Meritage Homes CORP

Previous wording

The homebuilding sector continued to experience softer than expected demand during the second quarter of 2026, due to persistent affordability concerns, diminished consumer confidence and economic impacts from the ongoing military actions in Iran, which were exacerbated earlier in the year by severe winter storms. While U.S demographics continue to support demand for our affordable, move-in ready homes from millennial, Gen Z and baby boomer generations, these buyers are increasingly reliant on financing assistance to overcome market uncertainty and manage monthly payments and do not feel urgency to commit to a near-term purchase. Our ability to offer financing incentives, including interest rate locks and buy-downs, remains a key differentiator when compared to resale homes, as individual sellers are typically not able to provide such incentives. We believe that the current environment will remain challenging and will require higher incentive utilization, even as we look to optimize every asset and prioritize margin preservation.

Current wording

The homebuilding sector continued to experience an increasingly challenging demand environment in the third quarter of 2026, due to rising interest rates and persistent geopolitical and macroeconomic uncertainty. While U.S demographics continue to support housing demand from the millennial, Gen Z and baby boomer generations experiencing life events that typically precede a housing change, these buyers are increasingly concerned about market uncertainty and personal financial security, which is reducing their urgency to commit to a near-term purchase. Our ability to offer financing incentives, including interest rate locks and buy-downs to improve monthly payment affordability, remains a key differentiator when compared to resale homes, as individual sellers are typically not able to provide such incentives. We believe that the current environment will remain challenging and will require higher incentive utilization and we will look to optimize every asset and prioritize liquidity until market conditions stabilize.

Previous wording

Construction cycle times remained under 110 calendar days, below our historical normalized time of approximately 120 days and materially improved from more than 150 days over the last several years as the supply chain and labor markets return to normal conditions. Our all-spec strategy also minimizes variability and creates efficiencies through repeatability. Land costs remain elevated following years of historically high land acquisition and development costs. Our larger scale and purchasing power allow us to secure volume discounts from national vendors for our construction materials as the market has re-aligned its capacity needs, helping offset some of this pressure.

Current wording

We believe we have several opportunities to minimize the impact of the increasing incentive environment. Our construction cycle times remained under 110 calendar days, below our historical normalized time of approximately 120 days, delivering carrying cost savings. Our all-spec strategy also minimizes variability and creates efficiencies through repeatability. Although land costs remain elevated following years of historically high land acquisition and development costs, our larger scale and purchasing power allow us to secure volume discounts from national vendors for our construction materials as the market has re-aligned its capacity needs, helping offset some of this pressure.

Previous wording

We believe that the execution of our all-spec strategy of move-in ready homes with a commitment to affordability appropriately focuses on our key financial goals of strong home closing revenue and home closing gross margin, controlling selling, and general and administrative costs, and maintaining sufficient liquidity.

Current wording

We believe that the execution of our all-spec strategy of affordable, move-in ready homes appropriately focuses on our key financial goals of home closing revenue and home closing gross margin preservation, controlling selling, and general and administrative costs, and maintaining sufficient liquidity.

Previous wording

Home closing volume of 3,725 homes in the three months ended June 30, 2026 was down 10.7% from 4,170 homes in the same prior year period. Lower closing volume combined with a 3.8% decrease in average sales price ("ASP") on closings resulted in $1.4 billion in home closing revenue, a 14.1% decrease from $1.6 billion in the three months ended June 30, 2025. Lower home closing volume, closing ASPs and higher lot costs all drove home closing gross profit of $253.6 million in the three months ended June 30, 2026 compared to $341.3 million in the comparable prior year period. The reduced ASP is primarily the result of geographic mix shift and contributed to the second quarter 2026 home closing gross margin decline of 280 basis points to 18.3%, compared to 21.1% in the prior year period. The decrease in home closing gross margin was also attributable to higher lot costs, all of which were only partially offset by savings achieved in direct costs and shorter construction cycle times. Financial services profit of $5.3 million in the three months ended June 30, 2026 was relatively flat compared to $5.6 million in the prior year period. Commissions and other sales costs of $91.8 million in the three months ended June 30, 2026 decreased $17.0 million due primarily to lower home closing revenue. General and administrative expenses of $52.4 million in the three months ended June 30, 2026 decreased $2.8 million from the same period of 2025, largely due to savings in compensation expense and intentional reductions in discretionary expenses. Earnings before income taxes for the three months ended June 30, 2026 of $120.6 million decreased $72.5 million year over year from $193.1 million in the same period of 2025. The effective income tax rate of 24.8% for the three months ended June 30, 2026 increased slightly from 23.9% in the comparable period of 2025. The decrease in year-over-year volume and profitability resulted in net earnings of $90.6 million in the three months ended June 30, 2026 versus $146.9 million in the three months ended June 30, 2025.

