Meritage Homes Corporation
04/24/2026 | Press release | Distributed by Public on 04/24/2026 14:20
Quarterly Report for Quarter Ending March 31, 2026 (Form 10-Q)
| Management's Discussion and Analysis of Financial Condition and Results of Operations |
Overview and Outlook
The homebuilding market continued to be challenged in the first quarter of 2026, due to persistent affordability challenges and diminished consumer confidence, which was further depressed by severe winter storms and military operations in Iran which we believe drove increasing interest rates, gas prices and inflation. 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. While we face headwinds in the current environment, we acknowledge that capturing demand requires higher than anticipated 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, however, our scale and purchasing power allow us to secure volume discounts from national vendors, 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 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
Home closing volume of 2,967 homes in the three months ended March 31, 2026 was down 13.1% from 3,416 homes in the same prior year period. Lower closing volume combined with a 5.0% decrease in average sales price ("ASP") on closings resulted in $1.1 billion in home closing revenue, a 17.5% decrease from $1.3 billion in the three months ended March 31, 2025. The lower ASP is a result of increased utilization of incentives and geographic mix shift, and contributed to the first quarter 2026 home closing gross margin decline of 450 basis points to 17.5%, compared to 22.0% in the prior year period. The decrease in home closing gross margin was also attributable to reduced leverage of fixed costs on lower home closing revenue and higher lot costs, all of which were only partially offset by savings achieved in direct costs and shorter construction cycle times. Lower home closing volume and ASP on closings led to home closing gross profit of $193.8 million in the three months ended March 31, 2026 compared to $295.7 million in the comparable prior year period. Land closing gross loss of $0.3 million in the three months ended March 31, 2026 compared to land closing gross profit of $3.2 million in the comparable 2025 period. Financial services profit was $3.5 million in the three months ended March 31, 2026, flat with the prior year period. Commissions and other sales costs of $79.5 million in the three months ended March 31, 2026 decreased $15.2 million due primarily to lower home closing revenue. General and administrative expenses of $51.4 million in the three months ended March 31, 2026 decreased $5.6 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 March 31, 2026 of $72.5 million decreased $87.6 million year over year from $160.2 million in the same period of 2025. The effective income tax rate of 23.7% for the three months ended March 31, 2026 increased slightly from 23.3% in 2025. The decrease in year-over-year profitability resulted in net earnings of $55.3 million in the three months ended March 31, 2026 versus $122.8 million in the three months ended March 31, 2025.
Home orders of 3,664 for the three months ended March 31, 2026 decreased 5.5% from 3,876 home orders in the prior year quarter due to an 18.2% decrease in orders pace to 3.6 net homes per month, offset by the 17.0% increase in average active communities. Home order value during the three months ended March 31, 2026 of $1.4 billion decreased 10.1% year-over-year, due to lower order volume and a 4.9% decrease in ASP on orders caused by the same factors discussed previously. Our cancellation rate was 11% in the three months ended March 31, 2026, compared to 9% in the comparable 2025 period. We ended the first quarter of 2026 with 1,865 homes in backlog valued at $711.5 million, decreases of 6.9% and 12.4%, respectively, from March 31, 2025. The lower backlog units are due to lower order volume and a higher backlog conversion rate of 254% during the three months ended March 31, 2026, compared to 221% in the comparable 2025 period.
We ended the first quarter of 2026 with 345 active communities, the highest in Company history, up from 290 at March 31, 2025 and 336 at December 31, 2025. We purchased approximately 2,600 lots for $141.0 million, spent $185.1 million on land development, net of reimbursements, and started construction on 2,524 homes during the three months ended March 31, 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;
•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 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 first quarter of 2026 with a 26.6% debt-to-capital ratio and a 17.4% 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.
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 three months ended March 31, 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.
