Q2 2026 M/I Homes Inc Earnings Call

July 29, 2026

Speaker #1: Hi, my name is Prala, 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.

Operator: My name is Perla. I will be your conference operator today. At this time, I would like to welcome everyone to the M/I Homes Q2 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. If you would like to ask a question during this time, simply press star followed by one on your telephone keypad. If you would like to withdraw your question, please press star one again. Thank you. I would now like to turn the conference over to Phillip Creek. You may begin.

Speaker #1: Online subbing plays on mute to prevent any background noise. After the speakers' 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 1 on your telephone keypad.

Speaker #1: Thank you for standing by. My name is Prilla, and I will be your conference operator today. At this time, I would like to welcome everyone to the M/I HOMES second quarter earnings conference call.

Speaker #1: 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 Phil Creek, you may begin.

Speaker #1: Online participants have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. If you would like to ask a question during this time, simply press the star (*) followed by the number 1 on your telephone keypad.

Speaker #2: Thank you. Joining me on the call today is Bob Schattenstein, 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 prohibitive from discussing significant nonpublic items with you directly.

Phillip Creek: 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 non-public items with you directly. 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.

Speaker #1: And if you would like to withdraw your question, please press star one again. Thank you. I would now like to turn the conference over to Phil Creek. You may begin.

Speaker #2: 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 prohibitive from discussing significant nonpublic items with you directly.

Speaker #2: And as to forward-looking statements, 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.

Speaker #2: Also, be advised that the company undertakes no obligation to update any forward-looking statements made during this call. And I'll turn the call over to Bob.

Speaker #2: 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.

Speaker #3: 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.

Bob Schottenstein: Thanks, Phil. Good morning, and thank you for joining us today. We are pleased to report solid Q2 and H1 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 Q2, we sold a Q2 record 2,387 homes, 15% better than last year. For H1, 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 H1 was $194 million, also equating to a very solid 10% pre-tax income percentage.

Speaker #2: 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.

Speaker #3: 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, interest rates, and the impact of the conflict in the Middle East, we are very proud of our results.

Speaker #3: 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.

Speaker #3: 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.

Speaker #3: 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.

Speaker #3: 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.

Speaker #3: 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.

Bob Schottenstein: We were pleased to generate a 10% return on equity for Q2. Contributing to our solid returns was a Q2 gross margin of 22%, which includes $4 million of inventory charges. Notably excluding those charges, our Q2 gross margins would have approached 22.5%, which is slightly better than our Q1 gross margins. We closed 2,206 homes in the quarter, down 6% compared to a year ago. For H1, 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 Q2 record new 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%.

Speaker #3: Pre-tax income for the first six months was $194 million, also equating to a very solid 10% pre-tax income percentage. We were pleased to generate a 10% return on equity for the second quarter.

Speaker #3: Contributing to our solid returns was the 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.

Speaker #3: 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.

Speaker #3: 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.

Speaker #3: We closed 2,206 homes in the quarter, down 6% compared to a year ago. For the first six months, we have closed 4,120 homes, down 5% from last year.

Speaker #3: 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 homes per community a year ago.

Speaker #3: 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 in the sale of our move-up product.

Bob Schottenstein: In terms of product mix, we have seen a slight increase in 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, will continue to promote with such buydowns for the foreseeable future. Approximately 78% of our Q2 sales were spec homes, roughly the same as the Q1. Our rate buydown program is targeted to both spec homes and to-be-built homes. The to-be-built buydown program appropriately features a longer-term rate lock.

Speaker #3: 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.

Speaker #3: 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.

Speaker #3: 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.

Speaker #3: 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.

Speaker #3: We believe the primary driver of our solid sales results is our well-located communities and excellent product. At the same time, we continue to use mortgage rate buydowns as our primary incentive.

Speaker #3: Our rate buydown program is targeted to both spec homes and to-be-built homes. The to-be-built buydown 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.

Bob Schottenstein: Our mortgage company had a terrific and very strong Q2, 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.

Speaker #3: 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%.

Speaker #3: 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.

Speaker #3: 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%.

Speaker #3: 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.

Speaker #3: 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.

Speaker #3: 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.

Speaker #3: 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 increased by 16%, while new contracts in our southern region increased by 14%.

Speaker #3: 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.

Bob Schottenstein: Now, to more specifically address our markets, our division results in the Q2 were led by Columbus, Chicago, Minneapolis, Raleigh, and Charlotte. New contracts for the Q2 in the northern region increased by 16%, while new contracts in our southern region increased by 14%. Biggest increase we saw was in the Carolinas. The Midwest was up across the board, followed closely by Texas, and our sales in Florida were also up. Our deliveries in the northern region decreased by 8% compared to last year's Q2 and represented 40% of our company-wide total. 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.

Speaker #3: The biggest increase we saw was in the Carolinas, the Midwest was up across the board, followed closely by Texas and our sales in Florida were also up.

Speaker #3: Our deliveries in the northern region decreased by 8% compared to last year's second quarter, and represented 40% of our company-wide total. Our southern region deliveries also decreased by 5% over last year and represented 60% of total deliveries.

Speaker #3: Biggest increase we saw was in the Carolinas, the Midwest was up across the board, followed closely by Texas and our sales in Florida were also up.

Speaker #3: 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.

Speaker #3: 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.

Bob Schottenstein: 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 two-and-a-half-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 five-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 Q2 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 -1%.

Speaker #3: 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.

Speaker #3: 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.

Speaker #3: Forty percent of our owned and controlled lots are in the northern region, while sixty percent are in the south. Company-wide, we own approximately 23,500 lots, which is roughly a 2.5-year supply.

