M/I Homes, Inc.

Good morning, ladies and gentlemen, and welcome to the MI Homes fourth quarter and year-end earnings conference call. At this time, our lines are in a listen-only mode. Following the presentation, we will conduct a question and answer session. If at any time during this call you need assistance, please press star zero for the operator. This call is being recorded on Wednesday, January 28th, 2026. I would now like to turn the conference over to Phil Creek. Please go ahead.

Thank you, and thank you for joining us today. On the call with me is Bob Schottenstein, our CEO and President, and Derek Clutch, President of our mortgage company. First, to address regulation fair disclosure, we encourage you to ask any questions regarding issues that you consider material during this call because we are prohibited from discussing significant non-public items with you directly. And as to forward-looking statements, I want to remind everyone that the cautionary language about forward-looking statements is contained in today's press release also applies to any comments made during this call. Also, be advised that the company undertakes no obligation to update any forward-looking statements made during this call. With that, I'll turn it over to Bob.

Thanks, Phil, and good morning, and thank you for joining us today. As I begin, I'd like to take a brief moment to acknowledge an important milestone for MI Homes. 2026 marks our 50th year in business. Over the past five decades, our company has grown to become one of the nation's largest and most respected home builders. Looking back, we've been through a lot. We've experienced disciplined growth and certainly our fair share of successes navigating through multiple housing cycles. Through it all, we have maintained an unwavering focus on quality, customer service, and operating at a high standard. As we look ahead to celebrating this milestone, we're proud to report that we are in the best financial condition in our history, have a group of leadership teams that are as strong as we've ever had, and that we are well positioned in our 17 markets. With that, we'll turn to our 2025 performance. Our full year 2025 results reflect the economic conditions that we and, frankly, our entire industry experience throughout the year. Despite choppy demand, affordability challenges, economic uncertainty, and other macroeconomic pressures, our performance remained very solid. Though new contracts were down slightly for the full year, we were pleased that our monthly new contracts during the fourth quarter showed a 9% year-over-year increase and that we successfully increased our 2025 average community count by 6% versus our guide of about 5%. In 2025, we delivered 8,921 homes, recorded revenue of $4.4 billion, and excluding charges of $59 million related to inventory and warranty items, We generated pre-tax income of nearly $590 million, which was down 20%, compared to last year's record, $734 million. Our pre-tax income percentage was a very solid 13% before the charges and 12% after all charges. Our financial services segment had a record capture rate of 93%, record volume levels and a very strong year, achieving pre-tax income for the year $56 million. Our full-year gross margins, excluding the above-mentioned inventory and warranty charges, were 24.4%, 220 basis points lower than 2024, and down primarily due to higher incentives and higher lot costs versus the same period a year ago. As you all know, our primary incentives were and continue to be mortgage rate buy-downs, And we will continue to use these incentives as necessary on a community-by-community basis. Our net income was $403 million, or $14.74 per share, with a very strong return on equity of 13.1%. Our shareholders' equity increased 8% year-over-year and reached an all-time record of $3.2 billion, with a record book value per share of $123. The quality of our buyers in terms of credit worthiness continues to be strong with average credit scores of 747 and average down payments of almost 17% or just over $90,000 per home. Our Smart Series, which is our most affordably priced product, continues to have a very positive and meaningful impact, not just on our sales but our overall performance. Smart Series sales comprise 49%. of total company sales in the fourth quarter compared to 52% a year ago. And as I previously noted, we ended the year with community account growth with 232 active communities, which was an increase of 5% compared to the end of 24, and on average an increase of 6%. In terms of our various markets, our division income contributions in 2025 were led by Columbus, Dallas, Chicago, Orlando, and Minneapolis. Our new contracts for the fourth quarter in our southern region increased by 13% year-over-year and by 4% in the northern region. For the year, new contracts decreased 1% in the southern region and 9% in our northern region. Deliveries increased 1% over last year's fourth quarter in the southern region, and represented 57% of the company-wide total. The northern region contributed 981 deliveries, which was a decrease of 8% over last year's fourth quarter. For the year, homes delivered slightly increased in the southern region, but decreased slightly in the northern region. Our owned and controlled lot position in the southern region decreased by 11% compared to a year ago, increased by 9% compared to a year ago in the northern region. We have a tremendous land position. Company-wide, we own approximately 26,000 lots, which is slightly less than a three-year supply. Of this total, 30% of our own lots are in the northern region, with a balance of 70% in the southern region. On top of the lots that we own, we control via option contracts an additional 24,000 lots, So in total, we own and control approximately 50,000 single-family lots, which is down 2,000 lots from a year ago, and this equates to roughly a five- to six-year supply. Most importantly, 49% of our lots are controlled pursuant to option contracts, which gives us continued flexibility and important flexibility to react to changes in demand or individual market conditions. With respect to our balance sheet, we ended the year in excellent condition with cash of $689 million and zero borrowings under our $900 million unsecured revolving credit facility. This resulted in a very strong debt-to-capital ratio of 18% and a net debt-to-cap ratio of zero. Before I conclude, let me again state that we are in the best financial condition in our 50-year history. Despite the current challenging conditions, we feel very good about our business, remain very confident in the long-term fundamentals of our industry, and are well-positioned as we begin 2026. I'll now turn it over to Phil to provide more specifics on our results.

