M/I Homes, Inc.

Thank you for standing by. My name is Ferla and I will be your conference operator today. At this time, I would like to welcome everyone to the MI Homes second quarter earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. And if you would like to ask a question during this time, simply press the star followed by the number one on your telephone keypad. And if you would like to withdraw your question, please press the star one again. Thank you. I would now like to turn the conference over to Phillip Creek. You may begin.

Thank you. Joining me on the call today is Bob Schottenstein, our CEO and President, and Derek Klutch, 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 nonpublic items with you directly. and as to forward-looking statements, I want to remind everyone that the cautionary language about forward-looking statements 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.

I'll now turn the call over to Bob. Thanks, Phil. Good morning and thank you for joining us today. We are pleased to report solid second quarter and first six month results. Despite continued challenges in the broader economy, choppy demand, economic uncertainty, rising interest rates, and the impact of the conflict in the Middle East, we are very proud of our results. For the second quarter, we sold a second quarter record 2,387 homes, 15% better than last year. and for the first six months we have sold 4,737 homes, 8% better than a year ago. Pre-tax income from the quarter was $105 million, though down 35% from a year ago, we were very pleased to post a pre-tax income percentage equal to 10% of revenue. Pre-tax income for the first six months was $194 million, also equating to a very solid 10% pre-tax income percentage. And we were pleased to generate a 10% return on equity for the second quarter. Contributing to our solid returns was a second quarter gross margin of 22%, which includes $4 million of inventory charges. Notably, excluding those charges, our second quarter gross margins would have approached 22.5%, which is slightly better than our first quarter gross margins. We closed 2,206 homes in the quarter, down 6% compared to a year ago, and for the first six months, we have closed 4,120 homes, down 5% from last year. Revenue for the quarter was $1.1 billion, down 9% from last year. Our second quarter record due contracts resulted in a monthly sales pace average of 3.4 homes per community compared to a pace of 3 per community a year ago. We ended the quarter with 234 communities and remain on track to grow our 2026 average community count by about 5%. In terms of product mix, we have seen a slight increase and the sale of our move-up product. Specifically, during the quarter, our Smart Series, which is our most affordable line of homes that caters primarily to the first-time buyer, accounted for 43% of company-wide sales. This compares to 52% a year ago. We believe the primary driver of our solid sales results is well-located communities and excellent product. At the same time, we continue to use mortgage rate buydowns as our primary incentive, and given the current rate environment, we'll continue to promote with such buydowns for the foreseeable future. Approximately 78% of our second quarter sales were spec homes, roughly the same as the first quarter. Our rate buydown program is targeted to both spec homes and to-be-built homes. The to-be-built buy-down program appropriately features a longer-term rate lock. Our mortgage company had a terrific and very strong second quarter, capturing a record 96% of our business. We continue to see quality buyers, for the most part, in terms of creditworthiness with average credit scores of 748 and an average down payment of about 15%. We feel very good about all 17 of our home building markets. We expect to have a very solid year in Columbus, Cincinnati, Indianapolis, Chicago, Minneapolis, Orlando, Dallas, Charlotte, and Raleigh. Tampa, which historically has been one of our top performing markets, is currently somewhat challenged in terms of the macro environment within the greater Tampa market, as is Sarasota. Our newest markets, Nashville and Fort Myers-Naples, are beginning to gain very important traction and will no doubt be important contributors going forward as we gain scale in each of those two new markets. Now, to more specifically address our markets, our division results in the second quarter were led by Columbus, Chicago, Minneapolis, Raleigh, and Charlotte. New contracts for the second quarter in the northern region Thank you for joining us. Our southern region deliveries also decreased by 5% over last year and represented 60% of total deliveries. We have an excellent land position. Our owned and controlled lot position in the southern region decreased by 15% compared to last year and increased by 24% in the northern region. 40% of our owned and controlled lots are in the northern region, while 60% are in the south. Company-wide, we own approximately 23,500 lots, which is roughly a 2.5-year supply. In addition, we control approximately 25,700 lots via option contracts, resulting in a total of slightly more than 49,000 owned and controlled lots, which equates to about a 5-year supply. Our balance sheet continues to be excellent. highlighted by S&P's recent upgrade of our credit rating to BB+. We ended the second quarter with an all-time record $3.2 billion of equity, equating to a book value per share of $128. We had no borrowings under our $900 million unsecured revolving credit facility, and we ended the quarter with $736 million of cash. This resulted in a debt-to-cap ratio of 18% and a net debt-to-cap ratio of negative 1%. In closing, as we celebrate our 50th year in business, we remain very confident in the long-term fundamentals of the home building industry. Given the quality of our geographic footprint, our strong land position, very well-located communities, and diverse product offering, we believe MI Homes is well-positioned to have a solid 2026. With that, I'll turn it over to Phil. Thanks, Bob.