Speaker #3: 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 dollars of equity, equating to a book value per share of $128.

Speaker #3: 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 five-year supply.

Speaker #3: 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%.

Speaker #3: 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%.

Speaker #3: 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.

Bob Schottenstein: 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 M/I Homes is well positioned to have a solid 2026. With that, I'll turn it over to Phil.

Speaker #3: In closing, as we celebrate our 50th year in business, we remain very confident in the long-term fundamentals of the homebuilding industry. Given the quality of our geographic footprint, our strong land position, very well-located communities, and diverse product offering, we believe M/I Homes is well positioned to have a solid 2026.

Speaker #3: With that, I'll turn it over to Phil.

Speaker #2: 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.

Phillip Creek: Thanks, Bob. As far as the financial results, we had record Q2 new contracts up 15% compared to last year. Our sales were up 13% in April, up 23% in May, and up 9% in June. Our cancellation rate for Q2 was 8%. 50% of our Q2 sales were to first-time buyers and 78% were inventory homes. Our community count was 234 at the end of Q2, 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.

Speaker #2: 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 the year ago.

Speaker #3: With that, I'll turn it over to Phil.

Speaker #2: 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, 23% in May, and 9% in June.

Speaker #2: 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.

Speaker #2: 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.

Speaker #2: We currently estimate that our average 2,026 community count will be about 5% higher than last year. We delivered 2,206 homes in the second quarter, and about 42% of these deliveries came from inventory homes that were both sold and delivered within the quarter.

Speaker #2: Our community count was 234 at the end of the second quarter, consistent with the year ago. The breakdown by region is 94 in the Northern region and 140 in the Southern region.

Phillip Creek: We delivered 2,206 homes in Q2, and about 42% of these deliveries came from inventory homes that were both sold and delivered within the quarter. At 30 June, we had 5,100 homes in the field, flat versus a year ago. Revenue decreased 9% in Q2. We delivered fewer homes than a year ago, and our average sale price declined. Our Q2 results included $5 million of land sales profit versus $3 million in last year's Q2. 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 Q1, and our cycle time improved also by a couple of days.

Speaker #2: 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.

Speaker #2: 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.

Speaker #2: We delivered 2,206 homes in the second quarter, and about 42% of these deliveries came from inventory homes that were both sold and delivered within the quarter.

Speaker #2: 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.

Speaker #2: 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.

Speaker #2: 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.

Speaker #2: 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.

Speaker #2: 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.

Speaker #2: 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.

Phillip Creek: Our Q2 SG&A expenses were 12.6 of revenue, compared to 11.3 a year ago. Our Q2 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 Q2, 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 Q2. Our effective tax rate was 24% in the quarter, flat compared to last year.

Speaker #2: 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.

Speaker #2: 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.

Speaker #2: 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.

Speaker #2: Our pre-tax income was 10%, and our return on equity was 10%. During the quarter, we generated $120 million of EBITDA, converted to $169 million in last year's second quarter.

Speaker #2: 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%.

Speaker #2: 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.

Phillip Creek: Our earnings per diluted share for the quarter decreased to $3.02 per share from $4.42 per share last year, and our book value per share is now $128, an $11 per share increase from a year ago. Derek Klutch will address our mortgage company results.

Speaker #2: During the quarter, we generated $120 million of EBITDA compared to $169 million in last year's second quarter. Our effective tax rate was 24% in the quarter, flat compared to last year.

Speaker #2: Now, Derek Fletch will address our mortgage company results.

Speaker #3: Thanks, Phil.

Speaker #2: Our earnings per diluted share for the quarter decreased to $3.02 per share from $4.42 per share last year, and our book value per share is now $128, an $11 per share increase from a year ago.

Speaker #2: 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.

Speaker #2: Now, Derek Klutch will address our mortgage company results.

Speaker #3: Thanks, Phil.

Speaker #2: 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 was offset by a decrease in loans originated.

Speaker #2: 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.

Derek Klutch: The average loan-to-value on our first mortgages for Q2 was 85%, compared to 83% in 2025's Q2. 65% of the loans closed in the quarter were conventional and 35% FHA or VA, compared to 51% and 49%, respectively, for 2025's Q2. Our average mortgage amount increased to $405,000 in 2026's Q2, 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 Q2, up from 92% last year. I'll turn the call back over to Phil.

Speaker #2: 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.

Speaker #2: 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.

Speaker #2: 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.

Speaker #2: 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.

Speaker #2: Now I'll turn the call back over to Phil.

Speaker #3: 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.

Phillip Creek: 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. Our public debt matures in 2028 and 2030 and has interest rates below 5%. Our unsold land investment at 30 June is $1.9 billion, compared to $1.7 billion a year ago. At 30 June, we had $800 million of raw land and land 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.

Speaker #3: Our bank line maturities in 2030 and our public debt maturities in 2028 and 2030. And as 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 and land under development, and $1.1 billion of finished unsold lots.

Speaker #2: Now I'll turn the call back over to Phil.

Speaker #3: Thanks, Derek. As far as our balance sheet, our financial position continues to be very strong. We have one of the lowest debt levels among public home builders and are well-positioned with our maturities.

Speaker #3: 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.

Speaker #3: And of the total inventory, 1,125 were in the northern region and 1,714 are in the southern region. At June 30th, 2025, we had $586 completed inventory homes and 2,726 total inventory homes.

Speaker #3: During the quarter, we spent $131 million on land and 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.

Phillip Creek: Of the total inventory, 1,125 are in the northern region and 1,714 are in the southern region. At 30 June 2025, we had 586 completed inventory homes and 2,726 total inventory homes. We spent $50 million in the Q2 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 will now open the call for any questions or comments.