Current wording

Home closing volume of 3,187 homes in the three months ended September 30, 2026 was down 13.5% from 3,685 homes in the same prior year period. Lower closing volume combined with a 4.0% decrease in average sales price ("ASP") on closings resulted in $1.2 billion in home closing revenue, a 16.9% decrease from $1.4 billion in the three months ended September 30, 2025. The reduced ASP on home closings is primarily due to increased use and cost of financing incentives in third quarter of 2026, as well as geographic mix. Home closing gross profit was $202.6 million in the three months ended September 30, 2026 compared to $267.0 million in the comparable prior year period. Home closing gross margin in the three months ended September 30, 2026 was 17.4%, down 170 basis points compared to 19.1% in the prior year period. The decrease in home closing gross profit and margin was attributable to higher incentives and lot costs and lost leverage on lower home closing revenue, all of which were only partially offset by savings in direct costs, lower performance-based compensation expense and fewer impairment and deal termination charges in the third quarter of 2026. Financial services profit of $4.8 million in the three months ended September 30, 2026 was relatively flat compared to $4.5 million in the prior year period. Commissions and other sales costs of $82.4 million in the three months ended September 30, 2026 decreased $17.3 million due primarily to lower home closing revenue. General and administrative expenses of $45.2 million in the three months ended September 30, 2026 decreased $6.6 million from the same period of 2025, largely due to savings in performance-based compensation expense and intentional reductions in discretionary expenses. Earnings before income taxes for the three months ended September 30, 2026 of $84.8 million decreased $43.4 million year over year from $128.2 million in the same period of 2025. The effective income tax rate of 20.1% for the three months ended September 30, 2026 reflected acquired below-market transferable tax credits which led to the decrease from 22.6% in the comparable period of 2025. The decrease in year-over-year volume and profitability resulted in net earnings of $67.8 million in the three months ended September 30, 2026 versus $99.3 million in the three months ended September 30, 2025.

Previous wording

For the six months ended June 30, 2026, home closing volume and ASP on closings decreased 11.8% and 4.4%, respectively, for a combined decrease in home closing revenue of 15.6%. Home closing gross margin of 17.9% declined 360 basis points year over year, for a $189.6 million decrease in home closing gross profit for the same reasons noted above. Year to date, commissions and other sales costs decreased $32.3 million from the comparable 2025 period due to the lower home closing volume. General and administrative expenses for the six months ended June 30, 2026 decreased $8.4 million year over due to lower compensation expense and intentional reduction in discretionary spending. Lower revenue, gross margin and profitability, and an effective tax rate of 24.4% led to net income of $145.9 million for the six months ended June 30, 2026, compared to $269.7 million for the comparable 2025 period.

Current wording

For the nine months ended September 30, 2026, home closing volume and ASP on closings decreased 12.4% and 4.2%, respectively, for a combined decrease in home closing revenue of 16.0%. Home closing gross margin of 17.8% declined 290 basis points year over year, for a $253.9 million decrease in home closing gross profit for the same reasons noted above. Year to date, commissions and other sales costs decreased $49.6 million from the comparable 2025 period due to the lower home closing revenue. General and administrative expenses for the nine months ended September 30, 2026 decreased $15.0 million year over due to lower performance-based compensation expense and intentional reduction in discretionary spending. Lower home closing revenue, gross margin and profitability, and an effective tax rate of 23.1% led to net income of $213.7 million for the nine months ended September 30, 2026, compared to $369.0 million for the comparable 2025 period.

Previous wording

Home orders of 3,575 for the three months ended June 30, 2026 decreased 8.7% from 3,914 home orders in the prior year quarter due to an 18.6% decrease in orders pace to 3.5 net homes per month, offset by the 13.8% increase in average active communities. Home order value for the three months ended June 30, 2026 of $1.4 billion decreased 11.1% year-over-year, due to lower order volume and a 2.6% decrease in ASP on orders caused by the same factors discussed previously for the second quarter of 2026. Our cancellation rate of 13% in the three months ended June 30, 2026 increased from 10% in the comparable 2025 period, reflecting the tougher selling environment.

Current wording

Home orders of 3,083 for the three months ended September 30, 2026 declined 15.2% from 3,636 home orders in the prior year quarter due to a 21.1% decrease in orders pace to 3.0 net homes per month, offset by a 6.5% increase in average active communities. Home order value for the three months ended September 30, 2026 of $1.2 billion decreased 16.7% year-over-year, due to lower order volume and a 1.7% decrease in ASP on orders caused by the same factors discussed previously. Our cancellation rate of 13% in the three months ended September 30, 2026 increased from 11% in the comparable 2025 period, reflecting the tougher selling environment.

Previous wording

For the six months ended June 30, 2026, home orders and home order value decreased 7.1% and 10.6%, respectively, over the prior year and the cancellation rate of 12% rose from 9% in the comparable prior year period. We ended the second quarter of 2026 with 1,715 homes in backlog valued at $661.9 million, decreases of 1.9% and 4.8%, respectively, from June 30, 2025. The lower backlog units are due to entering the quarter with lower backlog, combined with lower order volume.

Current wording

For the nine months ended September 30, 2026, home orders and home order value decreased 9.7% and 12.5%, respectively, over the prior year and the cancellation rate of 12% rose from 10% in the comparable prior year period. We ended the third quarter of 2026 with 1,611 homes in backlog valued at $637.2 million, decreases of 5.2% and 4.9%, respectively, from September 30, 2025. The decrease in backlog units is due to lower order volume and high backlog conversion rates.