Thanks, Bob. Our new contracts were up 18% in October, up 6% in November, and up 4% in December. for a 9% improvement in the quarter compared to last year's fourth quarter. Our sales pace was 2.8 in the fourth quarter compared to 2.7 in 2024's fourth quarter, and our cancellation rate for the fourth quarter was 10%. As to our buyer profile, 48% of our fourth quarter sales were to first-time buyers compared to 50% a year ago. In addition, 79% of our fourth quarter sales were inventory homes, compared to 67% in last year's fourth quarter. Our community count was 232 at the end of 2025, compared to 220 at the end of last year. During the quarter, we opened 17 new communities while closing 18. And for the year, we opened 81 new communities. We currently estimate that our average 2026 community count will be about 5% higher than 2025. We delivered 2,301 homes in the fourth quarter, and about 40% of our quarter deliveries came from inventory homes that were both sold and delivered within the quarter. As of December 31st, we had 4,500 homes in the field versus 4,700 homes in the field a year ago. Revenue decreased 5% in the fourth quarter of 2025 to $1.1 billion. and our average closing price for the fourth quarter was $484,000, a 1% decrease when compared to last year's fourth quarter average closing price of $490,000. Our gross margin was 18.1% for the quarter, including $51 million of charges, which consisted of $40 million of inventory charges and $11 million of warranty charges. Excluding these charges, our gross margin was 22.6%. The breakdown of the inventory charges is $30 million of impairments and $10 million of lot deposit due diligence costs written off. The majority of our impairments in the corridor were in entry-level communities with average selling prices below $375,000. And the warranty charges were due to two communities in our Florida market. For the full year, our gross margins were $23.05. Excluding our 59 million of charges, our full year gross margin was 24.4. And our fourth quarter SG&E expenses were flat compared to a year ago and were 11.6% of revenue compared to 11.0 last year. Interest income, net of interest expense for the quarter was 6 million. Our interest incurred was 9.5 million. We had solid returns given the challenges facing our industry. Our pre-tax income was 12% for the year, and our return on equity was 13%. During the fourth quarter, we generated $129 billion of EBITDA, and for the full year, we generated $608 billion of EBITDA. Our effective tax rate was 21% in the fourth quarter, compared to 22% in last year's fourth quarter, and our annual effective rate for this year was 23.5. We expect 2026 effective tax rate to be around 23.5. Our earnings per diluted share for the quarter decreased to 239 per share from 471 per share in last year's fourth quarter and decreased 25% for the year to 1474 per share from 1971 per share last year. During the fourth quarter, we spent 50 million repurchasing our shares, and for the year we spent 200 million. We currently have $220 million available under our repurchase authority, and in the last three years, we have purchased 13% of our outstanding shares. Now, Derek Fletch will address our mortgage company results.

Thanks, Bill. In the fourth quarter, our mortgage and title operations achieved pre-tax income of $8.5 million, down $1.6 million from 2024, and revenue of $27.8 million, down 2% from last year. primarily as a result of lower margins on loans closed and sold and partially upset by higher average loan amounts and more loans closed. For the year, pre-tax income was $56 million and revenue was $126 million. The loan-to-value on our first mortgages for the quarter was 83% in 2025 compared to 82% in 2024's fourth quarter. 65% of the loans closed in the quarter were conventional, and 35% were FHA or VA, compared to 59% and 41%, respectively, for 2024's same period. Our average mortgage amount increased to $414,000 in 2025's fourth quarter, compared to $409,000 in 2024. Loans originated in the quarter increased 1%, from 1,862 to 1,874, and the volume of loans sold decreased by 1%. Our mortgage operation captured 94% of our business in the quarter, an increase from 91% in 2024's fourth quarter. Now I'll turn the call back over to Phil.