Speaker #3: 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.

Speaker #3: This completes our presentation; we'll now open the call for any questions or comments.

Speaker #1: 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.

Operator: 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 star one on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, please press star one again. With that, our first question comes from the line of Alan Ratner with Zelman & Associates. Your line is open.

Speaker #1: 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 Zelman, your line is open.

Speaker #3: This completes our presentation. We'll now open the call for any questions or comments.

Speaker #1: 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 star one on your telephone keypad to raise your hand and join the queue.

Speaker #4: Hey guys, good morning. Really strong results. Tough market. Hey, Bob. So I was intrigued by the comment you made about the maybe the somewhat modest mix 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.

Alan Ratner: Hey, guys. Good morning. Really strong results-

Bob Schottenstein: Morning, Alan

Alan Ratner: in a tough market. Hey, Bob. I was intrigued by the comment you made about maybe the somewhat modest mix shift towards 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. 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? I have a follow on from that.

Speaker #1: 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 Zelman. Your line is open.

Speaker #4: Hey, guys. Good morning. Really strong results. Tough market. Hey, Bob. So, I was intrigued by the comment you made about maybe the somewhat modest mix shift toward more move-up this quarter.

Speaker #4: 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?

Speaker #4: Or was this more just a function of where the demand was in the quarter? And I have a follow-up on that.

Speaker #4: 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.

Speaker #5: 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.

Speaker #4: I mean, is this a concerted effort you guys are making to target that segment of the market and function of maybe new community openings or changing in product type?

Bob Schottenstein: 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 market. 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. I think that when you sort of shake it all out, it's a little bit of both.

Speaker #5: We've always been really strong with our move-up market. 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.

Speaker #4: Or was this more just a function of where the demand was in the quarter? And I have a follow-up on that.

Speaker #5: I think, yeah, that's a great question. I think it's a little bit of both. I think there is a little bit more demand there.

Speaker #5: 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 more 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.

Speaker #5: 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 more to 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.

Speaker #5: 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.

Bob Schottenstein: 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. 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.

Speaker #5: 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: over the last number of quarters, I think that some of the more high-priced or move-up land opportunities penciled better.

Speaker #5: 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.

Speaker #5: 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.

Speaker #5: 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.

Speaker #5: But in that context, in select markets—and there are 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.

Speaker #5: So it's I hope that answers the question.

Speaker #4: Yeah, no, that was great. Appreciate the added thoughts there. So yeah, I'm guessing this might be related, but what I wanted to pivot to next was the gross margin, which good to see some sequential improvement there.

Alan Ratner: Yeah. No, that was great. Appreciate the added thoughts there. Yeah, I'm guessing this might be related, but what I wanted to pivot to next was the gross margin, which good to see some sequential improvement there. I was hoping you can kind of drill into the drivers of that. You mentioned costs being down a little bit quarter over quarter.

Speaker #4: 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 mixed impact from move-up as well in that?

Speaker #5: So, I hope that answers the question.

Speaker #4: Yeah, no, that was great. I appreciate the added thoughts there. So, yeah, I'm guessing this might be related, but what I wanted to pivot to next was the gross margin, which—good to see some sequential improvement there.

Bob Schottenstein: Yeah. I think

Alan Ratner: Is there any mix impact from move-up as well in that?

Speaker #5: Maybe slightly. But I think our cost I know a couple of builders mentioned they had a 5% improvement in cost. We didn't see that much.

Bob Schottenstein: Maybe slightly.

Alan Ratner: Okay

Bob Schottenstein: I think our cost, I know a couple builders mentioned they had a 5% improvement in cost. We didn't see that much.

Speaker #4: I was hoping you could kind of drill into the drivers of that. You mentioned costs being down a little bit quarter-over-quarter. Is there any mix impact from move-up as well in that?

Speaker #5: And when we say improvement in cost, it's not apples and bananas. It's apples to apples. I mean, we haven't despect or changed any of the fit or finish.

Bob Schottenstein: When we say improvement in cost, it's not apples and oranges, it's apples to apples. We haven't de-specced or changed any of the fit or finish. We probably got 1%, 2%, 3% improvement depending upon the market. That's helped a little bit. There's a lot of uncertainty still, and we were pleased to see margins slightly improve or at least not get any worse. Let me say it this way. If it weren't for mortgage rate buydowns 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. 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.

Speaker #5: Maybe slightly, but I think our cost—I know a couple of builders mentioned they had a 5% improvement in cost. We didn't see that much.

Speaker #5: We probably got 1, 2, 3 percent improvement depending upon the market. So that's helped a little bit. There's a lot of uncertainty still. And we were pleased to see margins slightly improve or at least not get any worse.

Speaker #5: And when we say improvement in cost, it's not apples and bananas—it's apples to apples. I mean, we haven't despec'd or changed any of the fit or finish.

Speaker #5: We probably got 1%, 2%, 3% improvement depending upon the market, so that's helped a little bit. There's a lot of uncertainty still, and we were pleased to see margins slightly improve or at least not get any worse.

Speaker #5: 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 buy downs, the sales environment would be bleak.

Speaker #5: 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 buy downs, the sales environment would be bleak.

Speaker #5: 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.

Speaker #5: It was all about rate buy downs. All of our communities would be performing at a high level. We've got communities that are selling at a very strong pace.

Bob Schottenstein: We've got communities that are selling at a very strong pace and at premium margins because they're well-located. The 22% is an average. We've got 234 communities. A very meaningful number of the communities are well north of 22%, 23%, 24%. 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. Look, you never know whether a community is going to perform as good as you hope it will. We've got a very healthy percentage of what I would call good performing communities, and most of that hunts back to location, obviously, it's also the quality of the product.