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):
| Home Closing Revenue | Three Months Ended March 31, | Quarter over Quarter | ||||||||||||||||||||||||
| 2026 | 2025 | Change $ | Change % | |||||||||||||||||||||||
| Total | ||||||||||||||||||||||||||
| Dollars | $ | 1,107,822 | $ | 1,342,104 | $ | (234,282) | (17.5) | % | ||||||||||||||||||
| Homes closed | 2,967 | 3,416 | (449) | (13.1) | % | |||||||||||||||||||||
| Average sales price | $ | 373.4 | $ | 392.9 | $ | (19.5) | (5.0) | % | ||||||||||||||||||
| West Region | ||||||||||||||||||||||||||
| Dollars | $ | 336,183 | $ | 479,636 | $ | (143,453) | (29.9) | % | ||||||||||||||||||
| Homes closed | 686 | 998 | (312) | (31.3) | % | |||||||||||||||||||||
| Average sales price | $ | 490.1 | $ | 480.6 | $ | 9.5 | 2.0 | % | ||||||||||||||||||
| Central Region | ||||||||||||||||||||||||||
| Dollars | $ | 376,300 | $ | 412,537 | $ | (36,237) | (8.8) | % | ||||||||||||||||||
| Homes closed | 1,108 | 1,187 | (79) | (6.7) | % | |||||||||||||||||||||
| Average sales price | $ | 339.6 | $ | 347.5 | $ | (7.9) | (2.3) | % | ||||||||||||||||||
| East Region | ||||||||||||||||||||||||||
| Dollars | $ | 395,339 | $ | 449,931 | $ | (54,592) | (12.1) | % | ||||||||||||||||||
| Homes closed | 1,173 | 1,231 | (58) | (4.7) | % | |||||||||||||||||||||
| Average sales price | $ | 337.0 | $ | 365.5 | $ | (28.5) | (7.8) | % | ||||||||||||||||||
| Home Orders (1) | Three Months Ended March 31, | Quarter over Quarter | ||||||||||||||||||||||||
| 2026 | 2025 | Change $ | Change % | |||||||||||||||||||||||
| Total | ||||||||||||||||||||||||||
| Dollars | $ | 1,400,440 | $ | 1,558,177 | $ | (157,737) | (10.1) | % | ||||||||||||||||||
| Homes ordered | 3,664 | 3,876 | (212) | (5.5) | % | |||||||||||||||||||||
| Average sales price | $ | 382.2 | $ | 402.0 | $ | (19.8) | (4.9) | % | ||||||||||||||||||
| West Region | ||||||||||||||||||||||||||
| Dollars | $ | 444,293 | $ | 539,594 | $ | (95,301) | (17.7) | % | ||||||||||||||||||
| Homes ordered | 898 | 1,093 | (195) | (17.8) | % | |||||||||||||||||||||
| Average sales price | $ | 494.8 | $ | 493.7 | $ | 1.1 | 0.2 | % | ||||||||||||||||||
| Central Region | ||||||||||||||||||||||||||
| Dollars | $ | 457,299 | $ | 489,160 | $ | (31,861) | (6.5) | % | ||||||||||||||||||
| Homes ordered | 1,316 | 1,365 | (49) | (3.6) | % | |||||||||||||||||||||
| Average sales price | $ | 347.5 | $ | 358.4 | $ | (10.9) | (3.0) | % | ||||||||||||||||||
| East Region | ||||||||||||||||||||||||||
| Dollars | $ | 498,848 | $ | 529,423 | $ | (30,575) | (5.8) | % | ||||||||||||||||||
| Homes ordered | 1,450 | 1,418 | 32 | 2.3 | % | |||||||||||||||||||||
| Average sales price | $ | 344.0 | $ | 373.4 | $ | (29.4) | (7.9) | % | ||||||||||||||||||
(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.
|
Order Backlog (1)
|
At March 31, | Quarter over Quarter | ||||||||||||||||||||||||
| 2026 | 2025 | Change $ | Change % | |||||||||||||||||||||||
| Total | ||||||||||||||||||||||||||
| Dollars | $ | 711,466 | $ | 812,358 | $ | (100,892) | (12.4) | % | ||||||||||||||||||
| Homes in backlog | 1,865 | 2,004 | (139) | (6.9) | % | |||||||||||||||||||||
| Average sales price | $ | 381.5 | $ | 405.4 | $ | (23.9) | (5.9) | % | ||||||||||||||||||
| West Region | ||||||||||||||||||||||||||
| Dollars | $ | 193,651 | $ | 262,627 | $ | (68,976) | (26.3) | % | ||||||||||||||||||
| Homes in backlog | 397 | 530 | (133) | (25.1) | % | |||||||||||||||||||||
| Average sales price | $ | 487.8 | $ | 495.5 | $ | (7.7) | (1.6) | % | ||||||||||||||||||
| Central Region | ||||||||||||||||||||||||||
| Dollars | $ | 238,387 | $ | 242,919 | $ | (4,532) | (1.9) | % | ||||||||||||||||||
| Homes in backlog | 665 | 659 | 6 | 0.9 | % | |||||||||||||||||||||
| Average sales price | $ | 358.5 | $ | 368.6 | $ | (10.1) | (2.7) | % | ||||||||||||||||||
| East Region | ||||||||||||||||||||||||||
| Dollars | $ | 279,428 | $ | 306,812 | $ | (27,384) | (8.9) | % | ||||||||||||||||||
| Homes in backlog | 803 | 815 | (12) | (1.5) | % | |||||||||||||||||||||
| Average sales price | $ | 348.0 | $ | 376.5 | $ | (28.5) | (7.6) | % | ||||||||||||||||||
(1)Our backlog represents net home orders that have not closed.