As far as the financial results, we had record second quarter new contracts up 15% compared to last year. Our sales were up 13% in April, up 23% in May, and up 9% in June. And our cancellation rate for the second quarter was 8%. 50% of our second quarter sales were to first-time buyers, and 78% were inventory homes. Our community count was 234 at the end of the second quarter, consistent with a year ago. The breakdown by region is 94 in the northern region and 140 in the southern region. During the quarter, we opened 27 new communities, while closing 23. We currently estimate that our average 2026 community count will be about 5% higher than last year. We delivered 2206 homes in the second quarter. and about 42% of these deliveries came from inventory homes that were both sold and delivered within the quarter. And at June 30th, we had 5,100 homes in the field flat versus a year ago. Revenue decreased 9% in the second quarter. We delivered fewer homes than a year ago and our average sale price declined. Our second quarter results included 5 million of land sales profit, versus $3 million in last year's second quarter. We often sell land as part of our land strategy. Our gross margin was 22.1% for the quarter, including $4 million of inventory charges. Excluding these charges, our gross margin was 22.5%. Our construction costs were down slightly during the quarter compared to the first quarter and our cycle time improved also by a couple of days. Our second quarter SG&A expenses were $12.6 of revenue compared to $11.3 a year ago. Our second quarter expenses increased 3% versus a year ago. Our increased costs were primarily due to new community openings and a slightly higher headcount. Interest income net of interest expense for the quarter was $3.3 million and our interest incurred was $9.3 million. We had solid returns for the second quarter given the challenges facing our industry. Our pre-tax income was 10% and our return on equity was 10%. During the quarter, we generated $120 million of EBITDA compared to $169 million in last year's second quarter. And our effective tax rate was 24% in the quarter, flat compared to last year. Our earnings per diluted share for the quarter decreased to $302 per share from $442 per share last year, and our book value per share is now $128, an $11 per share increase from a year ago. Now, Derek Klutch will address our mortgage company results.

Thanks, Phil. Our mortgage and title operations achieved pre-tax income of $14.4 million. in line with $14.5 million in 2025's second quarter. Revenue increased 3% from last year to $32.3 million due to a higher average loan amount and slightly higher margins on loans sold, but offset by a decrease in loans originated. The average loan-to-value on our first mortgages for the second quarter was 85% compared to 83% in 2025's second quarter. 65% of the loans closed in the quarter were conventional and 35% FHA or VA compared to 51% and 49% respectively for 2025's second quarter. Our average mortgage amount increased to $405,000 in 2026's second quarter compared to $403,000 last year. Loans originated decreased to $1,817 which was down 3% from last year, while the volume of loans sold increased by 6%. Finally, our mortgage operation captured 96% of our business in the second quarter, up from 92% last year. Now I'll turn the call back over to Phil.

Thanks, Derek. As far as our balance sheet, our financial position continues to be very strong. We 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 and has interest rates below 5%. Our unsold land investment at June 30 is $1.9 billion compared to $1.7 billion a year ago. And at June 30th, we had $800 million of raw land that landed under development and $1.1 billion of finished unsold lots. During the quarter, we spent $131 million on land purchases and $155 million on land development for a total of $286 million. At the end of the quarter, we had 510 completed inventory homes and 2,839 total inventory homes. And of the total inventory, 1,125 are in the northern region and 1,714 are in the southern region. At June 30, 2025, we had 586 completed inventory homes and 2,726 total inventory homes. We spent $50 million in the second quarter repurchasing our stock and have $120 million remaining under our current board authorization. Since 2022, we have repurchased 19% of our outstanding shares. This completes our presentation. We'll now open the call for any questions or comments.