Previous wording

We ended the second quarter of 2026 with 340 active communities, up from 312 at June 30, 2025 and 336 at December 31, 2025. We purchased approximately 4,700 lots for $277.4 million, spent $405.8 million on land development, net of reimbursements, and started construction on 6,453 homes during the six months ended June 30, 2026.

Current wording

We ended the third quarter of 2026 with 348 active communities, up from 334 at September 30, 2025 and 336 at December 31, 2025. We purchased approximately 6,500 lots for $410.9 million, spent $601.4 million on land development, net of reimbursements, and started construction on 9,895 homes during the nine months ended September 30, 2026.

Previous wording

We believe that the focus on community count growth, 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.

Current wording

We believe that our long-term focus on growth, 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 the highly competitive new home market.

Previous wording

Our focus on growing our community count and market share includes the following strategic initiatives:

Current wording

Our strategy includes the following strategic initiatives:

Previous wording

•Continuously improving the overall home buying experience through simplification and innovation; and

Current wording

•Continuously improving the overall home buying experience through simplification and innovation;

Previous wording

•Offering energy-efficient homes that are cleaner and healthier than resale homes.

Current wording

•Offering energy-efficient homes that are cleaner and healthier than resale homes; and

Previous wording

•Carefully managing our liquidity and maintaining a strong balance sheet. We ended the second quarter of 2026 with a 26.8% debt-to-capital ratio and a 17.1% net debt-to-capital ratio;

Current wording

•Carefully managing our liquidity and maintaining a strong balance sheet. We ended the third quarter of 2026 with a 26.9% debt-to-capital ratio and an 18.9% net debt-to-capital ratio;

Previous wording

•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 2025);

Current wording

•Achieving or maintaining a top market position in all of our markets, and maintaining our status as a top national builder (based on homes closed in 2025);

Previous wording

•Balancing return of capital to our stockholders with internal growth goals, utilizing both share repurchases and dividend payments;

Current wording

•Balancing return of capital to our stockholders with internal growth goals, utilizing both dividend payments and share repurchases;

Previous wording

•Managing construction efficiencies and costs through national and regional vendor relationships with a focus on timely, quality construction and warranty management; and

Current wording

•Managing construction efficiencies and costs through national and regional vendor relationships with a focus on timely, quality construction and warranty management;

Previous wording

•Maintaining and where possible, expanding, our home closing gross profit by growing closing volume, allowing us to better leverage our direct overhead;

Current wording

•Maintaining our home closing gross profit and managing costs by growing closing volume when and where possible, allowing us to better leverage our direct overhead;

Previous wording

•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;

Current wording

•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; and

Previous wording

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 six months ended June 30, 2026 compared to those disclosed in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, included in our 2025 Annual Report.

Current wording

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, 2026 compared to those disclosed in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, included in our 2025 Annual Report.

Previous wording

Companywide. In the three months ended June 30, 2026, we closed 3,725 homes, 10.7% lower than 4,170 closings in the three months ended June 30, 2025. The decrease in home closing volume combined with a 3.8% lower ASP on closings resulted in home closing revenue of $1.4 billion for the three months ended June 30, 2026, 14.1% lower than the same period in 2025. Home order volume in the three months ended June 30, 2026 of 3,575 homes declined 8.7% from 3,914 homes in the three months ended June 30, 2025, due to an 18.6% decrease in orders pace to 3.5 net homes per month in the three months ended June 30, 2026 which was partially offset by a 13.8% increase in average active communities. Demand has been meaningfully impacted by weak consumer confidence that has been exacerbated by economic and geo-political events. Home order value of $1.4 billion for the three months ended June 30, 2026 declined 11.1% from $1.5 billion in the prior year period, due to the lower home order volume combined with 2.6% lower ASP on orders. The decline in ASP on both closings and orders was caused by a shift in geographic mix. Order cancellations of 13% for the three months ended June 30, 2026 were up from 10% in the comparable 2025 period. We believe our low cancellation rates compared to industry averages reflects the benefits of a shorter timeline to home closing resulting from our move-in ready homes with a 60-day closing ready commitment.

Current wording

Companywide. In the three months ended September 30, 2026, we closed 3,187 homes, 13.5% lower than 3,685 closings in the three months ended September 30, 2025. The decrease in home closing volume combined with a 4.0% lower ASP on closings resulted in home closing revenue of $1.2 billion for the three months ended September 30, 2026, 16.9% lower than the same period in 2025. Home order volume in the three months ended September 30, 2026 of 3,083 homes declined 15.2% from 3,636 homes in the three months ended September 30, 2025, due to a 21.1% decrease in orders pace to 3.0 net homes per month in the three months ended September 30, 2026 which was partially offset by a 6.5% increase in average active communities. Our orders pace and demand have been adversely impacted by deteriorating housing affordability and weak consumer confidence that has been exacerbated by economic and geo-political events, and we are intentionally focused on preserving margins rather than pursuing a higher orders pace. Home order value of $1.2 billion for the three months ended September 30, 2026 declined 16.7% from $1.4 billion in the prior year period, due to the lower home order volume combined with 1.7% lower ASP on orders. The decline in ASP on both closings and orders was caused by an increase in utilization and cost of financing incentives and shift in geographic mix. Order cancellations of 13% for the three months ended September 30, 2026 were up from 11% in the comparable 2025 period, reflective of the challenging selling environment.