Thanks, Derek. As far as the balance sheet, we ended the fourth quarter with a cash balance of $689 million and no borrowings under our unsecured credit facility. We continue to have one of the lowest debt levels of the public home builders and are well positioned with our maturities. Our bank line matures in 2030, and our public debt matures in 2028 and 2030. Total home building inventory at year end was $3.4 billion, an increase of 9% from prior year levels. And during 2025, we spent $524 million on land purchases, and $646 million on land development for a total spend of $1.2 billion. This was up from $1.1 billion in 2024. And at December 31, 2025, we had $900 million of raw land and land under development and $1.1 billion of finished unsold lots. We own 10,500 unsold finished lots. And at the end of the year, we had 1,030 completed inventory homes, about four per community, and 2,779 total inventory homes. And of the total inventory, 1,116 are in the northern region and 1,663 in the southern region. And in December 3124, we had 706 completed inventory homes and 2,502 total inventory homes. This completes our presentation. We'll now open the call for any questions or comments.

Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press the star followed by the one on your touch-tone phone. You will hear a prompt that your hand has been raised. If you wish to decline from the polling process, please press star followed by two. And if you are using a speakerphone, please lift the handset before pressing any keys. The first question comes from Ken Zenner at Seaport Research Partners. Please go ahead.

Good morning, everybody. Good morning. Positive order growth. Pretty impressive. And can you address the 13% growth you had in the south? Can you... bifurcate that into Texas and Florida? Because I think last time, each time in Texas, this is a little bit more of a volume. And we've been seeing that Florida is actually doing a little better than Texas. Could you address the split in that region?

You know, in general, we had pretty solid sales everywhere. Our Carolina markets, Charlotte and Raleigh, have done very well. You know, in Florida, our Orlando market has actually held up pretty well, and Tampa also has improved as we've gone through the quarter. When you look at Texas, you know, Dallas has stayed pretty solid for us, along with Houston. Weaker markets have been Austin and San Antonio, so it's been spread around a little bit. But like you say, we were very pleased that our southern region was up 13%, and our northern region was also up 4%.

You know, the only other thing I'll mention, Ken, and it's a good call-out, just to build on what Phil said, is as we're getting now some traction in our newer markets in the southern region, specifically Nashville and Fort Myers-Naples, that will slightly skew upwards some of the percentages. But we felt very good about our fourth quarter sales. And I would simply add that as we begin 2026, you know, we certainly have seen, and I think some of it's clearly seasonal. We're beginning the selling season right now as opposed to leaving the slowest time of the year in the fourth quarter. But we've certainly seen an important improvement in traffic.

I appreciate those comments. It's, you know, and they are reported too today, and it's While margins are under pressure, the demand seems to be there. Given the intra-quarter orders and closings, could you comment on the margin differential between your intra-quarter closings and your backlog or spread, if you will, as well as are the majority of those intra-quarter closings, I assume they're coming from the lower-priced smart series, if you could address those two questions. Thank you very much.

Well, I'm not sure I completely understood the question, and you may have to ask it again. Okay, that's all right.

I'll make it clear.

Okay. Orders and closings for a unit that were intracorder, so what I call SPAC, how were those margins compared to the homes that came out of backlog. And I'm assuming most of those entry quarter orders, which were closing, were the Smart Series.

Well, yes and no. On the Smart Series point, the one thing I'll say is over the last 12 to 24 months, our business has changed quite noticeably in terms of the – the significant contribution of spec sales month in, month out. About, you know, two-thirds to three-fourths of our sales are now coming from specs. And if you go back five years ago, that would have been less than 50%, in some cases less than 40%. So that's been a pretty significant change and is likely here to stay as long as, you know, we're in this situation where we're needing to use rate buy-downs to promote sales. Because, as you well know, the ability to provide a favorable rate buy-down at any kind of a reasonable or at least acceptable cost is one of the conditions is that you can get the home closed within 60 to 90 days of the purchase of the buy-down money, which means it's only going to really work for specs. So, having said all that, the majority of you know, 60% to 75% of the closings quarter to quarter to quarter are all coming from spec sales. Bill, I don't know if you want to add anything to that.

