Meritage Homes Corporation Q4 FY2025 earnings call

Market Trends and Q4 Results

• Fourth quarter 2025 marked by softer market conditions due to affordability challenges and deteriorating buyer confidence. Sales orders totaled 3,224, average absorption pace 3.2 net sales per month. Backlog conversion rate was 221%. Delivered 3,755 homes with $1.4 billion closing revenue. Adjusted gross margin 19.3% and adjusted diluted EPS $1.67, in line with guidance.

Strategy and Operational Update

• Balanced capital allocation: terminating certain land deals to redeploy capital for share repurchases and acquiring new land. Committed to $400 million share buybacks in 2026. Fourth quarter 2025 orders 2% lower year-over-year, community count at all-time high 336, up 15% year-over-year. Regional demand patterns localized, some markets faced lower demand while others had strong absorption pace. Moderated starts to align with sales pace, ending backlog declined 24% year-over-year. Spec count reduced to 17 per community, with 50% of specs completed.

Fourth quarter 2025 sales orders totaled 3,224. Delivered 3,755 homes with home closing revenue of $1.4 billion. Adjusted home closing gross margin was 19.3% and adjusted diluted EPS was $1.67. Full year 2025 sales volume of 14,650 homes was essentially flat compared to prior year, with ending community count growing 15% year-over-year to 336 communities.

2026 Guidance

• Plan to redeploy $400 million towards share buybacks in 2026. Full year 2026 closings expected to be in line with 2025 performance. Q1 2026 projected total home closings between 3,000 and 3,300 units, home closing revenue $1.13 billion to $1.24 billion, home closing gross margin 18% to 19%, effective tax rate about 24%, and diluted EPS $0.87 to $1.13.

Risks

• Market conditions impacted by elevated mortgage interest rates, job security concerns, and macroeconomic geopolitical uncertainties. Land market changes, incentive costs, labor and supply chain issues pose risks to operations.

Q: What drove the change in approach to absorption pace in the current environment and what is the temporary new level expected?

A: In Q4, saw builders clearing decks with aged inventory, so intentionally chose to not chase additional sales and operate at a slightly slower volume. Goal is to do 4 net sales per month throughout the year, but currently hedging based on builder competition and spring selling season.

Q: Are specs where you want them now and what's the target for finished specs per community?

A: Not quite where we want to be, still have about 50% of specs finished. Want finished specs to be more around 1/3. Current specs per community at 17, close to target.

Q: Clarification on community count guidance of 5% to 10% growth?

A: Growth off current year-end community count.

Q: What gives encouragement for January demand trends and spring selling season outlook?

A: First couple of weeks of January better than Nov/Dec, incentive utilization moderating, realtor community indicating more buyers out. Optimistic spring selling season better than Q4.

Q: Thoughts on share repurchase in relation to administration comments?

A: Balance between operational growth and returning capital to shareholders, believes stock undervalued, will continue buybacks as long as no unintended consequences.

Q: Potential cost savings from SG&A cuts and annualized benefit?

A: Not providing full annualized benefit yet, but have savings from severance and technology spend improving efficiencies.

Q: Impact of existing home inventory increase on move-in ready strategy?

A: New homes have advantages over used homes in value, warranty, energy efficiency, and strategy is built on competing well against resales.

Q: Effect of mortgage rate dip on incentives?

A: Cost of rate buydowns shrunk, some builders reallocate incentive dollars, expectation is to adjust based on consumer confidence.

Q: Reason for higher other income during the quarter?

A: Higher-than-expected cash balance, longer interest earning, and legal settlement pickups.

Q: Broker commission and loyalty program details?

A: Pay market rate commissions, have small loyalty programs for repeat business. 90% of homes sold through brokers, 40% repeat business from realtors.