Speaker #5: 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.

Speaker #5: And at premium margins, because they're well-located. And the 22% is an average. We've got 234 communities. A very meaningful number of the communities are well north of 22, 23, 24 percent.

Speaker #5: If it was all about rate buy-downs, all of our communities would be performing at a high level. We've got communities that are selling at a very strong pace.

Speaker #5: 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.

Speaker #5: And look, you never know whether a community is going to 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.

Speaker #5: And most of that hunts back to location, but obviously it's also the quality of the product.

Speaker #5: And look, you never know whether a community is going to perform as well 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.

Speaker #4: Alan, just to add a couple of things, this is Phil. We opened 49 new stores the first half. If you look at the average sale price in those 49, it looks like it's about maybe 575 our backlog right now is about 540.

Phillip Creek: Alan, just to add a couple of things. This is Phil. We opened 49 new stores the H1. 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. It is kind of focused a little more on the high price point. As far as margins and cost pressure and those type things, our finished lot cost compared to a year ago is up about 8%, you're always market pricing. 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.

Speaker #5: And most of that comes back to location, but obviously it's also the quality of the product.

Speaker #4: So it is kind of folks just a little more on the high-price point. As far as margins and cost pressure and those type things, our finished lot cost compared to a year ago is up about 8%.

Speaker #3: Alan, just to add a couple of things, this is Phil. We opened 49 new stores in the first half. If you look at the average sale price in those 49, it looks like it's about maybe $575,000. Our backlog right now is about $540,000.

Speaker #4: But you're always market pricing what we try to make sure we open these stores the right way. And don't get too far ahead of ourselves.

Speaker #3: So, it is, kind of, folks just a little more on the high price point. As far as margins and cost pressure and those type of things, our finished lot cost compared to a year ago is up about 8%.

Speaker #4: 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.

Speaker #3: But you're always market pricing what we try to make sure we open these stores the right way. And don't get too far ahead of ourselves.

Speaker #4: 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.

Phillip Creek: There are pressures on the cost of those buydowns and so forth. Again, it's kind of a subdivision by subdivision business, that's what we'll continue focusing on.

Speaker #3: 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.

Speaker #4: Thank you so much for that added detail, Phil. Good to hear your voice as well. And thank you very much.

Alan Ratner: Thank you so much for that added detail, Phil. Good to hear your voice as well, and thank you very much.

Speaker #3: So there are pressures on the cost of those buydowns and so forth. But again, it's kind of a subdivision-by-subdivision business, and that's what we'll continue focusing on.

Speaker #5: Thanks, Alan.

Bob Schottenstein: Thanks, Alan.

Speaker #2: And your next question comes from Kenneth Zinner with Seaport Research. Your line is open.

Operator: Your next question comes from Kenneth Zener with Seaport Research. Your line is open.

Speaker #6: Good morning, everybody.

Kenneth Zener: Good morning, everybody.

Speaker #4: Thank you so much for that added detail, Phil. Good to hear your voice as well, and thank you very much.

Speaker #5: Good morning.

Bob Schottenstein: Morning.

Kenneth Zener: 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?

Speaker #6: 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?

Speaker #5: Thanks, Alan.

Speaker #1: And your next question comes from Kenneth Zinner with Seaport Research. Your line is open.

Speaker #2: Good morning, everybody.

Speaker #5: Good morning.

Speaker #2: 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?

Speaker #5: Do you have that? 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.

Bob Schottenstein: Phil, do you have-

Phillip Creek: Well, what we gave you was that from a sales standpoint in Q2, 78% were specs. As far as deliveries in Q2, 42% of the deliveries were sold and closed in the quarter.

Speaker #5: Do you have that?

Speaker #5: We don't give specific we don't give Kim, 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.

Speaker #3: 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.

Bob Schottenstein: Ken, 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 to-be-builts are better. In some, just slightly. In others, it could be 100 or 200 basis points, perhaps more in a couple of select instances. In general, the margins are higher on to-be-builts. It's just the differences can vary pretty meaningfully between market to market.

Speaker #5: We don't give specific—we don't give, Kim, 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.

Speaker #5: In nearly every one of our 17 markets, the margins on to-be-builts are better. In some, just slightly. In others, it could be 1 or 200 basis points.

Speaker #5: Perhaps more in a couple of select instances. But in general, the margins are higher on to-be-builts. And it's just that the differences can vary pretty meaningfully between market to market.

Speaker #5: In nearly every one of our 17 markets, the margins on to-be-builts are better. In some, just slightly; in others, it could be 100 or 200 basis points.

Speaker #4: And we've really been we continue to manage our spec levels, closely, as always. Our improved cycle time it's been improving a couple of days every quarter.

Phillip Creek: We continue to manage our spec levels closely, as always. Our improved cycle time, it has 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. When you look at the mid-year completed houses and inventory, it is 510. Last year was 586. We actually have less completed specs. Again, having said that, with our cycle time, we help that. 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, our more affordable price, Smart Series, we have a few more specs, but we manage our spec levels very closely.

Speaker #5: Perhaps more so in a couple of select instances. But in general, the margins are higher on to-be-builts, and it's just that the differences can vary pretty meaningfully from market to market.

Speaker #4: As that cycle time improves, that gives us the benefit of not having to have so many specs out there. When you look at the mid-year completed houses and inventory, it's 510.

Speaker #3: And we've really been we continue to manage our spec levels closely as always. Our improved cycle time it's been improving a couple of days every quarter.

Speaker #4: 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 in the on the right lots with the right product.