Yeah, I mean, you know, our closing GPs in the fourth quarter, you know, were 22-6, you know, for getting the charges. We were, you know, pretty pleased with that. Are there continued pressures? Yes. We do feel good that our construction costs last year came down about 2%. We were also pleased last year that our cycle time improved by about 5%. So we're making some progress on some of those key areas. SPAC margins in general are lower than to-be-built homes. But the last couple of months, we have seen a slight pickup in our to-be-built businesses. But, you know, we just continue focusing, you know, every day on everything we can do to hold those sales prices stable or increase them and also keep margins as high as we can.

Thank you very much.

Thanks, Kim.

Thank you. The next question comes from Alan Ratner at Selman. Please go ahead.

Hey, Bob. Hey, Phil. Good morning. Nice quarter. Good morning, Alan. Happy 50th anniversary. Good morning. Thanks. Happy New Year.

We don't feel that old.

I hear you. Well, it's very impressive, and I'm sure we've got 50 more out ahead of us, so looking forward to it. My first question is on the order strength in the quarter. I was looking, and your fourth quarter, obviously up year over year, but your fourth quarter orders were actually fractionally higher on a sequential basis as well, which as far as I can tell, that's the first time that's happened since 2001. So I was hoping you could just talk a little bit about, you know, kind of your incentive and pricing strategy through the quarter. Would you say that order strength, at least kind of seasonally, is a reflection of improving demand, or was it more of a concerted effort by you guys to kind of clear through some inventory ahead of year end, maybe with some higher incentives?

Boy, that's a great question. It's actually probably one of the most important questions as we look week to week in terms of our sales activity. I feel like it's a little bit of both. I think we wanted to push to get as many completed specs out to the buyers as we could. I feel like demand is slightly picking up. And You know, I felt like, you know, not every market, but in many of our markets, we were, you know, we were somewhat pleased with the level of traffic through the fourth quarter. And that is continuing. You know, I think it's too early to make a call. But, look, we've, you know, we've all been whining for the last number of years about all the pent-up demand and uncertainty. You know, housing is underperforming and on and on and on and on, and more articles have been written about that, almost than anything other than affordability. But it feels like, you know, we may be starting to see a slight improvement in demand. And I also think, and, you know, we'll know when we know, We expected our margins to drop at least 200 basis points last year, and, of course, they did that and then some. And the margins are likely to remain under pressure, but it's not clear to me at this point that the pressure in 26 will be as much as it was in 25. So hopefully those things are starting to level off a bit. Again, we'll know when we know, but, you know, all things considered – You know, pre-charges, we made almost $590 million last year, brought 13% to the bottom line. By historical standards, that's pretty good performance. And, you know, just putting things in context, we've all seen a whole lot worse. And, you know, I think that, you know, I'm optimistic about, you know, the first four or five months of this year in terms of demand and the selling season, so we'll see.

You know, Alan, one thing I'll add is that we talked about, you know, the impairments came primarily from entry-level communities. With an ASP under 375, you know, it was led by, you know, our more challenging markets in Austin and San Antonio. So, in general, we've seen a little more pressure on prices and margins on the real entry-level lower price for us. hopefully that is going to get a little bit better. You know, we tend to play at a little higher price point. But that's kind of where things are.

Got it. No, I appreciate all that detail. And, Phil, you kind of touched on the second question I had, which was on those impairments. Yeah, I guess the first one is a little bit of an accounting nuance, but I'm just curious. If I look at you historically when you've taken charges, they're almost – entirely in your fourth quarters. I mean, you maybe have some minimal charges here, but it looks like fourth quarters kind of where you generally take larger charges. So I'm curious, you know, if there's any accounting reason why that is, at least compared to other builders. And B, I don't know if you disclose like a watch list of communities that are have maybe potential indicators of impairments, but Is there any indication that, you know, impairment should continue here over the next handful of quarters just based on, you know, where some of your margins are trending in your lower price point communities?

