M/I Homes MHO Q4 2025 Earnings Call Transcript

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Date

Wednesday, January 28, 2026 at 10:30 a.m. ET

Call participants

• Chairman, Chief Executive Officer, and President — Robert H. Schottenstein
• Executive Vice President, Chief Financial Officer, and Treasurer — Philip G. Creek
• President, M/I Financial, LLC — Derek Klutch

Takeaways

• Revenue -- $4.4 billion for the year, with a 5% decrease to $1.1 billion in the fourth quarter due to lower volumes and average selling price.
• Total homes delivered -- 8,921 homes for the year, driven by stable execution despite demand fluctuations.
• Pretax income -- $590 million for the year before charges, representing a 20% decline compared to 2024’s record $734 million, and a pretax margin of 13% before charges.
• Fourth quarter orders -- New contracts increased 9% year over year, with Southern region up 13%, and Northern region up 4%.
• Community count -- Ended the year with 232 active communities, a 5% increase over last year; average count up 6%.
• Gross margin -- 18.1% for the fourth quarter including $51 million in charges, or 22.6% excluding those charges; full-year gross margin was 24.4% excluding $59 million in charges.
• Charges and impairments -- $51 million in the fourth quarter ($40 million inventory, $11 million warranty), primarily from entry-level communities with average selling prices below $375,000.
• Earnings per share -- $14.74 for the year, down 25% from $19.71, and $2.39 for the quarter versus $4.71 last year.
• Return on equity -- 13.1% for the full year, with shareholders’ equity up 8% to $3.2 billion, and book value per share of $123.
• Lot holdings -- Owns 26,000 lots (30% Northern region, 70% Southern region), controls an additional 24,000 via options; total of 50,000 lots is down 2,000 year over year.
• Inventory sales mix -- 79% of quarterly sales were from inventory homes (specs), an increase from 67% in the prior year's quarter.
• Spec home strategy -- "About you know, two thirds to three fourths of our sales are now coming from specs," and this is expected to persist so long as rate-buydowns remain a focus.
• Smart Series contribution -- Smart Series accounted for 49% of fourth quarter sales, down from 52% last year.
• Buyer profile -- Average buyer credit score was 747, and average down payment was 17% (over $90,000 per home); 48% of sales were to first-time buyers.
• Share repurchases -- $50 million in fourth quarter buybacks, and $200 million for the year, reducing outstanding shares by 13% over the past three years; $220 million remains authorized.
• Financial services segment -- Segment generated $56 million full-year pretax income, and achieved a record 93% capture rate; fourth-quarter pretax income was $8.5 million.
• Liquidity position -- Ended the year with $689 million in cash, and no borrowings under a $900 million revolving facility.
• Land spend -- Invested $1.2 billion in land purchases and development, up from $1.1 billion in 2024.
• Mortgage operations -- Average loan amount rose to $414,000 in the quarter, with a 94% capture rate, and a product mix of 65% conventional and 35% FHA/VA loans.
• Mortgage rate buy-down strategy -- "We've been going with a four and seven eights thirty year fix," with sub-5% rates being key in attracting buyers, and supported in some cases by temporary buy-down options.

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Risks

• Gross margins decreased by 220 basis points due to higher incentives and lot costs, and management stated, "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."
• Impairments and lot deposit write-offs of $51 million in the quarter, specifically from entry-level/affordable communities, signal pressure on lower price-point product lines.
• EPS declined by 25% for the year, reflecting both operational challenges and the impact of charges on profitability.
• Spec home (inventory) margins "in general are lower than to be built homes," and management expects this dynamic to persist as long as incentives are required for sales velocity.

Summary

M/I Homes (MHO +2.22%) reported a 9% increase in fourth-quarter new contracts, with notable Southern region strength, but full-year pretax income declined 20% due to charges and margin compression. The spec home model dominated the company's sales mix, now comprising up to 75% of quarterly closings as incentives like mortgage rate buy-downs are heavily utilized. Shareholder returns remained a clear priority, evidenced by $200 million in buybacks and an 8% gain in shareholders’ equity to a record $3.2 billion. The company expanded its community count by 5% and invested aggressively in land development, owning and controlling a total of 50,000 lots, with an increasing use of flexible option contracts. A disciplined liquidity position was maintained, finishing the year with $689 million in cash and undrawn credit lines.