Speaker #3: As that cycle time improves, that gives us the benefit of not having to have so many specs out there. When you look at the mid-year completed houses and inventory, it's 510.

Speaker #4: Of course, as you do attached homes, attached townhouses, that tends to create more specs. In general, our more affordable price smart series, we have a few more specs.

Speaker #3: Last year was 586, so we actually have fewer completed specs. But again, having said that, with our cycle time, we help that. But the specs are all about trying to be in the right lots with the right product.

Speaker #4: But we manage our spec levels very closely.

Speaker #6: Thank you very much. And my second question is, Bob, it's kind of big picture. But despite all the industry headwinds, margins are higher than pre-COVID.

Kenneth Zener: Thank you very much. My second question is, Bob, it is kind of big picture. Despite all the industry headwinds, margins are higher than pre-COVID. Generally for the industry, what we are seeing so far, stable quarter-to-quarter. You guys are actually starting more homes than you have had orders. What are you worried about in the second half, you could say the industry in general, into 2027? Given that, with the rate buydown 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. What is kind of the worry that you see out there? Thank you.

Speaker #3: Of course, as you do attached homes, attached townhouses, that tends to create more specs. In general, our more affordable price, Smart Series, we have a few more specs.

Speaker #6: 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.

Speaker #3: But we manage our spec levels very closely.

Speaker #2: Thank you very much. And my second question is, Bob, it's kind of big picture, but despite all the industry headwinds, margins are higher than pre-COVID.

Speaker #6: So what are you worried about in the second half? You could say the industry in general, into '27. Given that 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.

Speaker #2: 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.

Speaker #2: So, what are you worried about in the second half? You could say the industry in general, into '27. Given that 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.

Speaker #6: So what is kind of the worry that you see out there? Thank you.

Speaker #5: Well, 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.

Bob Schottenstein: Well, first of all, we have all seen conditions that are significantly worse than now. I have said during the last several calls, 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 are above average. They are not bad. They are not really good either, but we have seen far, far worse. For M/I Homes to be generating a 10% pretax return, take that for a long time, sign us up. Same time, you have got pretty significant differences in performance across the industry within the builder group. I think when you look at the balance sheets, for the most part, the builders are in the best shape they have ever been in. We certainly are, and I think that is true of a number of our competitors.

Speaker #2: So, what is kind of the worry that you see out there? Thank you.

Speaker #5: Well, 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—if I had to grade, or if we had to grade, current housing conditions, I think they're above average.

Speaker #5: 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.

Speaker #5: Sign us up. Same time, you've got pretty significant differences in performance across the industry. Within the builder group. And 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.

Speaker #5: They're not bad. They're not really good either. But we've seen far, far worse. And for M/I Homes to be generating a 10% pre-tax return, I'll take that for a long time.

Speaker #5: 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.

Bob Schottenstein: 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 do not need to do that. Those things have an impact on business. The demand is not as robust as we would like to see it. I think it is suppressed by conditions. I think there is a massive amount of potential buyers that are waiting to join homeownership, 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. We are really bullish long term.

Speaker #5: 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 have a scratch our head and go, why?

Speaker #5: 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.

Speaker #5: You don't need to do that. Those things have an impact on business. We're all the demand is not as robust as we would like to see it.

Speaker #5: 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, we scratch our heads and go, "Why? You don't need to do that."

Speaker #5: I think it's I think it's suppressed by conditions. I think there's a massive amount of buyers that are potential buyers that are waiting to join homeownership 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.

Speaker #5: Those things have an impact on business, where all the demand is not as robust as we would like to see it. I think it's suppressed by conditions.

Speaker #5: I think there's a massive amount of potential buyers that are waiting to join home ownership, but are held back by the current rate environment, uncertainty in the economy, lack of confidence, affordability— all the stuff that everyone constantly talks about.

Speaker #5: 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.

Bob Schottenstein: I think right now, the buyer pool is relatively constrained, and we're all fighting for those that are out there. What each of us do can impact the others. We try to focus on what we think is best for our business. Look, I think there's just a lot of uncertainty. I think we're well-positioned to deal with it. I'm not afraid of anything, and I don't want to sound arrogant, because that's not good. At the beginning of this year, I think most people thought rates might come down through the year. Wrong, so far. At the beginning of this year, no one anticipated the conflict in Iran. It looks like it's going to be with us for a while. The impact that's had on oil prices and consumer sentiment, none of that was foreseeable at the beginning of the year.

Speaker #5: So what each of us do can impact the others. We try to focus on what we think is best for our business. Look, at the I think there's just a lot of uncertainty.

Speaker #5: 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.

Speaker #5: 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 might come down through the year.

Speaker #5: So, what each of us does can impact the others. We try to focus on what we think is best for our business. Look, I think there’s just a lot of uncertainty.

Speaker #5: 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.

Speaker #5: 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 could have can imagine right now.

Speaker #5: 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.

Bob Schottenstein: Between now and the end of the year, things will happen that none of us can imagine right now. 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 2- or 3-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.

Speaker #5: We need to make sure of is that we have a very strong balance sheet. We don't that our debt levels remain low. That we focus on the best possible communities that we can buy.

Speaker #5: 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 could imagine right now.

Speaker #5: 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 our as I said, our land position.

Speaker #5: What we need to make sure of is that we have a very strong balance sheet, that our debt levels remain low, and that we focus on the best possible communities that we can buy.

Speaker #5: 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.

Speaker #5: We 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 our, as I said, our land position.

Speaker #5: Because that's what's gotten us here. We've been in business since 1976. And so I love our position. As I said, we're going to have a really good year.

Speaker #5: Love the new communities we're opening this year — those we already have and those that are coming online. We focus on quality, and we focus on the fundamentals of the business.