Active Communities and Cancellation Rates
| Active Communities | Three Months Ended March 31, | ||||||||||||||||||||||
| 2026 | 2025 | ||||||||||||||||||||||
| Ending | Average | Ending | Average | ||||||||||||||||||||
| Total | 345 | 340.5 | 290 | 291.0 | |||||||||||||||||||
| West Region | 88 | 85.5 | 85 | 88.0 | |||||||||||||||||||
| Central Region | 107 | 109.5 | 82 | 86.0 | |||||||||||||||||||
| East Region | 150 | 145.5 | 123 | 117.0 | |||||||||||||||||||
|
Cancellation Rates (2)
|
Three Months Ended March 31, | |||||||||||||
| 2026 | 2025 | |||||||||||||
| Total | 11 | % | 9 | % | ||||||||||
| West Region | 6 | % | 7 | % | ||||||||||
| Central Region | 12 | % | 9 | % | ||||||||||
| East Region | 13 | % | 10 | % | ||||||||||
(2)Cancellation rates are computed as the number of canceled units for the period divided by the gross sales units for the same period.
Operating Results
Companywide. In the three months ended March 31, 2026, we closed 2,967 homes, 13.1% lower than 3,416 closings in the three months ended March 31, 2025. The decrease in home closing volume combined with a 5.0% lower ASP on closings drove $1.1 billion in home closing revenue for the three months ended March 31, 2026, 17.5% lower than the same period in 2025. Nearly 70% of our first quarter closings came from intra-quarter home orders. Home order volume in the three months ended March 31, 2026 of 3,664 homes was 5.5% lower than 3,876 homes in the three months ended March 31, 2025, due to an 18.2% decrease in orders pace to 3.6 net homes per month in the three months ended March 31, 2026 which was partially offset by a 17.0% increase in average active communities. Demand has been meaningfully impacted by consumer confidence that has been weak for some time and recently exacerbated by economic and world events. The lower home order volume combined with 4.9% lower ASP on orders led to 10.1% lower home order value of $1.4 billion for the three months ended March 31, 2026, compared to $1.6 billion in the prior year period. The decline in ASP on both closings and orders was caused by increased utilization of incentives and shift in geographic mix. Order cancellations of 11% for the three months ended March 31, 2026 were up from 9% in the comparable 2025 period, but remains below our historical company average. We believe our low cancellation rates reflects the benefits of a shorter timeline to home closing that is provided by our move-in ready homes with a 60-day closing ready commitment. The first quarter of 2026 ended with 1,865 homes in backlog valued at $711.5 million, compared to 2,004 units valued at $812.4 million at March 31, 2025. The year over year decrease in backlog homes is the result of lower order volume and a higher backlog conversion rate of 254% during the three months ended March 31, 2026, compared to 221% in the same period of 2025.