Previous wording

For the six months ended June 30, 2026, home closing volume of 6,692 closings was 11.8% lower than the prior year period, and ASP on closings decreased 4.4%, generating home closing revenue of $2.5 billion, a 15.6% decline from $3.0 billion in the prior year period. Home order volume of 7,239 for the six months ended June 30, 2026 was down 7.1% over the prior year period, which combined with a 3.8% lower ASP on orders led to a 10.6% decrease in home order value of $2.8 billion. We ended the second quarter of 2026 with 340 actively selling communities, up from 312 at June 30, 2025. The second quarter of 2026 ended with 1,715 homes in backlog valued at $661.9 million, compared to 1,748 units valued at $695.5 million at June 30, 2025. The year over year decrease in backlog homes is due to entering the quarter with fewer homes in backlog and lower order volume.

Current wording

For the nine months ended September 30, 2026, home closing volume of 9,879 closings was 12.4% lower than the prior year period, and ASP on closings decreased 4.2%, generating home closing revenue of $3.7 billion, a 16.0% decline from $4.4 billion in the prior year period. Home order volume of 10,322 for the nine months ended September 30, 2026 was down 9.7% over the prior year period, which combined with a 3.1% lower ASP on orders led to a 12.5% decrease in home order value of $4.0 billion. The decline in ASP on both closings and orders was caused by an increase in utilization and cost of financing incentives and a shift in geographic mix. We ended the third quarter of 2026 with 348 actively selling communities, up from 334 at September 30, 2025. The third quarter of 2026 ended with 1,611 homes in backlog valued at $637.2 million, compared to 1,699 units valued at $670.0 million at September 30, 2025. The year over year decrease in backlog homes is due to lower order volume and high backlog conversion rates.

Previous wording

West. The West Region generated $400.8 million in home closing revenue in the three months ended June 30, 2026, a 27.0% decrease compared to $549.2 million in the prior year period. The lower revenue was due entirely to 29.2% lower closing volume of 825 homes in the three months ended June 30, 2026, compared to 1,165 homes in the prior year. ASP on closings increased 3.1% due to geographic mix within the region. Home orders for the three months ended June 30, 2026 of 762 were down 23.9% from 1,001 in the prior year period, due largely to the 25.6% decrease in orders pace, which was partially offset by a 4.1% increase in average active communities. The orders pace of 2.9 homes per month in the three months ended June 30, 2026 is reflective of a tougher selling environment in most of the West Region's markets, and compares to 3.9 homes per month in the same period of the prior year. Home order value of $391.2 million for the three months ended June 30, 2026 decreased 19.3% due entirely to the lower order volume, as ASP on orders increased 6.0% year over year. The West Region had the lowest cancellation rate in the Company, at 9% for the three months ended June 30, 2026, consistent with the prior year period.

Current wording

West. The West Region generated $341.8 million in home closing revenue in the three months ended September 30, 2026, an 18.7% decrease compared to $420.7 million in the prior year period. The lower revenue was due almost entirely to 19.6% lower closing volume of 710 homes in the three months ended September 30, 2026, compared to 883 homes in the prior year, as ASP on closings was relatively flat year over year. Home orders for the three months ended September 30, 2026 of 706 were down 18.6% from 867 in the prior year period, due largely to the 23.5% decrease in orders pace, which was partially offset by a 6.5% increase in average active communities. The orders pace of 2.6 homes per month in the three months ended September 30, 2026 is reflective of a tougher selling environment in most of the West Region's markets, and compares to 3.4 homes per month in the same period of the prior year. Home order value of $352.0 million for the three months ended September 30, 2026 decreased 17.5% due entirely to the lower order volume, as ASP on orders was relatively flat year over year. The West Region had the lowest cancellation rate in the Company, at 12% for the three months ended September 30, 2026, up from 9% in the prior year period.

Previous wording

For the six months ended June 30, 2026, home closing revenue of $736.9 million decreased 28.4% due to a 30.1% decrease in home closing volume offset by a 2.5% higher ASP on closings for the same reasons as noted above for the second quarter. Home order volume in the West Region of 1,660 decreased 20.7% due to a 20.0% decrease in orders pace to 3.2 net homes per month, on a consistent number of average actively selling communities. Home order value of $835.5 million was down 18.4% as the lower volume was partially offset by a 2.9% increase in ASP. The year-to-date cancellation rate of 8% was consistent with the prior year period. The West Region ended the second quarter of 2026 with 334 homes in backlog valued at $173.2 million, compared to 366 units valued at $182.3 million at June 30, 2025. The lower backlog units are the combined effect of entering the quarter with fewer backlog homes and lower orders in the second quarter of 2026.