Yeah, Alan, I appreciate that. I'll try to get all those points. You know, to us, it's a business issue. I mean, if you look at our business goals, you know, we're in the subdivision business. That's what really matters to us. That's how we operate the business. And If we're not getting, you know, we try to get a pace of three plus, we try to get margins at 22 plus, and we try to make sure we're focused on all the items, product, presentation, salespeople, make sure all those levers are working at all times. But when we're not getting acceptable pace over a certain period of time, you know, we make the business decision oftentimes to go to price. Of course, the way the accounting rules are basically is that once you get down to about a 10% GP, you kind of get to the point where carry costs, disposal costs exceed that. So the accounting rules kind of force you to do an impairment. But again, to us, it's a business decision. We do look harder at things toward the end of the year for sure. So that's why the majority of those charges in the past have been that way. Although this year we did, you know, a small impairment also. I think it was in the third quarter. But, you know, if you look at us today, you know, we own about 25,000 or so lots. We always have a couple of problem subdivisions. Our impairment covered about 1,000 lots. So about 1,000 of the 25 lots. And, again, it was in the most affordable stuff. You know, we could have continued grinding through these communities. It may be one, one and a half, two a month. you know, maybe at 10%, 12% margins. But, you know, our view is when you look at the landscape of the business and the difficulty, especially at those lower price points, you know, we decided to go to that last lever of dropping price, and that's what, you know, triggered those impairments. But, again, we think that's a really good business decision. We expect that pace to pick up. We expect the margin to get back to closer to normal levels, and that's why we did it.

The other thing I'll say, because I've been to the movie, it was a long time ago, but back during the Great Recession when every quarter you were sort of holding your breath as the builders reported because how many more impairments are coming, and we all sort of felt like there was more coming. This is very different. I'm not going to say there's no more coming because no one knows that, but what I will say is As we got towards the end of last year, it was sort of let's start 2026, you know, with all cylinders, you know, as strong as they can possibly be. Whatever thing we think might be a problem, let's deal with it now and let's end it 2026, you know, with as many items controlled and behind us as possible.

And I really appreciate that detail. Thank you. Ten million was a combination of lot deposit write-offs, prepaid, like, due diligence write-offs on deals we're not pursuing anymore because we think to do those deals it would take, you know, a pretty significant cost reduction or other changes in terms. So we walked away from those deals. But, again, you know, on average when you take a $30 million charge on 1,000 lots, you're looking at $30,000 per lot, which is pretty significant. and hopefully that's going to increase our pace and margins as we go into this year. Makes sense. Thanks a lot, guys.

Thanks, Alan.

Thank you. The next question comes from Buckhorn at Raymond Baines. Please go ahead.

Hey, thanks. Good morning, guys. Congrats on navigating a challenging environment, and appreciate the color on all the charges as well. Thanks, Buck. Yeah, very welcome. I was kind of curious about the acceleration in land purchase activity and some of the lot development spend in the fourth quarter. It was up both sequentially and year over year. I guess first kind of wondering if any particular markets or regions are getting the bulk of that new spend that you're targeting. And, you know, should we read into that acceleration if there's – indication of your confidence levels of kind of the demand that's out there and your growth trajectory or, you know, how should we interpret that pickup in the land spend?

No, nothing really special. You know, again, some of our markets are impacted by, you know, weather when we get blacktopping done and those types of things. I mean, we own about 25,000 lots, as Bob said. We try to have about a one-year supply of finished lots, and that way we don't go dark, et cetera. And we ended the year with a little over 10,000 finished lots. And again, with our current run rate at 9,000, we feel good about that. So, no, nothing really special. You know, we're continuing to do a lot of land development. You know, we self-develop about 80% of our own land. But as far as any strategy or direction – That just kind of was the way the dollars were. We did spend a little bit more money last year toward the end, but just the way it kind of fell.

Okay. That's helpful. I'm always curious about your Florida trends in particular. I was just wondering because we've seen some signs that resale inventory to start the year in Florida here. seems to have flipped negative year over year. I think you mentioned that Tampa started to improve a little bit. Orlando seems to be steady. Are you sensing that we may have, I don't know, is there any signs of improving traffic demand, any signs that the stabilization of the resale inventory is helping?

