Meritage Homes CORP (MTH)

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview and Outlook

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.

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.

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.

Summary Company Results

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.

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.

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

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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.

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.

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.

Company Positioning

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.

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, aligned with their expectations for traditional resale housing timelines;

•Delivering affordable homes 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

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

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 2025);

•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 second quarter of 2026 with a 26.8% debt-to-capital ratio and a 17.1% net debt-to-capital ratio;

•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.

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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 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.

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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 affect the comparability between our home orders, closings and backlog due to the changing mix between periods. The tables on the following pages present operating and financial data that we consider most critical to managing our operations (dollars in thousands):

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Industry Conditions

The market for new homes in 2025 was marked by much softer demand than anticipated, as affordability challenges persisted and consumer confidence deteriorated. While demand for affordable, move-in ready homes from millennial, Gen Z and baby boomer generations continues, buyers are increasingly reliant on financing assistance to overcome market uncertainty and manage monthly payments. Our ability to offer financing incentives, including interest rate locks and buy-downs, remains a key differentiator, primarily compared to resale homes, where individual sellers are typically not able to provide such incentives. With our strategy to provide affordable, move-in ready homes that can 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 we are well positioned to capture existing demand and grow our market share when demand improves.

During 2025, we further shortened our construction cycle times to under 110 calendar days, below our historical normalized time of approximately 120 days. Our all-spec strategy minimizes variability and creates efficiencies through repeatability, which combined with increased capacity from declining market demand, were the drivers for this cycle time improvement. Cycle time improvement was also supported by a healthy channel of materials available in the supply chain. While material costs have eased, land costs remain elevated following years of historically high land acquisition and development costs. Our scale and purchasing power allow us to secure volume discounts from national vendors, helping offset some of these cost pressures.

In response to the broader economic conditions, during the fourth quarter of 2025 we conducted an in-depth review of our land portfolio and elected to terminate certain positions to release capital to top-grade our land portfolio as better opportunities become available. We also took steps to reduce our go-forward overhead costs, with a strategic focus on both cost savings and technological efficiencies for certain back-office functions. As a result of these strategic reviews, we recognized charges on terminated land contracts of $39.4 million and severance costs totaling $8.4 million during the year ended December 31, 2025.

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

Summary Company Results

Despite a tougher economic backdrop, we ended 2025 with 15,026 closings, down 3.7% from 15,611 closings in 2024. Home order volume for the year ended December 31, 2025 of 14,650 units was consistent with prior year, as an 11.6% increase in average active community count was mostly offset by a 9.3% year-over-year decrease in orders pace. A cancellation rate of 11% in 2025 was higher than 9% in 2024, but still 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. Reduced construction cycle times and our all spec strategy led to record backlog conversions throughout the full year 2025, resulting in 24.4% fewer homes in backlog at December 31, 2025, with 1,168 units valued at $440.6 million compared to 1,544 units valued at $629.5 million at December 31, 2024.

Total home closing revenue of $5.8 billion for the year ended December 31, 2025 decreased 9.1% from $6.3 billion in 2024, due to 3.7% fewer home closings and a 5.6% reduction in ASP on closings. Home closing gross margin was 19.7% for the year ended December 31, 2025 compared to 24.9% in 2024. The year-over-year margin decline was due to increased utilization of financing incentives, higher lot costs, and reduced leverage of fixed costs on lower home closing revenue, all of which offset savings in direct costs and faster cycle times. Home closing gross margin was also impacted by $39.4 million in charges incurred related to terminated land contracts, $16.5 million of real estate-related impairments, and $4.3 million of severance costs. Excluding these costs, adjusted home closing gross margin was 20.8% for the year ended December 31, 2025, compared to adjusted home closing gross margin of 25.0% in 2024 which included $6.7 million in terminated land contracts. Financial services profit of $18.6 million increased from $14.4 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 $404.4 million for the full year ended December 31, 2025 decreased $4.7 million from the prior year period due to lower home closing revenue, offset by higher maintenance and utility costs as a result of having more spec homes in inventory. General and administrative expenses of $211.8 million for the year ended December 31, 2025 decreased $19.1 million year over year, primarily due to lower performance-based compensation, which was partially offset by increased technology spend and severance costs. Other income, net of $44.1 million in 2025 was relatively flat with prior year. Earnings before income taxes of $584.6 million in 2025 decreased 41.7% from $1.0 billion in 2024. Our effective tax rate for the year ended December 31, 2025

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was 22.5% as compared to 21.6% in 2024, leading to net income of $453.0 million and $786.2 million for the years ended December 31, 2025 and 2024, respectively.

Company Positioning

We believe that the investments in our communities designed for the first-time and first move-up homebuyer, our move-in ready homes with our recently introduced 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 a strong balance sheet. We ended the year with a 26.0% debt-to-capital ratio and a 16.9% net debt-to-capital ratio, after issuing $500.0 million of senior notes;

•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

We have established various accounting policies that govern the application of United States generally accepted accounting principles (“GAAP”) in the preparation and presentation of our consolidated financial statements. Our significant accounting policies are described in Note 1 of the accompanying consolidated financial statements included in this Annual Report. Certain of these policies involve critical accounting estimates, which are significant judgments, assumptions and estimates by management in accordance with GAAP that involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on our financial condition or results of operations. We are subject to uncertainties such as the impact of future events, economic, environmental, political and regulatory factors and changes in our business environment; therefore, actual results could differ from these estimates. Accordingly, the accounting estimates used in the preparation of our financial statements may change as new events occur, as more experience is acquired, as additional information is obtained and as our operating environment changes. Changes in estimates are revised when circumstances warrant. Such changes in estimates and refinements in methodologies are reflected in our reported results of operations and, if

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material, the effects of changes in estimates are disclosed in the notes to our consolidated financial statements. The judgments, assumptions and estimates we use and believe to be critical to our business are based on historical experience, knowledge of the accounts, industry practices, and other factors, which we believe to be reasonable under the circumstances. Because of the nature of the judgments and assumptions we have made, actual results may differ from these judgments and estimates and could have a material impact on the carrying values of assets and liabilities and the results of our operations.

The critical accounting estimates that we deem to involve the most difficult, subjective or complex judgments are as follows:

Real Estate Valuation and Cost of Home Closings

Real estate inventory is stated at cost unless the community or land is determined to be impaired, at which point the inventory is written down to fair value as required by Accounting Standards Codification (“ASC”) 360-10, Property, Plant and Equipment. Real estate inventory includes the costs of land acquisition, land development and home construction, capitalized interest, real estate taxes, and direct overhead costs incurred during development and home construction that benefit the entire community, less impairments, if any. Land and development costs are typically allocated and transferred to homes when home construction begins. Home construction costs are accumulated on a per-home basis, while commissions and other sales costs are expensed as incurred. Cost of home closings includes the specific construction costs of the home and all related allocated land acquisition, land development and other common costs (both incurred and estimated to be incurred) that are allocated based upon the total number of homes expected to be closed in each community or phase. Any changes to the estimated total development costs of a community or phase are allocated to the remaining homes in that community or phase. When a home closes, we may have incurred costs for materials and services that have not yet been paid. We accrue a liability to capture such obligations in connection with the home closing which is charged directly to Cost o

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