Current wording

For the nine months ended September 30, 2026, home closing revenue of $1.1 billion decreased 25.6% due to a 27.1% decrease in home closing volume offset in part by a 2.1% higher ASP on closings. Home order volume in the West Region of 2,366 decreased 20.1% due to a 21.1% decrease in orders pace to 3.0 net homes per month, as the number of average actively selling communities was fairly consistent year over year. Home order value of $1.2 billion was down 18.2% as the lower volume was partially offset by a 2.4% increase in ASP. The higher ASP for both closings and orders was due to geographic mix within the region. The year-to-date cancellation rate of 9% was up slightly from 8% in the prior year period. The West Region ended the third quarter of 2026 with 330 homes in backlog valued at $170.7 million, compared to 350 units valued at $176.5 million at September 30, 2025. The 5.7% decrease in backlog units is the result of entering the third quarter of 2026 with fewer homes in backlog combined with fewer orders in the third quarter of 2026.

Previous wording

Central. The Central Region closed 1,308 homes in the three months ended June 30, 2026, down 4.8% from 1,374 in the prior year period. Home closing revenue of $446.7 million in the three months ended June 30, 2026 was 7.0% lower than $480.4 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 community mix within the region, with newer communities opening at lower ASPs. Home order volume decreased 3.0% to 1,259 homes in the three months ended June 30, 2026 due to a decline in orders pace to 4.1 net homes per month, partially offset by a 23.4% increase in average active community count. The decrease in orders volume combined with a 4.6% lower ASP on orders led to home order value of $439.9 million in the three months ended June 30, 2026, 7.4% lower than the prior year period. The Central Region cancellation rate of 14% in the three months ended June 30, 2026 was up from 11% in the prior year period.

Current wording

Central. The Central Region closed 1,170 homes in the three months ended September 30, 2026, down 7.1% from 1,260 in the prior year period. Home closing revenue of $384.0 million in the three months ended September 30, 2026 was 13.3% lower than $443.1 million in the prior year period due to the combined impact of lower home closing volume and a 6.7% decrease in ASP on closings. The decline in ASP on closings is due to increased utilization and cost of financing incentives and geographic mix within the region. In addition, closing ASP in the third quarter of 2026 was negatively impacted by closings with institutional build-for-rent partners in a few select markets where we took a discounted price to guarantee an exit and quick return of capital because near-term improvement was unlikely. Home order volume decreased 12.2% to 1,132 homes in the three months ended September 30, 2026 due to a 21.3% decline in orders pace to 3.7 net homes per month, partially offset by an 11.5% increase in average active community count. The decrease in orders volume combined with a 3.5% lower ASP on orders led to home order value of $397.0 million in the three months ended September 30, 2026, 15.3% lower than the prior year period. The Central Region cancellation rate of 13% in the three months ended September 30, 2026 was up from 10% in the prior year period.

Previous wording

The Central Region generated home closing revenue of $823.0 million for the six months ended June 30, 2026, 7.8% lower than the prior year due to a 5.7% decline in closing volume of 2,416 homes and a 2.3% decrease in ASP on closings. Year-to-date ASP on closings decreased from the prior year period for the same reasons noted for the second quarter of 2026. Home order volume for the six months ended June 30, 2026 of 2,575 homes decreased 3.3%, due to a 21.2% decrease in orders pace of 4.1 net homes per month, offset by a 23.9% increase in average active communities. Home order value was $897.2 million for the six months ended June 30, 2026, down 7.0% from $964.4 million, in the prior year period, due to lower order volume and a 3.8% reduction in ASP on orders. The year-to-date cancellation rate of 13% was up from 10% in the prior year period. The Central Region ended the second quarter of 2026 with 616 units in backlog, up 5.7% from prior year due to a slightly lower backlog conversion rate in the second quarter of 2026 of 197% compared to 208% in the second quarter of 2025. The higher backlog units combined with a 6.3% lower ASP led to backlog value of $218.7 million as of June 30, 2025, relatively flat with the prior year period.

Current wording

The Central Region generated home closing revenue of $1.2 billion for the nine months ended September 30, 2026, 9.7% lower than the prior year due to a 6.2% decline in closing volume of 3,586 homes and a 3.7% decrease in ASP on closings. Year-to-date ASP on closings decreased due to geographic mix within the region and higher usage and cost of financing incentives. Home order volume for the nine months ended September 30, 2026 of 3,707 homes decreased 6.2%, due to a 22.0% decrease in orders pace of 3.9 net homes per month, offset by a 19.2% increase in average active communities. Home order value was $1.3 billion for the nine months ended September 30, 2026, down 9.7% from $1.4 billion, in the prior year period, due to the lower order volume and a 3.7% reduction in ASP on orders. The year-to-date cancellation rate of 13% was up from 10% in the prior year period. The Central Region ended the third quarter of 2026 with 578 units in backlog, down 5.6% from prior year due to the lower order volume in the third quarter of 2026, which was offset by a lower backlog conversion rate of 190% in the third quarter of 2026, compared to 216% in the same prior year period. The lower backlog units combined with a relatively flat ASP led to backlog value of $217.2 million as of September 30, 2025, down 6.4% from the prior year period.