• Management explicitly indicated that impairments and margin pressure centered on affordable entry-level markets, particularly Austin and San Antonio.
• The Smart Series' share of total sales declined by 3 percentage points, potentially reflecting changing product or customer dynamics.
• Management anticipates that the elevated use of rate buy-downs and spec home closings will continue for the foreseeable future, barring a material shift in market conditions or interest rates.
• Operating improvements included a 5% reduction in cycle time, and a 2% reduction in construction costs, partially mitigating margin headwinds.
• New land deals and community launches are subject to detailed division and corporate review, intended to optimize product mix and respond to evolving demand at the local level.

Industry glossary

• Spec homes: Homes built by a developer without a specific buyer in place, allowing for quicker delivery but often sold with incentives to manage standing inventory.
• Smart Series: M/I Homes’ most affordably priced product line targeting the entry-level and value-focused segment.
• Rate buy-down: A financial incentive provided by the seller to lower the buyer’s mortgage interest rate, either temporarily or for the full loan term.

Full Conference Call Transcript

Bob Schottenstein: 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 M/I Homes. 2026 marks our fiftieth year in business. Over the past five decades, our company has grown to become one of the nation's largest and most respected homebuilders. 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 experienced 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 pretax income of nearly $590 million which was down 20% compared to last year's record $734 million. Our pretax 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 it's very strong year achieving pretax income for the year of $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 down. 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, but 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 a $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 comprised 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 count growth with 232 active communities, which was an increase of 5% compared to the '4, 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 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 lock position in the southern region decreased by 11% compared to 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 fifty 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.

Phil Creek: Thanks, Bob. Our new contracts were up 18% in October, up 9% excuse me, 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 February 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 31, we had 4,500 homes in the field, versus 4,700 homes in the field a year ago.

Revenue decreased 5% in the 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 quarter 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 o Excluding our $59 million of charges, our full year gross margin was 24.4 And our fourth quarter SG and A expenses were flat compared to a year ago, and were 11.6% of revenue compared to 11 o 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 pretax 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 $6.8 million 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 $2.39 per share from $4.71 per share in last year's fourth quarter and decreased 25% for the year to $14.74 per share from $19.71 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 Cleft will address our mortgage company results.

Derek Klutch: Thanks, Bill. In the fourth quarter, our mortgage and title operations achieved pretax income of $8.5 million down $1.6 million from 2024. Revenue of $27.8 million down 2% from last year. Primarily as a result of lower margins on loans closed and sold and partially offset by higher average loan amounts and more loans closed. For the year, pretax 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 59/41%, respectively, for February 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 $18.62 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.

Phil Creek: Thanks, Derek. As far as the balance sheet, we ended the fourth quarter with a cash balance $689 million and no borrowings under our unsecured credit facility. We continue to have one of the lowest debt levels of the public homebuilders. And are well positioned with our maturities. Our bank loan matures in 2030 and our public debt matures in 2028 and 2030. Total homebuilding 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 12/31/2025, we had $900 million of raw land, the 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 at December 31, 2024, 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.

Operator: Thank you. Ladies and gentlemen, we will now begin the question and answer session. Will hear a prompt that your hand has been raised. If you wish to decline from the polling process, please press star followed by 2. And if you are using a speakerphone, please lift the handset before pressing any keys. First question comes from Ken Zener at Seaport Research Partners. Please go ahead.

Ken Zener: 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, Ted, last time, you found that Texas is a little bit more of the volume. We've been seeing that Florida is actually doing a little better than Texas. Could you address the split in that those mark 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 is state pretty solid for us along with Houston. Weaker markets have been Austin and San Antonio. So with 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 put us 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 a selling season right now with opposed to leaving the slowest time of the year in the fourth quarter. But we've certainly seen a an important improvement in traffic. I appreciate those comments. It's and they are reported too today, and it's our margins are under pressure. The demand seems to be there.