West. The West Region generated $336.2 million in home closing revenue in the three months ended March 31, 2026, a 29.9% decrease compared to $479.6 million in the prior year period. The lower revenue was due entirely to 31.3% lower closing volume of 686 homes in the three months ended March 31, 2026, compared to 998 homes in the prior year. ASP on closings increased 2.0% due to geographic mix within the region. Home orders for the three months ended March 31, 2026 of 898 were down 17.8% from 1,093 in the prior year period, due to the combination of a 14.6% decrease in orders pace and 2.8% fewer average active communities. The orders pace of 3.5 homes per month in the three months ended March 31, 2026 compares to 4.1 homes per month in the same period of the prior year. Home order value of $444.3 million for the three months ended March 31, 2026 decreased 17.7% due entirely to the lower order volume, as ASP on orders was flat year over year. The West Region had the lowest cancellation rate in the Company, at 6% for the three months ended March 31, 2026, and down from 7% in the prior year period. The West Region ended the first quarter of 2026 with 397 homes in backlog valued at $193.7 million, compared to 530 units valued at $262.6 million at March 31, 2025. The lower backlog is the combined effect of the lower orders in the first quarter of 2026, along with a record backlog conversion rate of 371% for the three months ended March 31, 2026 compared to 229% in the same period of 2025.
Central. The Central Region closed 1,108 homes in the three months ended March 31, 2026, down 6.7% from 1,187 in the prior year period. Home closing revenue of $376.3 million in the three months ended March 31, 2026 was 8.8% lower than $412.5 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 utilization of incentives. Home order volume decreased 3.6% to 1,316 homes in the three months ended March 31, 2026 due to a 24.5% decline in orders pace to 4.0 homes per month, offset by a 27.3% increase in average active community count. The decrease in volume combined with a 3.0% decrease in ASP on orders led to 6.5% lower home order value of $457.3 million in the three months ended March 31, 2026. The Central Region cancellation rate of 12% in the three months ended March 31, 2026 was up from 9% in the prior year period but continues to be lower than the historical company average. The Central Region ended the first quarter of 2026 with 665 units in backlog, relatively consistent with prior year, while backlog value of $238.4 million was down 1.9% from March 31, 2025 due to a 2.7% lower ASP on backlog.
East. During the three months ended March 31, 2026, the East Region closed 1,173 homes for $395.3 million, down 4.7% and 12.1%, respectively from 1,231 closings and $449.9 million in home closing revenue in the comparable prior year period. The lower home closing revenue was driven by fewer closings and a 7.8% lower ASP on home closings, resulting from shift in geographic mix within the region and greater utilization of incentives. The Region improved home order volume over prior year by 2.3%, with orders of 1,450 for the three months ended March 31, 2026, due entirely to a 24.4% higher average active community count which reflects continued growth in our newer divisions, and was partially offset by a 17.5% lower orders pace. The orders pace of 3.3 homes per month compared to 4.0 in the prior year period is reflective of the demand conditions in the underlying geographies. Order value of $498.8 million in the three months ended March 31, 2026 decreased 5.8% from $529.4 million in the prior year period due to a 7.9% decrease in ASP on orders year over year caused by geographic mix shift and increased use of incentives. The East Region cancellation rate of 13% in the three months ended March 31, 2026 was up from 10% in the same prior year period but remains below our historical company average. The East Region ended the first quarter of 2026 with 803 homes in backlog, relatively consistent with prior year, as the higher order volume was offset by an
increased backlog conversion rate of 223% in the first quarter of 2026 compared to 196% in the prior year quarter. Backlog value of $279.4 million decreased 8.9%, from $306.8 million at March 31, 2025 primarily due to a decrease in ASP on backlog.
Land Closing Revenue and Gross (Loss)/Profit (in thousands)
| Three Months Ended March 31, | |||||||||||
| 2026 | 2025 | ||||||||||
| Land closing revenue | $ | 9,361 | $ | 15,421 | |||||||
| Land closing gross (loss)/profit | $ | (269) | $ | 3,165 | |||||||
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.