Previous wording

East. During the three months ended June 30, 2026, the East Region closed 1,592 homes, generating $540.4 million in home closing revenue, down 2.4% and 7.8%, respectively from 1,631 closings and $586.1 million in the comparable prior year period. The 5.5% lower ASP on home closings resulted from incremental incentives offered in certain markets to sell through higher levels of aged spec inventory. Home order volume of 1,554 homes for the three months ended June 30, 2026 declined 3.8%, due to a lower orders pace of 3.4 net homes per month, as compared to 4.1 net homes per month in the prior year period, which was partially offset by a 14.0% higher average active community count. The higher community count reflects continued growth in our newer markets in Alabama and Mississippi. Home order value of $545.3 million in the three months ended June 30, 2026 decreased 7.2% from $587.4 million in the prior year period due to the lower home order volume and a 3.5% decrease in ASP on orders year over year, for the same reasons as ASP on closings. The East Region cancellation rate of 14% in the three months ended June 30, 2026 was up from 10% in the same prior year period.

Current wording

East. During the three months ended September 30, 2026, the East Region closed 1,307 homes, generating $436.6 million in home closing revenue, down 15.2% and 18.5%, respectively from 1,542 closings and $535.6 million in the comparable prior year period. ASP on home closings for the three months ended September 30, 2026 was 3.8% lower than the prior year period due to geographic mix within the region and increased usage and cost of financing incentives. Home order volume of 1,245 homes for the three months ended September 30, 2026 declined 15.9%, due to a lower orders pace of 2.7 net homes per month, as compared to 3.4 net homes per month in the prior year period, which was partially offset by a 3.4% higher average active community count. Home order value of $430.2 million in the three months ended September 30, 2026 decreased 17.2% from $519.9 million in the prior year period due to the lower home order volume and a 1.6% decrease in ASP on orders year over year, as noted previously. The East Region cancellation rate of 13% in the three months ended September 30, 2026 was up slightly from 12% in the same prior year period.

Previous wording

Land Closing Revenue and Gross Profit/(Loss) (in thousands)

Current wording

Land Closing Revenue and Gross Profit (in thousands)

Previous wording

Companywide. Home closing gross profit for the three months ended June 30, 2026 was $253.6 million, with a home closing gross margin of 18.3% down 280 basis points from 21.1% in the three months ended June 30, 2025. For the six months ended June 30, 2026, home closing gross profit was $447.4 million, or 17.9%, down 360 basis points from 21.5% in the six months ended June 30, 2025. The margin decline for both the three and six months ended June 30, 2026 was due to the combined impact of lower ASPs, reduced leverage of fixed costs on lower home closing revenue and higher lot costs, all of which were only partially offset by savings in direct costs and shorter 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 home closing gross margin was 18.6% and 21.4% for the three months ended June 30, 2026 and 2025, respectively, and was 18.2% and 21.7% for the six months ended June 30, 2026 and 2025, respectively.

Current wording

Companywide. Home closing gross profit for the three months ended September 30, 2026 was $202.6 million, with a home closing gross margin of 17.4% down 170 basis points from 19.1% in the three months ended September 30, 2025. For the nine months ended September 30, 2026, home closing gross profit was $650.0 million, or 17.8% gross margin, down 290 basis points from 20.7% in the nine months ended September 30, 2025. The margin decline for both the three and nine months ended September 30, 2026 was due to the combined impact of higher incentives, reduced leverage of fixed costs on lower home closing revenue and higher lot costs, all of which were partially offset by savings in direct costs and lower performance-based compensation expense. Excluding real estate-related impairments and charges related to terminated land contracts, adjusted home closing gross margin was 17.9% and 20.1% for the three months ended September 30, 2026 and 2025, respectively, and was 18.1% and 21.2% for the nine months ended September 30, 2026 and 2025, respectively.

Previous wording

West. The West Region had home closing gross margin of 19.6% for the three months ended June 30, 2026, down 120 basis points from 20.8% in the three months ended June 30, 2025. For the six months ended June 30, 2026, the West Region home closing gross margin of 19.0% declined 230 basis points. The decline in home closing gross margin for both the three and six month periods ended June 30, 2026 was due to lost leverage on lower home closing revenue and higher lot costs, with some offsetting benefit from direct costs savings. Contract termination and impairment charges were not materially impactful in the West Region for any periods presented.

Current wording

West. The West Region had home closing gross margin of 18.0% for the three months ended September 30, 2026, down 160 basis points from 19.6% in the three months ended September 30, 2025. For the nine months ended September 30, 2026, the West Region home closing gross margin of 18.7% declined 210 basis points from 20.8% in the same prior year period. The decline in home closing gross margin for both the three and nine month periods ended September 30, 2026 was due to higher incentives and lot costs and lost leverage on lower home closing revenue, which were partially offset by savings in direct costs and lower performance-based compensation expense. Excluding impairment charges and land deal terminations, adjusted home closing gross margin was 18.5% and 20.3% for the three months ended September 30, 2026 and 2025, respectively, and was 18.8% and 21.1% for the nine months ended September 30, 2026 and 2025, respectively.