Could you comment, given the intra quarter orders and closing, 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 quarter closings, I assume they're coming from the lower priced Smart Series. It you could address those two questions. You very much. Well, it I'm not sure I completely understood the question. And you may have to ask it again. Okay. I'm sorry. I'll I'll make it clear.

Operator: Okay.

Ken Zener: Orders and closings per unit that were intra quarter So what I call spec. How are those margins compared to the homes that came out of backlog? And I'm assuming most of those intra quarter orders, which were closings, were the Smart Series. Well, yes and no. The Smart Series point. The one thing I'll say is over the last twelve to twenty four months, our business has changed quite noticeably. In terms of 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%. Some cases less than forty.

So that's been a pretty significant change. And it's likely here to stay as long as is 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 it is one of the conditions is that you can get the home closed you know, within sixty to ninety days of the purchase of the buy down money, which means that only been really worth respects.

So having said all that, the majority of know, 60 to 75% of the closings quarter to quarter to quarter all coming from spec sales. Bill, don't know if you wanna add anything to that. Yeah. I mean, you know, our closing GPs in the fourth quarter you know, were twenty two six, you know, forgetting the charges. We were, you know, pretty pleased with that. Are there continued pressures? Yes. We do feel good that our construction cost 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 business. But, you know, we just continue, focusing, you know, every day 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.

Operator: Thank you. The next question comes from Alan Ratner at Zelman. Please go ahead.

Alan Ratner: Hey, Bob. Hey, Phil. Good morning. Nice quarter and Good morning, fiftieth anniversary. Good morning. Happy New Year. Yep. We don't feel we don't feel that old. I hear you. Well, I it's it's very impressive, and I'm sure we 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 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, kinda 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 incentive? Well, that's a great question. It's it's actually probably one of the most important questions that you know, as we as we look week to week and look at it in terms of our sales activity, I feel like it's a little bit of both.

I think we, you know, we wanted to push to get as many completed specs you know, off the you know, out to the buyers as we could. I feel like demand is slightly picking up.

Bob Schottenstein: And it 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 and that is continuing. It you know, it's 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 under and, 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's 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 expect 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, things are starting to level off a bit Again, we'll we'll know when we know.

But you know, all things considered, you know, pre charges, made almost 590,000,000 last year, brought 13% 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 $3.75.

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 gonna get a little bit better know, we tend to play at a little higher price point. But, that's kinda where things are.

Alan Ratner: Got it. No. I appreciate all that detail. And, Phil, you kinda touched on the second question I had, which was on those impairments. I guess the first one is a little bit of an accounting nuance, but I'm just curious. If I look at historically when you've taken charges, they're they're almost entirely in your fourth quarters. I mean, you maybe have some minimal charges for the year, but it looks like fourth quarter is kind of where you generally take larger charges. So I'm curious if there's any accounting reason why that is, at least compared to other builders.

And b, I don't know if you disclosed like a watch list of communities that are have maybe potential indicators of impairments, but is there any indication that impairment should continue here over the next handful of quarters just based on where some of your margins are trending in your lower price point communities?

Phil Creek: Yeah. Alan, I appreciate that. And I'll I'll try to get all those points. You know, to us, it's a business issue. Mean, if you look at our business goals, you know, we're in the subdivision 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. Course, the way the accounting rules are based basically is that once you get down to about a 10% GP, know, you kinda get to the point where, you know, carry cost, disposal cost exceed that. So they accounting rules you know, kinda force you to do an impairment. But, again, to us, it's a business decision. You know, 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 a, like, 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 unsold lots You always have a couple of problems subdivisions. Our impairment covered about a thousand lots. So about a thousand 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 and a half, two or 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, 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 I've been to the movie it was a long time ago, but back during the great recession, when every quarter you know, you were sort of holding your breath as the builders reported because many more impairments are coming And we also felt like there was more coming. This is very different. I'm not gonna say there's no more coming because no one knows that. But what I will say is it is it as we got towards the end of last year, it was sort of let's 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 at 2026. You know, with as many items controlled and behind us as possible.