Thank you. We will now begin the question and answer session. If you have dialed in and would like to ask a question, please press the star one on your telephone keypad to raise your hand and join the queue. And if you would like to withdraw your question, please press the star one again. With that, our first question comes from the line of Alan Ratner with Zillman. Your line is open.

Hey, guys. Good morning. Really strong results in a tough market. Hey, Bob. So, you know, I was intrigued by the comment you made about the maybe the somewhat modest mixed shift toward more move up this quarter. And I was curious if you could maybe expand a little bit on that in terms of what's kind of going on under the hood there. I mean, is this A concerted effort you guys are making to target that segment of the market and a function of maybe new community openings or changing in product type? Or was this more just a function of where the demand was in the quarter? And I have a follow-on from that.

Yeah, I think it's a great question. I think it's a little bit of both. I think there is a little bit more demand there. We've always been really strong with our move-up markets. I'm not going to act like this is a new phenomenon for our company. We've pretty much got our smart series and then everything else, and the everything else has always been very strong. I will say that in select markets, we have strategically, and we began this some time ago, probably 18 to 24 months ago, looked to find more locations where we could sell the move-up market because we just thought there would be better demand for it and we think we do a good job of executing. So I think that when you sort of shake it all out, it's a little bit of both. And the other thing is I'll say this, that over the last number of quarters, I think that some of the more high-priced or move-up land opportunities penciled better. In terms of underwriting, we underwrite based on current conditions. It's always a bit of a guess. If it was an exact science, they wouldn't need any of us. But in that context, in select markets, and there's a number of examples, the move-up stuff just seems to be penciling better. and we find sites that we think are opportunistically exciting in terms of perhaps more infill and so forth. I hope that answers the question.

Yeah, no, that was great. I appreciate the added thoughts there. So, yeah, I'm guessing this might be related, but, you know, what I wanted to pivot to next was the gross margin, which, you know, good to see some sequential improvement there. You know, I was hoping you can kind of drill into the drivers of that. You mentioned costs being down a little bit quarter over quarter. Is there any impact from move up as well in that?

Maybe slightly. But, you know, I think our cost, I know a couple builders mentioned they had a 5% improvement in cost. We didn't see that much. And when we say improvement in cost, it's not apples and bananas. It's apples to apples. I mean, we haven't despecked or changed any of the fit or finish. We've probably got 1%, 2%, 3% improvement depending upon the market. So that's helped a little bit. You know, there's a lot of uncertainty still. And, you know, we were pleased to see margins slightly improve or at least not get any worse. You know, I really think, look, I know, let me say it this way. If it weren't for mortgage rate buy downs, industry-wide, from the best performing builders to the worst, If it weren't for mortgage rate buydowns, the sales environment would be bleak. I think everyone knows that. But having said that, I want to emphasize something that I said. The primary driver for our sales is our well-located communities. If it was all about rate buydowns, all of our communities would be performing at a high level. We've got communities that are selling at a very strong pace and at premium margins because they're well-located. and, you know, the 22% is an average. We've got 234 communities. A very meaningful number of the communities are well north of 22, 23, 24%. And our divisions, particularly the more mature ones, and I tried to single some of those out that are performing at a high level, are posting very credible margins in this environment, better than we would have expected. and look, you never know whether a community's gonna perform as good as you hope it will. We've just got a lot of, we've got a very healthy percentage of what I would call good performing communities and most of that hunts back to location but obviously it's also the quality of the product.

And Alan, just to add a couple things, this is Phil. We opened 49 new stores the first half. If you look at the average sale price in those 49, Looks like it's about maybe $575. Our backlog right now is about $540. So it is, you know, kind of focused a little more on the high price point. As far as, you know, margins and cost pressure and those type things, you know, our finished lot cost compared to a year ago is up about 8%. But, you know, you're always market pricing, but we try to make sure we open these stores the right way. and don't get too far ahead of ourselves and really try to get pricing power where we can. That's really, really important to us. Having said that, as you know, 30-year fixed rate at par right now is in the 7% range. So there are pressures on the cost of those buy downs and so forth. But again, it's kind of a subdivision by subdivision business and that's what we'll continue focusing on.