Speaker #5: And the vast majority of our markets we 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.

Bob Schottenstein: We 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. 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. 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.

Speaker #5: Because that's what has gotten us here. We've been in business since 1976, and so I love our position. As I said, we're going to have a really good year.

Speaker #5: 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.

Speaker #5: In the vast majority of our markets, we've got a few places that are struggling right now. I think it's due more to the macro conditions than unforced errors by us.

Speaker #5: 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.

Speaker #5: Namely, Tampa and, to some extent, Sarasota. Certainly, Austin is still crawling its way back. It was red hot for a while, but it's getting a little better.

Speaker #5: 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.

Speaker #5: 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.

Speaker #5: And the only thing you can do to ready yourself for that is to keep your balance sheet strong.

Speaker #6: Understood. Much appreciated. Thank you.

Speaker #5: 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.

Kenneth Zener: Understood. Much appreciated. Thank you.

Speaker #5: Thanks.

Bob Schottenstein: Thanks.

Speaker #7: And your next question comes from Buckhorn with Raymond James, your line is open.

Operator: Your next question comes from Buck Horne with Raymond James. Your line is open.

Speaker #5: And the only thing you can do to ready yourself for that is to keep your balance sheet strong.

Speaker #8: Hey, thanks. Good morning, guys. And congrats on the great quarter. Appreciate all the color 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.

Buck Horne: Hey, thanks. Good morning, guys. Congrats on the great quarter. Appreciate all the color 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 H2, 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?

Speaker #2: Understood. Much appreciated. Thank you.

Speaker #5: Thanks.

Speaker #3: And your next question comes from Buck Horn with Raymond James. Your line is open.

Speaker #8: And 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?

Speaker #4: Hey. Thanks. Good morning, guys. And congrats on the great quarter. Appreciate all the color 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.

Speaker #8: And really just kind of what level of incentives did you have to deploy in the quarter to get such strong order results?

Speaker #4: And 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?

Speaker #5: You know, Buck, the backlog margin really is pretty consistent. The last few quarters, but almost half of our houses specs are getting sold and closed in the quarter.

Phillip Creek: Buck, the backlog margin really is pretty consistent the last few quarters. Almost half of our houses, specs are getting sold and closed in the quarter. I'm sure you can guess that the specs, in general, tend to have a lower average sale price than the to-be builds or backlog houses and so forth. Also, the margins tend to be a little bit lower. There are pressures. I talked about our land costs, finished lots being up 8% versus a year ago. With mortgage rates up a little bit, that puts pressure on that buydown amount. Most builders are still 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.

Speaker #4: And really, just kind of what level of incentives did you have to deploy in the quarter to get such strong order results?

Speaker #5: And I'm sure you can guess that the specs in general tend to have price than the to-be-billed backlog houses, and so forth. And also the margins tend to be a little bit lower.

Speaker #5: You know, Buck, the backlog margin really is pretty consistent. The last few quarters, but almost half of our houses specs are getting sold and closed in the quarter.

Speaker #5: 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.

Speaker #5: And I'm sure you can guess that the specs in general tend to have a lower average sale price than the two be bills backlog houses, so forth.

Speaker #5: 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, we expect to open more new stores in the second half that we did the first half.

Speaker #5: And also the margins tend to be a little bit lower. There are pressures. I talked about our land costs, finished lots being up 8% versus a year ago.

Speaker #5: 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.

Phillip Creek: We expect to open more new stores in H2 than we did H1, and a number of those that we open in Q3 will also generate closings for us this year. We don't give gross margin estimates. 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, our community count is flat at 630 versus a year ago. We do expect that to increase in H2. Right now, we do have about 3% more people. Again, 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.

Speaker #5: And a number of those that we opened in the third quarter will also generate closings for us this year. But we don't give gross margin estimates.

Speaker #5: Trying to offset that by the quality of our new communities and product that Bob mentioned, we expect to open more new stores in the second half than we did in the first half.

Speaker #5: That's just a very but 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, our community count is flat at 630 versus a year ago.

Speaker #5: And a number of those that we opened in the third quarter will also generate closings for us this year. But we don't give gross margin estimates.

Speaker #5: We do expect that to increase in the second half. Right now, we do have about 3% more people. So again, we'll try to manage those costs and expenses as best we can.

Speaker #5: And try to make sure we get all we can get at the margin line.

Speaker #8: Got it. Got it. Helpful color. 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.

Speaker #5: We do expect that to increase in the second half. Right now, we do have about 3% more people. So again, we'll try to manage those costs and expenses as best we can.

Buck Horne: Got it. Helpful color. Appreciate that, Phil. Just on the land and the lots under contract, going back to highlighting that you've increased the number of lots under contract in the North by a pretty considerable percentage, I think 24%, then looks like you're letting some of those options burn off in the South a little bit here. 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 in the land market? How would you characterize the strategy and the repositioning of the lots?

Speaker #5: And try to make sure we get all we can get at the margin line.

Speaker #8: I think 24%. And then 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 of is something changing in the lot availability and then the land market?

Speaker #4: Got it, got it. Helpful color, appreciate that, Phil. And just on the land and the lots under contract—just going back to highlighting that you've increased the number of lots under contract in the North by a pretty considerable percentage.

Speaker #8: How would you characterize the strategy and the repositioning of the lots?

Speaker #4: I think 24%. And then 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?

Speaker #5: Nothing's really changed, Buck. 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.

Phillip Creek: Nothing's really changed, Buck. 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 or 5. Again, nothing real significant. 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. 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.

Speaker #5: 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.

Speaker #4: How would you characterize the strategy and the repositioning of the lots?