Alan Ratner: And, Alan, really appreciate that detail. Thank you.

Phil Creek: 10,000,010 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 other changes in terms. So we walked away from those deals. But, again, you know, on average, when you take a, you know, a $30 million charge on a thousand lots, you're looking at 30,000 per lot, which is pretty significant. And, hopefully, that's gonna increase our pace and margins as we go into this year.

Alan Ratner: Makes sense. Thanks a lot. I Thanks, Alan.

Operator: Thank you. The next question comes from Buck Horne at Raymond James. Please go ahead.

Buck Horne: Congrats on navigating a challenging environment and appreciate those the color on all the charges as well. Thanks, buddy. I was also yeah, very welcome. I was kinda curious about the acceleration in land purchase activity and some 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, is should we read into that acceleration if there's is that a indication of your confidence levels of kind of the demand that's out there and your growth trajectory?

Or how should we interpret that pickup in the land spend?

Phil Creek: No. Nothing really special. You know? Again, some of our markets are impacted by you know, weather when we get black topping done and those type of things. I mean, we owed about 25,000 lots, as Bob said. We try to have about a one year supply of finished lots. That way, we don't go dark, etcetera. 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 you know, last year toward the end, but, you know, just the way it kinda fell.

Buck Horne: Okay. That's helpful. 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 stabilization of the resale inventory is helping?

Bob Schottenstein: 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 we're very bullish about it. And you know, there we had significant growth because we went from almost zero to you know, over a 100 and some units, you know, last year. But 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 a 120, a hundred and fifty days, demand in Orlando has been stronger than Tampa and Sarasota.

Tampa was the toughest market for a while. Had probably, whatever reason, 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 we're we're we're encouraged by what we're seeing. That's for sure. And Sarasota is just sort of, you know, so. You know, I think that mark market is it's 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 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, this was noted where we've been in business fifty 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. And we're not, you know, we're you know, we've we've 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.

Buck Horne: Outstanding. That's great to hear. Last one, if I can sneak one in. I was curious about just 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 over the hump Is there kind of a sweet spot target mortgage rate that seems to work best with those buy downs?

Derek Klutch: I guess, this is this is Derek. We've been going with a four and seven eights thirty year fix. And we think getting a sub five 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 the first year payment in the 2.875 range. We've we've run that for quite a while, that seems to be successful for us. So just that sub 5% note rate. That's clearly been our most successful recently. We've been tinkering with the $7.01 arm that other builders have been using a lot. You know, it's everybody has their own experiences.

To Derek's point, what seems to work best for us is the very straightforward thirty year fixed four and seven eights FHA, VA, or conventional. And you know, that's and in many instances, it's supplemented with the two one 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 on 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's some people out there that do wanna do to build home 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.

Buck Horne: Awesome. Very helpful color. Appreciate it, guys. Good luck.

Bob Schottenstein: Thanks.

Phil Creek: Thanks.

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

Alex Barron: 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 go down sequentially, or is these impairments you took this quarter gonna help stabilize margins?

Phil Creek: Alex, you know us. We don't we don't give guidance on things like that. We were you know, 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. You know, we are working hard on construction costs and cycle time and all those things. We are opening a number of new stores this year. We did give guidance. We expect average community count to be up 5% this year. But, no. We did not give any guidance as far as margins.

Alex Barron: Okay. Did your incentive levels or go up in the quarter versus the previous quarter? For new orders?

Phil Creek: I mean, our margins were down a little bit. So 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 open 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.

Alex Barron: 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?

Bob Schottenstein: 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. Our 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 know, to on a daily basis to what's happening in the market. Is 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.

Alex Barron: Alright, guys. Well, best of luck. Thank you.

Phil Creek: Thanks a lot. Thanks, Alex.

Operator: Thank you. And the next question comes from Jay McCanless at Citizens. Please go ahead.

