings $ 1,828,978 $ 1,335,878 Stockholders’ equity 5,287,520 5,141,573 Total capital $ 7,116,498 $ 6,477,451 Debt-to-capital (1) 25.7 % 20.6 % Senior and convertible senior notes, net, loans payable and other borrowings $ 1,828,978 $ 1,335,878 Less: cash and cash equivalents (728,937) (651,555) Net debt 1,100,041 684,323 Stockholders’ equity 5,287,520 5,141,573 Total net capital $ 6,387,561 $ 5,825,896 Net debt-to-capital (2) 17.2 % 11.7 % (1) Debt-to-capital is computed as senior and convertible senior notes, net, loans payable and other borrowings divided by the aggregate of total senior and convertible senior notes, net, loans payable and other borrowings and stockholders' equity. (2) Net debt-to-capital is considered a non-GAAP financial measure, and is computed as net debt divided by the aggregate of net debt and stockholders' equity. Net debt is comprised of total senior and convertible senior notes, net, loans payable and other borrowings, less cash and cash equivalents. The most directly comparable GAAP financial measure is the ratio of debt-to-capital. We believe the ratio of net debt-to-capital is a relevant financial measure for investors to understand the leverage employed in our operations and as an indicator of our ability to obtain financing. Dividends During the three months ended September 30, 2025 and 2024, our Board of Directors approved, and we paid, a quarterly cash dividend on common stock of $0.43 and $0.375 per share, respectively. Quarterly dividends paid during the nine months ended September 30, 2025 and 2024, totaled $1.29 and $1.125 per share, respectively. 44 Credit Facility Covenants Borrowings under the Credit Facility are unsecured, but availability is subject to, among other things, a borrowing base. The Credit Facility also contains certain financial covenants, including (a) a minimum tangible net worth requirement of $3.3 billion (which amount is subject to increase over time based on subsequent earnings and proceeds from equity offerings), and (b) a maximum leverage covenant that prohibits the leverage ratio (as defined therein) from exceeding 60%. We were in compliance with all Credit Facility covenants as of September 30, 2025. Our actual financial covenant calculations as of September 30, 2025 are reflected in the table below. Financial Covenant (dollars in thousands): Covenant Requirement Actual Minimum Tangible Net Worth > $3,725,200 $5,237,434 Leverage Ratio < 60% 15.6% Investments other than defined permitted investments < $1,596,230 $45,714 Seasonality Historically, we have experienced seasonal variations in our quarterly operating results and capital requirements. We typically take orders for more homes in the first half of the year than in the second half, which has created additional working capital requirements in the first and second quarters to build our inventories to satisfy seasonally higher demand associated with our 60-day closing ready commitment homes. While we expect the seasonal orders pattern to continue over the long term, a higher backlog conversion rate and our all-spec strategy may shift the timing of home closings and capital requirements to build our inventories to earlier in the year. Additionally, seasonality may, from time to time, be affected by short-term volatility in the homebuilding industry and in the overall economy. Recent Accounting Pronouncements See Note 1 to our unaudited consolidated financial statements included in this report for discussion of recent accounting pronouncements.