When we look at the four Florida markets that we operate in, Orlando, Tampa, Sarasota, Fort Myers, Naples, Fort Myers-Naples is really new for us. We're very bullish about it. And, you know, there we had significant growth because we went from almost zero to, you know, over 100 and some units, you know, last year. And we're expecting pretty meaningful growth there over the next several years. As far as the other three where we've been a while, Orlando's clearly held up the best. And over the last I would say, you know, 30 to 120, 150 days, demand in Orlando has been stronger than Tampa and Sarasota. Tampa was the toughest market for a while. Had probably, for whatever reasons, the hardest hit for us in Florida, clearly. Tampa business has picked up, very importantly. It's not as strong as Orlando at this point, but... But we're encouraged by what we're seeing, that's for sure. And Sarasota is just sort of, you know, so-so. You know, I think that market is a very good market, but it's, you know, it's sort of trending along and, you know, maybe C plus, B minus, that kind of thing. So, look, we're very invested in Florida, very committed to Florida. It's a huge part of our business. Candidly, we have some of the best leadership teams in our company in Florida. And it's, you know, so, you know, we've been there a long time. And, I mean, as was noted, we've been in business 50 years. The first market outside of Columbus, Ohio that we expanded to was Tampa. And the second one after that was Orlando. So... We've been in Florida for a long time, since 1981 in Tampa and 1985 in Orlando. We've had a very strong leadership position in those markets. We'll continue to, as well as the operation in Sarasota and Fort Myers-Naples.

Outstanding. It's great to hear. One last one, if I can sneak one in. I was curious about how you're structuring the mortgage rate buy-downs right now in terms of what type of program or structure seems to be resonating in getting consumers, you know, over the hump? You know, is there kind of a sweet spot target mortgage rate that seems to work best with those buy-downs?

I guess this is Derek. We've been going with a 4-7-8 30-year fix, and we think getting a sub-5 is the key, and that's what really seems to attract the buyers. And then on top of that, in some divisions, we offer a temporary buy-down so we can get buyers with a first-year payment in the 2.875 range. We've run that for quite a while, and that seems to be successful for us, just that sub-5% note rate.

That's clearly been our most successful. Recently, we've been tinkering with the 7-1 arm that other builders have been using a lot. You know, everybody has their own experiences. To Derek's point, what seems to work best for us is the very straightforward 30-year fix, 4-7-8s, FHA, VA, or conventional. And, you know, that's – In many instances, it's supplemented with the 2-1 buy-down that Derek mentioned.

And one thing I'll stress also is that, you know, our mortgage and title operations is very important to us. They only serve my home customers. We're able to deal individually with customers. And depending on if it's a first-time buyer, there may be a real big need for closing cost assistance. There are some people out there that do want to do to-be-built homes, that do want a longer-term rate program. So we're able to customize whatever we need to do with an individual customer as opposed to throwing all kind of money to every customer that may or may not need that. So being able to individually deal with customers, we think it's very important to our business.

Awesome. Very helpful, Culler. Appreciate it, guys. Good luck. Thanks. Thanks.

Thank you. The next question comes from Alex Barron at Howson Research Center. Please go ahead.

Hey, good morning, guys. Good morning. I wanted to, I wasn't sure if I missed it, but did you guys give any guidance or outlook for margins for next quarter? Do you feel like they're going to go down sequentially, or is these impairments you took this quarter going to help stabilize margins?

Alex, you know us. We don't give guidance on things like that. We were pretty pleased with our margins in the fourth quarter. We did deal with problem communities that we thought we needed to with the impairments. Don't give any guidance. We are working hard on construction costs and cycle time and all those things. We are opening a number of new stores again this year. We did give guidance. We expect average community count to be at 5% this year. But, no, we did not give any guidance as far as margins.

Okay. Did your incentive levels go up in the quarter versus the previous quarter for new orders?

I mean, our margins were down a little bit. So, yeah. You know, are we doing a little bit more on closings in the fourth quarter? Yes, we did. Again, that's reflected in our margins. Trying to do the best job we can opening all these new stores. We opened 80 stores last year and anticipate opening more than that this year. So that's a big opportunity for us. But hopefully spring selling season will be a little better than it has been.

Okay. And also, any shift in your strategy as far as what percentage of spec homes you guys are starting versus, you know, going back towards hill to order?

No. It'll likely – it's Bob Schottenstein, Alex. It'll likely remain about what it's been, which is about, like I said earlier, two-thirds to three-fourths of our business are spec sales. And I don't see – I don't see things changing there or on the rate buy-down side to incent sales. I don't see any of that changing anytime soon. You know, obviously, you know, we're all reacting to, you know, almost on a daily basis to what's happening in the market. As we did mention, we've been encouraged by early traffic improvements here that we've seen through the latter part of the fourth quarter and certainly as we begin 2026.

All right, guys. Well, best of luck. Thank you. Thanks a lot.

Thanks, Alex.

Thank you. And the next question comes from Jay McCandless at Citizens. Please go ahead.

Hey, good morning, everyone. Just to kind of follow on that point, Bob.