Thank you so much for that added detail, Phil.

Good to hear your voice as well, and thank you very much.

Thanks, Alan.

And your next question comes from Kenneth Zinner with Seaport Research. Your line is open.

Good morning, everybody.

Good morning.

You said 78% of your closings were spec. Could you break out the mix between which were spec overall, 78% and the percent that were intra-quarter order closings, orders and spec, if you would, and talk to the margin difference between those two categories?

Well, what we gave you was that From a sales standpoint, in the second quarter, 78% were specs. And then as far as deliveries in the second quarter, 42% of the deliveries were sold and closed in the quarter.

We don't give specific information on the margin differential company-wide between to-be-built and spec. That number varies from market to market. In nearly every one of our 17 markets, the margins on 2B builds are better. In some, just slightly. In others, it could be 100 or 200 basis points, perhaps more in a couple of select instances. But in general, the margins are higher on 2B builds.

the the differences can vary pretty meaningfully between market to market and we've really been you know we continue to manage our spec levels closely as always our improved cycle time you know it's been improving a couple of days every quarter as that cycle time improves that gives us the benefit of not having to have so many specs out there you know when you look at The mid-year completed houses and inventory is 510. Last year was 586. So we actually have less completed specs. But again, having said that, with our cycle time, we help that. But the specs are all about trying to be on the right lots with the right product. Of course, as you do attached homes, attached townhouses, that tends to create more specs. in general are more affordable priced smart series. We have a few more specs, but we manage our spec levels very closely.

Thank you very much. And my second question is, Bob, it's kind of big picture, you know, but despite all the industry headwinds, you know, margins are higher than pre-COVID. Generally for the industry, what we're seeing so far, stable quarter to quarter. and you guys are actually starting more homes than you've had orders. So what are you worried about in the second half? You could say the industry in general, you know, into 27. Given that, you know, with the rate buy-down benefits you highlighted, it seems that you are somewhat insulated from any near-term moves in the 10-year, given that you can just buy down. So what is kind of the worry that you see out there? Thank you.

You know, first of all, we've all seen conditions that are significantly worse than now. I've said during the last several calls that if I had to, and I think that our senior management team agrees with this, that if I had to grade or if we had to grade current housing conditions, I think they're above average. They're not bad. They're not really good either, but we've seen far, far worse. And for MI Homes to be generating a 10% pre-tax return, take that for a long time. Sign us up. Same time, you've got pretty significant differences in performance across the industry within the builder group. And, you know, we're all... I think when you look at the balance sheets, for the most part, the builders are in the best shape they've ever been in. We certainly are. And I think that's true of a number of our competitors. But you also see some really radically different returns within the large cap and even the mid and small cap builders. Some of that can have a big impact on certain markets where For whatever reason, you may see big discounting going on by certain builders, and others of us scratch our head and go, why? You don't need to do that. Those things have an impact on business. You know, the demand is not as robust as we would like to see it. I think it's suppressed by conditions. I think there's a massive amount of potential buyers that are waiting to join, you know, Home Ownership, that are held back by the current rate environment, the uncertainty in the economy, lack of confidence, affordability, all the stuff that everyone constantly talks about. So we're really bullish long term. But I think right now the buyer pool is relatively constrained, and we're all fighting for those that are out there. So what each of us do can impact the others. We try to focus on what we think is best for our business. Look, you know, at the beginning, I think there's just a lot of uncertainty. I think we're well positioned to deal with it. Not afraid of anything, and I don't want to sound arrogant because that's not good. But at the beginning of this year, I think most people thought rates, you know, might come down through the year. Wrong so far. At the beginning of this year, No one anticipated the conflict in Iran. And it looks like it's going to be with us for a while. And the impact that's had on oil prices and consumer sentiment, none of that was foreseeable at the beginning of the year. Between now and the end of the year, things will happen that none of us can imagine right now. What we need to make sure of is that we have a very strong balance sheet. that our debt levels remain low, that we focus on the best possible communities that we can buy, keep our land ownership in balance, hopefully not owning more than a two- or three-year supply, which we don't. I feel really good about, as I said, our land position, love the new communities we're opening this year that we already have and that are coming on, that we focus on quality and we focus on the fundamentals of the business. because that's what's gotten us here. We've been in business since 1976. I love our position. As I said, we're going to have a really good year in the vast majority of our markets. We've got a few places that are struggling right now, and I think it's due more to the macro conditions than unforced errors by us, namely Tampa, to some extent Sarasota. Certainly Austin is still crawling its way back. It was red hot for a while. It's getting a little better. But we had positive sales comps in the state of Texas. We had positive sales comps in Florida. Our Orlando operation is terrific. Really strong in the Midwest. Carolinas could not be more bullish. So I like where we are. I guess the thing is we will remain vigilant and concerned about those things that we can't anticipate. And the only thing you can do to ready yourself for that is to keep your balance sheet strong.