Previous wording

Central. The Central Region home closing gross margin of 19.1% for the three months ended June 30, 2026 decreased 310 basis points from 22.2% in the prior year period due to increased lot costs and reduced leverage on lower home closing ASPs and home closing revenue, partially offset by savings in direct costs. Real estate-related impairments and charges for terminated contracts also negatively impacted home closing gross margin for the three months ended June 30, 2026 by 50 basis points. Excluding these charges, adjusted home closing gross margin was 19.6% and 22.2% for the three months ended June 30, 2026 and 2025, respectively. For the six months ended June 30, 2026, the Central Region home closing gross margin of 18.7% declined 340 basis points for the same reasons as the second quarter of 2026. Excluding real estate-related impairments and contract termination charges for the six months ended June 30, 2026 and 2025, adjusted home closing gross margin was 19.2% and 22.2%, respectively.

Current wording

Central. The Central Region home closing gross margin of 17.7% for the three months ended September 30, 2026 decreased 370 basis points from 21.4% in the prior year period due to higher incentives and reduced leverage on lower home closing revenue, partially offset by lower performance-based compensation expense and savings in direct costs. Real estate-related impairments negatively impacted home closing gross margin by 100 basis points for the three months ended September 30, 2026. Excluding these charges, adjusted home closing gross margin was 18.7% and 21.7% for the three months ended September 30, 2026 and 2025, respectively. For the nine months ended September 30, 2026, the Central Region home closing gross margin of 18.4% declined 350 basis points from 21.9%, due to less leverage on lower home closing revenue and higher lot costs, offset by savings in direct costs and performance-based compensation expense. Excluding real estate-related impairments and contract termination charges for the nine months ended September 30, 2026 and 2025, adjusted home closing gross margin was 19.0% and 22.0%, respectively.

Previous wording

East. The East Region home closing gross margin was 16.6% and 20.5% for the three months ended June 30, 2026 and 2025, respectively. For the six months ended June 30, 2026, the East Region home closing gross margin of 16.4% decreased 490 basis points from 21.3% in the same period of 2025. The margin decline in both the three and six month periods was due to the increased use of incentives, lost leverage on lower home closing revenue 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 also had a negative impact on East Region home closing gross margin. Excluding these items, adjusted home closing gross margin was 16.9% and 21.1% for the three months ended June 30, 2026 and 2025, respectively. For the six months ended June 30, 2026 and 2025, adjusted home closing gross margin was 16.8% and 21.6%, respectively.

Current wording

East. The East Region home closing gross margin of 16.8% for the three months ended September 30, 2026 was relatively flat with 16.7% in the same prior year period, due to increased incentives and lost leverage on lower home closing revenue in the third quarter of 2026 as compared to the prior period. Also impacting home closing gross margin were impairments of $0.9 million in third quarter of 2026 compared to $6.9 million in the third quarter of 2025. For the nine months ended September 30, 2026, the East Region home closing gross margin of 16.5% decreased 320 basis points from 19.7% in the same period of 2025, due to lost leverage on lower home closing revenue and higher lot costs, which more than offset the savings in direct costs and lower performance-based compensation expense. Excluding real estate-related impairments and write-off of terminated land deals, adjusted home closing gross margin was 16.9% and 18.6% for the three months ended September 30, 2026 and 2025, respectively. For the nine months ended September 30, 2026 and 2025, adjusted home closing gross margin excluding impairments and terminated land deals was 16.8% and 20.6%, respectively.

Previous wording

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 and Meritage Insurance, respectively, as well as our portion of earnings from our mortgage joint ventures. Results from financial services are closely tied to the number of home closings in each of our markets where we have financial services operations.

Current wording

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 and Meritage Insurance, respectively, as well as our portion of earnings from our mortgage joint ventures. Results from financial services are closely tied to the number of home closings in each of our markets where we have financial services operations. Despite lower home closing volume, financial services profit for the three and nine months ended September 30, 2026 was relatively flat compared to the same prior year periods due to fewer charges in the current year related to expired interest rate forward commitments.

Previous wording

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. For the three months ended June 30, 2026, these costs decreased $17.0 million, to $91.8 million, and as a percentage of home closing revenue improved slightly to 6.6% in the three months ended June 30, 2026, compared to 6.7% in the prior year period. The lower spend for the three months ended June 30, 2026 was the result of lower commissions paid on lower home closing revenue and lower maintenance and utility costs associated with having less spec homes in inventory. For the six months ended June 30, 2026, these costs decreased $32.3 million, to $171.3 million, and were flat as a percentage of home closing revenue of 6.9% in the current and prior year period. The lower dollar spend for the six months ending June 30, 2026 is tied directly to lower commissions due to reduced home closing revenue.