Jay McCanless: 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 y'all's time this morning as well. Just to kinda follow on what you were saying there Bob, Are you all seeing similar traffic pickup in both the North and the South, or is it a stronger in one region versus the other? You know, I in I think that it's not every single one of our 17 markets but certainly most. And I and I would not say it's 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, you know, they're they're snowed in, including know, here in Columbus, it's been pretty rough. But in general, we've seen traffic you know, start to pick up. It's it always does this time of year. 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 closings in 4Q? You know, right now, what we're doing, as Bob said, 75, 80% specs.

You know, in general, the margins in the backlog are higher, you know, than specs. Are the margins that you're in a little higher you're in a year ago? The answer is yes. You know, that's about a 100 basis points difference. But, hopefully, we're getting a little better We continue to focus on how we can improve the margins on the specs. So, we're doing all we can. You know, we did that twenty two six margins in the fourth quarter. So we're hoping margins hold 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 and 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 35%. But, you know, again, you gotta 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 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 inventory is 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 wanna be very aggressive in making certain that we have the product standing product in the field, the in 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 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 we're we're we're very well positioned. That's great. And just any industry commentary you've been hearing from the field In relating to what issue? Relating to inventory. Tech inventory specifically. You mean, are people like, you know, deep discounting just to move specs or have discounts slowed down. Or more incentives being paid to third party realtors or mean, things like that. Yeah. Things like that. That'd be great. Yeah. You know, you hear a crazy story now and then about once every two days. So it you know, I don't think that's anything new.

I mean, people do what they need to do. Look, you know, I think that knowing on a look back, knowing what 2025 was, if you just said to me, we're gonna 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. Understood. Jay, we pay a lot of attention to our inventory levels. We do have about a thousand finished specs which is a little 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 A lot 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 price community, every community is a little bit different. But, you know, again, I mean, doing 70, 75% specs I mean, I'll I'll 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 that 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 did 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 we're opening 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 they're pretty close. You know, we have some new stores that are doing really well and, you know, some that aren't doing so hot. It's a pace 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, yeah, 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.

Phil Creek: Thanks, Jay.

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

Ken Zener: Hello again. Thank you. I wonder if you could comment on the flexibility of the business. So obviously, mortgage buydowns for let's say, two thirds of the communities at you know, you have product, you're trying to protect the community, price voids, etcetera. But for new communities, given that, you know, 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 wanna use the word despec, but, you know, they're more simpler in terms of price points. Much flexibility do you really have there when you're coming into opening a community six to nine months out vis a vis the product structure Probably. Yeah. Type.

Bob Schottenstein: I think a lot more flexibility, I think, than most people might realize. Look, so much of it's determined by zoning. And so, you know, you're you're you have to stay within the confines of the zone 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 and 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 gonna do with that if we get that deal done and that becomes a new store for us. What is that store gonna look like? What are we gonna merchandise in that store? What is what who is the buyer? And you know, there's 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.

And you do have some flexibility And we're, you know, there's 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've now we're now gonna develop it with smaller size lots. Or perhaps the opposite, larger sized 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. Evaluation process which is a discussion involving the specific division of course, a few of us here at corporate. And even in that, after this thing this thing has been batted back and forth at the division level, will quite often have questions about the product and the product line. Are we really trying to do here. And, you know, should we should we should we adjust this or that?

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 does it look now? Let's reconvene in ninety 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 we're a very unusual retailer because reinvent ourselves about every three years. The stores that we have out there today three years from now, 90% of them will be completely different. And because we'll sell through and replace with new.

And as Phil mentioned, you know, 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, you know, we've 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, you know, shifted to a strategy that has turned something that might have just been average into something really good.

And, you know, so when we see something that works in one market, you know, we that maybe it's a little bit, you know, off the wall thinking. You know, we'll also try to apply to that, you know, in other markets if it makes sense to do so. So it's a very, very big part of the business. Doesn't often get a lot of conversation. But you know, it's it's a it's a terrific question. Thank you.

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

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

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