Understood. Much appreciated. Thank you.

Thanks.

And your next question comes from Buckhorn with Raymond James, your line is open.

Hey, thanks. Good morning, guys, and congrats on a great quarter. Appreciate all the colors so far. I was just wondering if we could just dive into your thoughts on maybe how the selling environment of the quarter kind of progressed. I'm curious just how the gross margins in the current backlog you think are shaping up for the back half of the year, to what degree you can characterize those, and really just kind of what level of incentives did you have to deploy in the quarter to get such strong order results?

You know, Buck, The backlog margin really is pretty consistent, you know, the last few quarters. But, you know, almost half of our houses, you know, specs are getting sold and closed in the quarter. And I'm sure you can guess that the specs in general tend to have a lower average sale price than the 2B bills, backlog houses, and so forth. And also the margins tend to be, you know, a little bit lower. There are pressures. I talked about our land costs, finished lots being up 8% versus a year ago. And with mortgage rates up a little bit, that puts pressure on that buy-down amount. Most builders are still very, very competitive on the mortgage rate we're offering. Trying to offset that by the quality of our new communities and product that Bob mentioned. you know we expect to open more new stores in the second half like we did the first half and a number of those that we open in the third quarter will also generate closings for us this year but you know we don't give gross margin estimates that's just a very but you know as Bob says we're doing all we can on the cost side and the product side to offset that as far as expense levels You know, our community count is flat at 630 versus a year ago. We do expect that to increase in the second half. You know, right now we do have about 3% more people. So again, you know, we'll try to manage those costs and expenses as best we can and try to make sure we get all we can get at the margin line.

Got it. Got it. Helpful call. I appreciate that, Phil. And just on the land and the lots under contract, just going back to just highlighting that you've increased the number of lots under contract in the north by a pretty considerable percentage, I think 24%. And then it looks like you're letting some of those options burn off in the south a little bit here. So is that a function of the demand environment from the buyer, or is it just a function, is something changing in the lot availability and then the land market? How would you... Characterize the strategy and the repositioning of the lots.

Nothing's really changed, Bob. I mean, we focus first and foremost on what we own. We want to own a two- to three-year supply of land based on current closing rate. Right now, we own a little over 23,000 lots. If you look at June a year ago, it was 24,500. But again, nothing real significant. And inside that 23,000 or so lots, We like to own a one-year supply of finished lots. We don't want to go dark as far as having finished lots on the ground due to development delays and weather and all those things. So we feel really good about what we own. As far as off-the-books and total control, we control right now about 49,000. If you look a year ago, it was a little over 50,000. Really nothing significant. Things go in and out there. We talked about our inventory charges of about $4 million. Less than a million of that was deposits and prepaid expenses we wrote off on deals that we decided not to go forward with. We also talked about the lots that we sold, which we do periodically to help manage that investment level. But those numbers move around a little bit. But overall, owning two to three years and controlling four to five years That really hasn't changed. It's just those numbers, you know, move around a little bit.