Current wording

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. For the three months ended September 30, 2026, these costs decreased $17.3 million, to $82.4 million, and for the nine months ended September 30, 2026, these costs decreased $49.6 million, to $253.7 million. The decreased spend for both periods is due to lower commissions paid on lower home closing revenue and lower maintenance and utility costs associated with having less spec homes in inventory. As a percentage of home closing revenue, commissions and other sales costs were relatively consistent across all periods.

Previous wording

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 June 30, 2026, general and administrative expenses of $52.4 million decreased $2.8 million from $55.2 million in the prior year period due to lower compensation expense and intentional reductions in discretionary spend. For the six months ended June 30, 2026, general and administrative expenses of $103.8 million decreased $8.4 million from the prior year period, for the same reasons as the second quarter of 2026, but were also partially offset by increased spend on technology. General and administrative expenses as a percentage of home closing revenue were 3.8% and 4.2% for the three and six months ended June 30, 2026. The 40 basis points increase over both prior year periods was due to reduced leverage of fixed costs on lower home closing revenue.

Current wording

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, 2026, general and administrative expenses of $45.2 million decreased $6.6 million, and for the nine months ended September 30, 2026, decreased $15.0 million to $149.0 million. The lower spend for both the three and nine months ended September 30, 2026 is due to lower performance-based compensation expense and intentional reductions in discretionary spend, partially offset by increased spend on technology. General and administrative expenses as a percentage of home closing revenue were 3.9% and 4.1% for the three and nine months ended September 30, 2026, respectively, up from 3.7% and 3.8% in the same prior year periods, due to reduced leverage of fixed costs on lower home closing revenue.

Previous wording

Interest Expense. Interest expense is comprised of interest incurred, but not capitalized, on our senior and convertible senior notes and loans payable and other borrowings, including our Credit Facility. We recognized interest expense of $2.2 million and $2.8 million for the three and six months ended June 30, 2026, respectively. There was no interest expense in the same periods of 2025 as all interest incurred was capitalized to qualifying assets.

Current wording

Interest Expense. Interest expense is comprised of interest incurred, but not capitalized, on our senior and convertible senior notes and loans payable and other borrowings, including our Credit Facility. We recognized interest expense of $1.4 million and $4.1 million for the three and nine months ended September 30, 2026, respectively. There was no interest expense in the same periods of 2025 as all interest incurred was capitalized to qualifying assets.

Previous wording

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 $7.5 million and $10.9 million for the three months ended June 30, 2026 and 2025, respectively, and decreased due to less interest income on lower cash balances. Other income, net was $14.4 million and $20.4 million for the six months ended June 30, 2026 and 2025, respectively, and decreased due to less interest income on lower cash balances as well as a favorable legal settlement recognized in the prior year period.

Current wording

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 $6.3 million and $8.1 million for the three months ended September 30, 2026 and 2025, respectively, and decreased primarily due to less interest income earned on lower cash balances. Other income, net was $20.7 million and $28.5 million for the nine months ended September 30, 2026 and 2025, respectively, and decreased due to less interest income earned on lower cash balances as well as a favorable legal settlement recognized in the prior year period.

Previous wording

Income Taxes. Our effective tax rate was 24.8% and 23.9% for the three months ended June 30, 2026 and 2025, respectively, and was 24.4% and 23.6% for the six months ended June 30, 2026 and 2025, respectively. The increase for both the three and six months ended June 30, 2026 was primarily due to an increase in state income taxes.

Current wording

Income Taxes. Our effective tax rate was 20.1% and 22.6% for the three months ended September 30, 2026 and 2025, respectively, and was 23.1% and 23.4% for the nine months ended September 30, 2026 and 2025, respectively. The rate for the three months ended September 30, 2026 reflected acquired below-market transferable clean fuel production tax credits.

Previous wording

At June 30, 2026, we had $807.3 million of cash and cash equivalents and $896.9 million available under the Credit Facility, thereby providing approximately $1.7 billion of total available capacity.

Current wording

At September 30, 2026, we had $677.5 million of cash and cash equivalents and $896.7 million available under the Credit Facility, thereby providing approximately $1.6 billion of total available capacity.

Previous wording

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 June 30, 2026, 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 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.

Current wording

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, 2026, 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 of credit and surety bonds and operating leases. We have no senior notes or convertible senior notes maturing 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. Except for specific performance land purchase contracts, 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.

Previous wording

During the six months ended June 30, 2026, net cash provided by operating activities totaled $290.8 million, and for the six months ended June 30, 2025, net cash used in operating activities totaled $28.9 million. Net cash provided by operating activities for the six months ended June 30, 2026 consisted largely of cash generated from net earnings of $145.9 million and a $132.3 million decrease in real estate. Cash flows used in operations in the six months ended June 30, 2025 reflected cash generated by net earnings of $269.7 million, which was offset by a $224.6 million increase in real estate.

Current wording

During the nine months ended September 30, 2026, net cash provided by operating activities totaled $259.5 million, and for the nine months ended September 30, 2025, net cash used in operating activities totaled $125.4 million. Net cash provided by operating activities for the nine months ended September 30, 2026 consisted largely of cash generated from net earnings of $213.7 million and a $58.7 million decrease in real estate. 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, offset in part by cash generated from net earnings of $369.0 million.