Other Operating Information (dollars in thousands)
| Three Months Ended March 31, | |||||||||||||||||||||||
| 2026 | 2025 | ||||||||||||||||||||||
| Dollars | Percent of Home Closing Revenue | Dollars | Percent of Home Closing Revenue | ||||||||||||||||||||
|
Home Closing Gross Profit (1)
|
|||||||||||||||||||||||
| Total | $ | 193,798 | 17.5 | % | $ | 295,650 | 22.0 | % | |||||||||||||||
| Add: Real estate-related impairments | 2,427 | - | |||||||||||||||||||||
| Add: Write-off of terminated land deals | 1,373 | 1,433 | |||||||||||||||||||||
|
Adjusted Home Closing Gross Profit (2)
|
$ | 197,598 | 17.8 | % | $ | 297,083 | 22.1 | % | |||||||||||||||
| West | $ | 61,480 | 18.3 | % | $ | 104,971 | 21.9 | % | |||||||||||||||
| Add: Real estate-related impairments | - | - | |||||||||||||||||||||
| Add: Write-off of terminated land deals | 100 | 562 | |||||||||||||||||||||
|
Adjusted Home Closing Gross Profit (2)
|
$ | 61,580 | 18.3 | % | $ | 105,533 | 22.0 | % | |||||||||||||||
| Central | $ | 68,605 | 18.2 | % | $ | 90,729 | 22.0 | % | |||||||||||||||
| Add: Real estate-related impairments | 1,273 | - | |||||||||||||||||||||
| Add: Write-off of terminated land deals | 342 | 336 | |||||||||||||||||||||
|
Adjusted Home Closing Gross Profit (2)
|
$ | 70,220 | 18.7 | % | $ | 91,065 | 22.1 | % | |||||||||||||||
| East | $ | 63,713 | 16.1 | % | $ | 99,950 | 22.2 | % | |||||||||||||||
| Add: Real estate-related impairments | 1,154 | - | |||||||||||||||||||||
| Add: Write-off of terminated land deals | 931 | 535 | |||||||||||||||||||||
|
Adjusted Home Closing Gross Profit (2)
|
$ | 65,798 | 16.6 | % | $ | 100,485 | 22.3 | % | |||||||||||||||
(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 March 31, 2026 was $193.8 million, with a home closing gross margin of 17.5% down 450 basis points from 22.0% in the three months ended March 31, 2025. The margin decline was due to the combined impact of increased utilization of incentives, 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, shorter construction cycle times and lower compensation expense. 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 17.8% for the three months ended March 31, 2026, compared to 22.1% for the three months ended March 31, 2025.
West. The West Region had home closing gross margin of 18.3% for the three months ended March 31, 2026, down 360 basis points from 21.9% in the three months ended March 31, 2025, due to higher lot costs and reduced leverage of fixed costs, which was partially offset by savings in direct costs.
Central. The Central Region Home closing gross margin of 18.2% for the three months ended March 31, 2026 decreased 380 basis points from 22.0% in the prior year period due to increased lot costs and reduced fixed cost leverage due to lower home closing revenue. Real estate-related impairments and charges for terminated contracts also had a negative impact on home closing gross margin for both first quarter periods. Excluding these charges, adjusted home closing gross margin was 18.7% and 22.1% for the three months ended March 31, 2026 and 2025, respectively.
East. The East Region Home closing gross margin was 16.1% and 22.2% for the three months ended March 31, 2026 and 2025, respectively, a 610 basis point decrease. The margin decline was due to reduced leverage of fixed costs on lower home closing revenue and higher lot costs, which more than offset the savings in direct costs. The East Region home closing gross was also impacted by real estate-related impairments and charges incurred related to terminated land contracts. When excluding these items, adjusted home closing gross margin was 16.6% and 22.3% for the three months ended March 31, 2026 and 2025, respectively.
Financial Services Profit (in thousands)
| Three Months Ended March 31, | |||||||||||
| 2026 | 2025 | ||||||||||
| Financial services profit | $ | 3,493 | $ | 3,563 | |||||||
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 a mortgage joint venture. Financial services profit was fairly consistent year over year.
Selling, General and Administrative Expenses and Other Expenses (dollars in thousands)
| Three Months Ended March 31, | |||||||||||
| 2026 | 2025 | ||||||||||
| Commissions and other sales costs | $ | (79,472) | $ | (94,720) | |||||||
| Percent of Home closing revenue | 7.2 | % | 7.1 | % | |||||||
| General and administrative expenses | $ | (51,402) | $ | (56,997) | |||||||
| Percent of Home closing revenue | 4.6 | % | 4.2 | % | |||||||
| Interest expense | $ | (587) | $ | - | |||||||
| Other income, net | $ | 6,963 | $ | 9,498 | |||||||
| Provision for income taxes | $ | (17,215) | $ | (37,353) | |||||||
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 decreased $15.2 million, to $79.5 million, and as a percentage of home closing revenue were relatively flat at 7.2% in the three months ended March 31, 2026, compared to 7.1% in the prior year period. The lower dollar spend is tied directly to lower commissions due to reduced home closing revenue.