Keep in mind, if I could just add to what Phil said, in terms of our total owned and controlled lots, which is just a little over 49,000, 60% of them are in the southern region, even with all the puts and takes.

Yeah, yeah, got it. But, you know... Are you trying to rebalance it to more 50-50 going forward? No, not necessarily.

It's not a top-down. We don't manage it that way. It all starts within the individual markets. What is the opportunity for Dallas? Dallas' current volume is at X. Where do we think we can be in Dallas over the next two, three, four years? What are the growth goals? and that analysis occurs within every single one of our markets. Some have greater opportunity, leave the newer markets out. We're really bullish about Fort Myers Naples and we're excited about finally getting some traction in Nashville. Right now, each of those two markets together are a drag on earnings. We get that. We're just getting started. But they won't be for long. But when we look at where we are, we've got We've got growth goals, some more robust than others in every one of our markets. That's not driven by region, that's driven by market.

And also, just back on land position a little bit, Buck, as you probably know, we develop about 85% of our own land. Now, we don't take title to land unless it's zoned for our use and utilities to the site. But again, we develop a large portion. Having said that, we are now seeing, in most of our markets, Some better opportunities at finished lots. Some are coming from sellers, some are coming from other builders, some are coming from land bankers. So we're seeing a few more of those opportunities that make sense. And again, we'll take advantage of that because it's a shorter time to get those lots on the books and get communities open. But we're really happy with where our land position is.

Sounds good, guys. Congrats again. Appreciate the color. Thanks.

And your next question comes from Jay McCandless with Citizens Bank. Your line is open.

Hey, good morning, everyone. Thanks for taking my questions. I wanted to actually keep going. Yeah, absolutely. I want to keep going with that thread because, Bob, what you said about move up lots, looking better from an underwriting standpoint. I guess, is that a function of what you think the pace could be? Is it the lot cost? I guess, what's the driving factor there that's making the move-up deals look more attractive than the entry level?

First of all, not every move-up deal looks more attractive. The ones that are being presented to us by our divisions, some just are penciling better. Is it a massive trend? I would say it's a massive trend, but it's enough to shift things ever so slightly. When we underwrite deals, there's a number of critical, critical factors. What do you think the sales pace is going to be? Based on what? What's happening in that area, sub-market right now? Why do you think you can sell three or two or five a month, whatever it might be, at what price and at what margins? Those, that is the, you know, apologies for the cliche, but that's the art of the deal. That's more, a lot more art than science goes into that. Yes, you can look at comps, you can see what other builders are doing, but at the end of the day, the long lead times associated with most transactions, you know, when you're doing that underwriting, you're at least six months, if not more, away from when you're going to open. and, you know, what a rate's going to be, what this is going to be, what that's going to be, what's the price of oil. I don't need to get into all that. You guys understand that. So, look, some of the move-up pieces are slightly smaller. Some of them are infill. And all of those things can contribute to returns. Ideally, we like to get at least a 20% internal rate of return on every land deal that we look at. But they're not all the same. You'll underwrite a finished lot deal on a takedown slightly different than a large bulk raw land deal because the risk is greater. When you can walk away from a finished lot deal by forfeiting a deposit, you can't walk away from a raw land deal if you have to bulk take the whole thing. So, I mean, all those factors go into the analysis where you might take a slightly less return because of the size of the deal or the location. And, you know, the other thing I'll say is this. We've said this a few times, I think, on these calls. Sometimes you're wrong when you think you have an A location tied up. But if you really believe it's an A, you know, we'll often squint pretty hard before we'll walk away from that. I mean, you know, I've often said I'd rather overpay for an A location than to try to steal a B location. because the A locations are the ones that really produce the results regardless oftentimes of the macro economy.

The second question I had, when you look at the mortgage rate buy-downs, I guess, where are you buying on average down to right now and what's the rate?

Our government, first of all, our mortgage company and Derek's modest He could use a lot more superlatives when he describes the results. Our 96% capture rate is industry leading. That should not be lost on anyone. And this is the second or third or fourth quarter in a row we've been north of 90%. A great mortgage operation. And they're very focused on every day what's happening in the market and how to think about rate buy downs. Could not be more pleased with the execution of our mortgage company. Right now, our government program for specs is slightly below 5. 4 and 7, 8, 30 are fixed. And our longer-term rate lock, as well as the spec rate for conventional, is slightly above 5.