Speaker #5: Nothing's really changed, Buck. 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.

Speaker #5: 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.

Speaker #5: 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.

Speaker #5: So we feel really good about what we own. As far as off the books, in total control, we control right now about 49,000. If you look a year ago, it was a little over 50,000.

Speaker #5: Really nothing significant. Things go in and out there. We talked about our inventory charges. You know of about 4 million dollars, less than a million of that was deposits and prepaid expenses.

Speaker #5: So we feel really good about what we own. As far as off the books, in total control, we control right now about 49,000. If you look a year ago, it was a little over 50,000.

Phillip Creek: We talked about our inventory charges of about $4 million. Less than $1 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. Those numbers move around a little bit. Overall, owning two to three years and controlling four to five years, that really hasn't changed. It's just those numbers move around a little bit.

Speaker #5: We were at 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.

Speaker #5: 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.

Speaker #5: We were at 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.

Speaker #5: It's just those numbers 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.

Bob Schottenstein: 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.

Speaker #5: 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.

Speaker #5: Even with all the puts and takes.

Speaker #5: It's just that those numbers move around a little bit.

Speaker #4: 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.

Speaker #8: Yeah. Yeah, got it. But are you trying to rebalance it to more 50/50 going forward? I mean, just the trend seems to be that you're.

Buck Horne: Yeah. Got it. Are you trying to rebalance it to more 50-50 going forward? I mean.

Speaker #5: It's not a top-down. We don't manage it that way. No. We manage it all starts within the individual markets. What is the opportunity for Dallas?

Bob Schottenstein: No, not necessarily.

Buck Horne: if you're-

Bob Schottenstein: It's not a top-down.

Buck Horne: Okay.

Bob Schottenstein: We don't manage it that way.

Speaker #4: Even with all the puts and takes.

Phillip Creek: No.

Bob Schottenstein: It all starts within the individual markets. What is the opportunity for Dallas? Dallas is currently, 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? 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. They won't be for long. When we look at where we are, 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.

Speaker #2: Yeah. Yeah. Got it. But are you trying to rebalance it to more 50/50 going forward? I mean, just the trend seems to be that you're.

Speaker #5: Dallas is currently 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?

Speaker #5: It's not a top-down. We don't manage it that way. We manage it all starts within the individual markets. What is the opportunity for Dallas?

Speaker #5: 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.

Speaker #5: Dallas’s 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?

Speaker #5: Right now, both of those 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.

Speaker #5: But when we look at where we are, we've got growth goals some more robust than others in every one of our markets. That's not driven by region.

Speaker #5: Right now, both of those—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.

Speaker #5: That's driven by market.

Speaker #6: And also, just back on land position a little bit, Buck. I mean, as you probably know, we develop about 85% of our own land.

Phillip Creek: Also, just touching 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. 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. We're seeing a few more of those opportunities that make sense. Again, we'll take advantage of that because it's a shorter time to get those lots on the books and get communities open. We're really happy with where our land position is.

Speaker #5: But when we look at where we are, we've got growth goals some more robust than others in every one of our markets. That's not driven by region.

Speaker #6: 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.

Speaker #5: That's driven by market.

Speaker #3: And also, just back on land position a little bit, Buck. I mean, as you probably know, we develop about 85% of our own land.

Speaker #6: 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.

Speaker #3: Now, we don't take title to land unless it's zoned for our use and utilities are to the site. But again, we develop a large portion.

Speaker #6: So we're seeing a few more of those opportunities that make sense and again, we'll take advantage of that because it's shorter time to get those lots on the books and get communities open.

Speaker #3: Having said that, we are now seeing in most of our markets some better opportunities at finished lots. Some are coming from sellers, and some are coming from other builders.

Speaker #6: But we're really happy with where our land position is.

Speaker #3: 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 shorter time to get those lots on the books and get communities open.

Speaker #8: Sounds good, guys. Congrats again. Appreciate the color.

Buck Horne: Sounds good, guys. Congrats again. Appreciate the color.

Speaker #5: Thanks.

Bob Schottenstein: Thanks.

Speaker #1: And your next question comes from Jay McCandless with Citizens Bank. Your line is open.

Operator: Your next question comes from Jay McCanless with Citizens Bank. Your line is open.

Speaker #3: But we're really happy with where our land position is.

Speaker #7: 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?

Jay McCanless: Hey, good morning, everyone. Thanks for taking my questions. 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 entry-level?

Speaker #4: Sounds good, guys. Congrats again. Appreciate the color.

Speaker #5: Thanks.

Speaker #1: And your next question comes from Jay McCandless with Citizens Bank. Your line is open.

Speaker #7: 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?

Speaker #6: Hey. Good morning, everyone. Thanks for taking my questions. 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?

Speaker #5: 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.

Bob Schottenstein: First of all, not every move-up deal looks more attractive.

Jay McCanless: Okay.

Bob Schottenstein: The ones that are being presented to us by our divisions, some just are penciling better. Is it a massive trend? I wouldn't 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 factors. What do you think the sales pace is going to be? Based on what? What's happening in that 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? Apologies for the cliché, but that's the art of the deal. A lot more art than science goes into that. Yes, you can look at comps. You can see what other builders are doing.

Speaker #6: 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?

Speaker #5: 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.

Speaker #5: 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.

Speaker #5: What do you think the sales pace is going to be? Based on what? What's happening in that submarket right now? Why do you think you can sell three or two or five a month, whatever it might be?

Speaker #5: 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.

Speaker #5: At what price and at what margins? Those that is the apologies for the cliché, but that's the art of the deal. That's more a lot more art than science goes into that.

Speaker #5: 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 when you're doing that underwriting, you're at least six months, if not more, away from when you're going to open.