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 March 31, 2026, general and administrative expenses of $51.4 million decreased $5.6 million from $57.0 million in the prior year period, primarily due to lower compensation expense and intentional reductions in discretionary spend, which were partially offset by increased spend on technology. General and administrative expenses as a percentage of home closing revenue increased 40
basis points to 4.6% for the three months ended March 31, 2026, up from 4.2% in the prior year period due to reduced leverage of fixed costs on lower home closing revenue.
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 $0.6 million interest expense for the three months ended March 31, 2026, and no interest expense in the same period of 2025 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 $7.0 million and $9.5 million for the three months ended March 31, 2026 and 2025, respectively.
Income Taxes. Our effective tax rate was 23.7% and 23.3% for the three months ended March 31, 2026 and 2025, respectively.
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 real estate 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 March 31, 2026, we had $766.6 million of cash and cash equivalents and $829.0 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 March 31, 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.
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 March 31, 2026 or December 31, 2025.
Operating Cash Flow Activities
During the three months ended March 31, 2026, net cash provided by operating activities totaled $101.3 million, and for the three months ended March 31, 2025, net cash used in operating activities totaled $42.6 million. Net cash provided by operating activities for the three months ended March 31, 2026 consisted largely of cash generated from net earnings of $55.3 million, a $34.0 million decrease in real estate, and a $29.0 million decrease in other receivables, prepaids and other assets. Cash flows used in operations in the three months ended March 31, 2025 reflected cash generated by net earnings of $122.8 million, which was offset by increases in real estate and deposits on real estate under option or contract of $60.8 million and $62.2 million, respectively.
Investing Cash Flow Activities
During the three months ended March 31, 2026 and 2025, net cash used in investing activities totaled $7.7 million and $11.4 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 three months ended March 31, 2026, net cash used by financing activities totaled $102.1 million, consisting of $130.0 million of share repurchases and $32.0 million of dividends paid, offset by $59.9 million in proceeds from liabilities related to consolidated real estate not owned. During the three months ended March 31, 2025, net cash provided by financing activities of $414.1 million primarily reflects the net proceeds of $492.1 million from the issuance of our 5.650% Senior Notes due 2035, offset by $45.0 million of share repurchases and $30.9 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.
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 | ||||||||||||||
| March 31, 2026 | December 31, 2025 | |||||||||||||
| Senior and convertible senior notes, net and loans payable and other borrowings | $ | 1,841,274 | $ | 1,829,054 | ||||||||||
| Stockholders' equity | 5,093,769 | 5,195,643 | ||||||||||||
| Total capital | $ | 6,935,043 | $ | 7,024,697 | ||||||||||
|
Debt-to-capital (1)
|
26.6 | % | 26.0 | % | ||||||||||
| Senior and convertible senior notes, net, and loans payable and other borrowings | $ | 1,841,274 | $ | 1,829,054 | ||||||||||
| Less: cash and cash equivalents | (766,632) | (775,157) | ||||||||||||
| Net debt | 1,074,642 | 1,053,897 | ||||||||||||
| Stockholders' equity | 5,093,769 | 5,195,643 | ||||||||||||
| Total net capital | $ | 6,168,411 | $ | 6,249,540 | ||||||||||
|
Net debt-to-capital (2)
|
17.4 | % | 16.9 | % | ||||||||||
(1)Debt-to-capital is computed as senior and convertible senior notes, net and loans payable and other borrowings divided by the aggregate of total senior and convertible senior notes, net and 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 and 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 March 31, 2026 and 2025, our Board of Directors approved, and we paid, a quarterly cash dividend on common stock of $0.48 and $0.43 per share, respectively.
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 March 31, 2026. Our actual financial covenant calculations as of March 31, 2026 are reflected in the table below.
| Financial Covenant (dollars in thousands): | Covenant Requirement | Actual | |||||||||
| Minimum Tangible Net Worth | > $3,794,870 | $5,044,702 | |||||||||
| Leverage Ratio | < 60% | 15.6% | |||||||||
| Investments other than defined permitted investments | < $1,538,411 | $60,762 | |||||||||
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.
Meritage Homes Corporation published this content on April 24, 2026, and is solely responsible for the information contained herein. Distributed via EDGAR on April 24, 2026 at 20:21 UTC. If you believe the information included in the content is inaccurate or outdated and requires editing or removal, please contact us at [email protected]