Also, one thing there, Jay. Again, I mean, the incentives you need oftentimes are different by every subdivision based on the buyers. When you get into some of our affordable priced communities, they tend to need closing costs help, those type things. A few customers do like ARMS, so we offer a wide variety of programs. We try not just to use a shotgun approach and everybody gets this. Our mortgage company is able, with their loan officers and our processors, to target individual programs. for our customers, and we think that's been very helpful to us.

Okay, that's great. And then two more questions. The first one, have you seen any positive or negative impact from all the M&A that's been happening, whether it's more availability of those finished lot deals you were talking about or a little less competition? Any insight or color you guys have on that would be great.

You know, there's a lot going on. and there's a lot going on not just with home builder M&A but we're seeing a lot of activity on the supplier and product side also. I will say this, so far I don't think we've seen too much impact but it's also, we're only in the first or second inning of the ink's still wet on some of those deals so it'll remain to be seen. So far I don't and I don't know, Phil, if you or Derek have any different view. I don't think we've seen much. As well as on the supplier side. You know, we've got, we think, excellent long-term relationships, national accounts, if you will, with, you know, some of the biggest suppliers and companies in the industry, you know, and so far we haven't seen much impact there as well. You know, there's things, Jay, I mean, you know, data center,

Thank you. Thank you.

And then the last one I had, pretty impressive to see both of your segments driving mid-teens order growth in this type of environment. I guess, has that carried into July? And if we think about the openings that y'all have for the rest of the year, y'all trying to target that same type of balanced growth for what we're going to see in the back half of 26?

We hope so, but we'll know when we know. Frankly, I was very pleased to see the first six months is up 8%. Obviously, the second quarter was up more than the first. A little bit of volatility month to month, as Phil outlined. We think we've got good communities, and that's the primary driver for that. Everybody's buying rates down, but not everybody's business is up. You know, you're always trying to balance. Sick of the term pace and price, I guess. But we are. And, you know, we're in the summer right now. Seasonally, it's a little bit less robust time. Excited to move into the fall when, you know, at least historically, business tends to pick up a little bit. But, you know, we feel very good about our sales. And, you know, we'll see how the year shakes out.

Okay, great. Thanks for taking my questions. Thank you.

Thanks, Jay.

And your last question comes from Alex Barron with Housing Research Center. Your line is open.

Yes. Thank you, gentlemen. Good morning. I wanted to ask about the jump in the GNA, I guess, sequentially and year over year. What drove that? Was that just more community openings?

We are opening more stores and that generates some additional expenses. We do have 3% more people than a year ago. We also are spending more dollars in the sales area as far as promoting and advertising and lead getting and all those type things.

So that's where those cost increases are coming from.

We felt pretty good. They're only up 3%, of course, with revenue down. That drives the percentage up, but we stay on that as top as we can, as all-time, like we always have.

Okay, and I apologize if you mentioned that maybe... But on the gross margin improvement this quarter, was that mainly a reduction of incentives or lowering your costs or just a change in the product or a mix of everything?

It's a combination of things. As Bob said, we've been very pleased with the performance of the communities. We've opened the first half of this year, and we did open 49 new stores in some of those communities. We opened in the first quarter, gave us some closings in the second. We did have sticks and bricks down a little bit, and of course we had a lot of costs up. You try to always price to market, but wherever you have pricing power, which we do have in a few communities, we do that. So it's a combination of things. As far as rate buy-down costs, as a company, we did spend more buying down rates in the second quarter than we did the first quarter. And again, right now with mortgage rates up to seven, you know, again, that drives some of those costs up. But there's a lot of moving parts that go into that gross profit number, but we're really pleased with what we're able to accomplish in the second quarter.

Okay, got it. Thank you, guys. Thanks.

And that concludes your question and answer session. I will now turn the conference back to Mr. Phil Creek for closing remarks.

Thank you for joining us. See you next quarter.

Thank you. And this concludes today's conference call. You may now disconnect.