Jay, congratulations on your new position.

Thank you, sir. I really appreciate it. Appreciate your time this morning as well. Just to kind of follow on what you were saying there, Bob, Are you all seeing similar traffic pick up in both the north and the south, or is it a little stronger in one region versus the other?

You know, I think that it's not every single one of our 17 markets, but certainly most. And I would not say it's particularly regional. Now, the last five days, things aren't very good anywhere because, you know, most people are frozen solid. or they're snowed in, including here in Columbus, it's been pretty rough. But in general, we've seen traffic start to pick up. It always does this time of year. It feels a little better than even a year ago, though, to me.

Okay, that's great. And then, Phil, could you talk about in the fourth quarter, your ending gross margin in the backlog, how that compares to what you reported for closings in Fort Keith?

You know, right now, we're doing, as Bob said, 75%, 80% specs. You know, in general, the margins and the backlog are higher, you know, than specs. Are the margins that you're in a little higher than you were in a year ago? The answer is yes. You know, that's about 100 basis points difference. But hopefully, we're getting a little better. We continue to focus on how we can improve the margins on these specs. So, again, we're doing all we can. You know, we did have 22.6 margins in the fourth quarter, so we're hoping margins held up pretty good.

That's great. And then the next question I had, just thinking about the sales pace for these newer communities you're opening, are you all trying to push a similar sales pace as what you got in 25, or are you trying to be a little more cautious? not wanting to give away too much margin at the beginning of these communities?

Well, we always try to focus on getting that pace, you know, at three plus. You know, our store count is up about 5%, but, you know, again, you've got to be a little more careful opening new stores, you know, as far as if you're super aggressive on price and margin, again, you can feel that benefit for a while. So there is a lot of opportunity with these new stores. Hopefully we've got the the right product and the right price to move through there. But, you know, we are focusing on trying to keep this pace, you know, at hopefully around three or a little better.

Okay. That's great. Thanks. And then the last one for me, and thank you for the detail on the specs, I guess, how are you feeling about MHO's inventory right now and maybe some broader commentary on what you're seeing in the industry? Does it feel like some of the excess spec inventories being drawn down or how, what are you hearing from the divisions on that?

I think we feel really good about where we are. Not to be, you know, silly. I mean, if we didn't, we'd change. But, you know, we, going into this year, again, a lot of it's community specific, but we want to be very aggressive in making certain that we have the product standing product in the field, the inventory, if you will, you know, so that we can, you know, take advantage of what should be a, you know, hopefully a decent selling environment here over the next, you know, three to four or five months. And so I think we feel our strategy is the right strategy. We don't feel we need to do any significant shifts, you know, and, you know, other than community by community specific things, In general, I think we're very well positioned.

That's great. And just any industry commentary you've been hearing from the field?

Relating to what issue?

Relating to inventory, spec inventory specifically.

You mean are people like, you know, deep discounting just to move specs or – have discounts slowed down or are more incentives being paid to third-party realtors or things like that?

Yeah, things like that.

That'd be great. You hear a crazy story now and then about once every two days. I don't think that's anything new. I mean, people do what they need to do. Look, I think that knowing... On a look back, knowing what 2025 was, if you just said to me, we're going to bring 12% to 13% to the bottom line for the full year, I'd say I'll take it. Well, that's what we did.

You know, Jay, we pay a lot of attention to our inventory levels. We do have about 1,000 finished specs, which is a lot higher than last year's, 800. We do have 5% more stores. You know, we have a few less houses in the field today than we did a year ago. But, again, we benefit by better cycle time. We're just trying to be very focused. You know, a lot of times execution doesn't get discussed, but, you know, now execution really matters. We're trying to be careful not to put too much inventory in the field, too many finished specs. You know, again, it depends on is it an attached townhouse community? Is it a higher-priced community? Every community is a little bit different. But, you know, again, I mean, doing 70%, 75% specs, I mean, we're relying on sales every week, every month, and that's what we have to stay focused on. We were very pleased. If you look at it, last year we closed almost the same number of houses as we did the year before, which was our record, 9,000 homes. And obviously our hopes and plans are, you know, we hope to close a few more houses this year than last year. We have more stores. But, again, we're staying focused. You know, we try to run a conservative business. We're not trying to put inventory out there too far ahead of ourselves. But, you know, again, we feel pretty good about our results.

Absolutely. And one question I forgot. Could you talk or can you, if you talked about it, maybe repeat the commentary on what the margins on new community, profit margins on new communities look like?

As far as what the margins are on new communities reopening versus older communities, is that your question?

Correct. Yeah, that's it.

You know, again, that's really a hard question. You know, last year we opened, you know, 80 stores. I would say in general they're pretty close. You know, we have some of these stores that are doing really well and, you know, some that aren't doing so hot. It's an individual situation. But – You know, overall, we feel pretty good about, you know, the new stores we're opening. We're trying to make sure we have the right product and the right price and all those things open the right way. But, you know, that's just a really hard question, Jay.

Understood. Well, thank you guys for all the time. And that's all the questions I have. Thank you. Bye, Jay.

Thank you. The next question is a follow-up from Ken Zenner at Seaport Research Partners. Please go ahead.

Hello again. Thank you. I wonder if you could comment on, you know, the flexibility of the business. So, obviously, mortgage buy-downs for, let's say, two-thirds of the communities that, you know, you have product, you're trying to protect the community, price voids, et cetera. But for new communities, given that, you know, the communities that opened last year and conversely are opening this year, how much of a change to the product type or, you know, how you open it up at what price points. Can you talk to the dynamics that you employ when making those choices on new communities in terms of resetting the, let's say, home size or, you know, the specs that you're building are, I don't want to use the word despec, but, you know, they're more simpler in terms of price points. How much flexibility do you really have there when you're coming into opening a community six to nine months out and using the product construction cost type?

I think a lot more flexibility. I think that most people might realize, look, so much of it's determined by zoning. And so, you know, you have to stay within the confines of the permissible zoning parameters. Having said that, Usually those parameters give you a fair amount of flexibility. The amount of internal debate, discussion, analysis, strategy, if you will, that goes into each community planning from the very earliest stages, when we think there's a site in, I'll use this as an example, in Charlotte that we're looking to tie up, from the moment that we think that site might be available, The debate occurs within the division. Sometimes it springs all the way up to corporate conversations about what are we going to do with that if we get that deal done and that becomes a new store for us? What is that store going to look like? What are we going to merchandise in that store? Who is the buyer? And, you know, that's a lot more art than science. I'm not saying it's rocket, you know, like building a rocket ship to the moon, but it is a lot more art than science. then you do have some flexibility. And we're, you know, there is a fair amount of tinkering that takes place. We have projects, many of them, that will be coming on this year that when we first started planning them, we might have planned to do, you know, larger homes. And now we're looking to do smaller homes. That's a very simple example. But, or we may be replanning in a way that the density stays neutral, but we're now going to develop it with smaller size lots. Or perhaps the opposite, larger size lots to take advantage of maybe lot premiums. So that's a huge part of what goes on. And, of course, every new land deal in this company before we are in a position where we've made a firm commitment must get approved at the corporate level through, you know, our land committee process and evaluation process, which is a discussion involving the specific division and, of course, a few of us here at corporate. And even in that, after this thing has been batted back and forth at the division level, we'll quite often have questions about the product and the product line and what are we really trying to do here and, you know, should we adjust this or that? And And certainly on larger deals where there's multiple product lines or they have a long tail, we may have two or three land committee calls along the way. What are we thinking? How's it look now? Let's reconvene in 90 days. So there's a whole lot that goes into that. You know, we're as good as our stores. We're a retailer. You know, we're a very unusual retailer because we reinvent ourself about every three years. The stores that we have out there today, three years from now, 90% of them will be completely different because we'll sell through and replace with new. And as Phil mentioned, we're poised to open a whole lot of new stores this year, and we'll be closing out of a number of them too. So what those stores look like and what we choose to sell, hopefully meeting the market where it is, who is the buyer, what are we targeting, That's a huge part of the business, huge part of the business. And we've made our fair share of mistakes, so hopefully we've learned from some of them. And there's times when we've absolutely shifted to a strategy that has turned something that might have just been average into something really good. And so when we see something that works in one market, maybe it's a little bit off the wall thinking. You know, we'll also try to apply that, you know, in other markets if it makes sense to do so. So it's a very, very big part of the business. It doesn't often get a lot of conversation, but, you know, it's a terrific question. Thank you.

Thank you. There are no further questions at this time. I will turn the call back over to Phil Creek for closing comments.

Thank you for joining us. Look forward to talking to you next quarter.

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating, and we ask that you please disconnect your lines.