Speaker #5: At what price and at what margins? Those that is the apologies for the cliché, but that's the art of the deal. That's a lot more art than science goes into that.

Bob Schottenstein: At the end of the day, the long lead times associated with most transactions, when you're doing that underwriting, you're at least 6 months, if not more, away from when you're going to open. 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. 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.

Speaker #5: And what are rates going to be? What's this going to be? What's that going to be? What's the price of oil? I don't need to get into all that.

Speaker #5: 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—when you're doing that underwriting, you're at least six months, if not more, away from when you're going to open.

Speaker #5: 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.

Speaker #5: And what are rates going to be? What's this going to be? What's that going to be? What's the price of oil? I don't need to get into all that.

Speaker #5: 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.

Speaker #5: 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.

Speaker #5: 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 both take the whole thing.

Speaker #5: 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.

Bob Schottenstein: 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. 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. The other thing I'll say is this, and 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, we'll often squint pretty hard before we'll walk away from that. I mean, I've often said I'd rather overpay for an A location than to try to steal a B, because the A locations are the ones that really produce the results regardless, oftentimes, of the macroeconomy.

Speaker #5: 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.

Speaker #5: And the other thing I'll say is this. We've said this a few times, I think, on these calls. Sometime you're wrong when you think you have an A-location tied up.

Speaker #5: So, I mean, all those factors go into the analysis. Or you might take a slightly lower return because of the size of the deal or the location.

Speaker #5: But if you really believe it's an A, we'll often squint pretty hard before we'll walk away from that. I mean, I've often said I'd rather overpay for an A-location than to try to steal a B.

Speaker #5: And 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.

Speaker #5: Because the A-locations are the ones that really produce the results regardless, oftentimes, of the macroeconomy.

Speaker #5: But if you really believe it's an A, we'll often squint pretty hard before we'll walk away from that. I mean, I've often said I'd rather overpay for an A location than try to steal a B.

Speaker #7: So the second question then from 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?

Jay McCanless: Excuse me. No problem. Second question I had, when you look at the mortgage rate buydowns, I guess, where are you buying on average down to right now, and what's the rate you seem to get buyers in the-

Speaker #5: Because the A-locations are the ones that really produce the results regardless, oftentimes, of the macroeconomy.

Speaker #7: And what's the rate you seem to get buyers moving?

Speaker #5: 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.

Bob Schottenstein: First of all, our mortgage company, 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. This is the second or third or fourth quarter in a row we've been north of 90%. A great mortgage operation, they're very focused on every day what's happening in the market and how to think about rate buydowns. Could not be more pleased with the execution of our mortgage company. Important part of our business. Right now, our government program for specs, slightly below 5, 4.78, 30-year fixed. Our longer-term rate lock, as well as the spec rate for conventional, is slightly above 5.

Speaker #6: So the second quick no problem. 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?

Speaker #5: 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%.

Speaker #6: And what's the rate you’re seeing to get buyers moving?

Speaker #5: 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.

Speaker #5: 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.

Speaker #5: 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%.

Speaker #5: Important part of our business. Right now, our government program for specs slightly below 5, 4, and 7, 8, 30-year fixed. And our longer-term rate lock as well as the spec rate for conventional is slightly above 5.

Speaker #5: Great mortgage operation, and they're very focused every day on 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.

Speaker #5: This is an important part of our business. Right now, our government program for specs is slightly below 5% for 4-, 7-, and 8-, 30-year fixed. Our longer-term rate lock, as well as the spec rate for conventional, is slightly above 5%.

Speaker #6: 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 cost help, those type things.

Phillip Creek: 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 cost help, those type things. A few customers do like arms. 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.

Speaker #6: 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.

Speaker #3: I also want to add something there, Jay. Again, the incentives you need oftentimes are different in every subdivision, based on the buyers. When you get into some of our more affordable-priced communities, they tend to need closing cost help, those types of things.

Speaker #6: 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.

Speaker #3: A few customers do like ARMs, so we offer a wide variety of programs. We try not just to use a shotgun approach where everybody gets the same thing.

Speaker #7: 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?

Jay McCanless: Okay, that's great. 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.

Speaker #3: Our mortgage company is able, with their loan officers and our processors, to target individual programs for our customers. We think that's been very helpful to us.

Speaker #7: Any insight or color you guys have on that would be great.

Speaker #6: 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?

Speaker #5: No. 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.

Bob Schottenstein: There's a lot going on. 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. The ink's still wet on some of those deals. It'll remain to be seen. So far, I don't know, Phil, if you or Derek have any different view. I don't think we've seen much.

Speaker #6: Any insight or color you guys have on that would be great.

Speaker #5: I will say this. So far, I don't think we've seen too much impact. But it's also only in the first or second inning of the ink's still wet on some of those deals.

Speaker #5: No. 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.

Speaker #5: So it'll remain to be seen. So far, I don't know, Phil, you or Derek have any different view. I don't think we've seen much.

Speaker #5: I will say this. So far, I don't think we've seen too much impact. But it's also only in the first or second inning of the ink's still wet on some of those deals.

Speaker #5: And as well as on the supplier side, we've got we think excellent long-term relationships, national accounts, if you will, with some of the biggest suppliers and companies in the industry.

Phillip Creek: No.

Bob Schottenstein: As well as on the supplier side, we've got, we think, excellent long-term relationships, national accounts, if you will, with some of the biggest suppliers and companies in the industry, and so far, we haven't seen much impact there as well.

Speaker #5: So it'll remain to be seen. So far, and I don't know, Phil, you or Derek have any different view. I don't think we've seen much.

Speaker #5: And so far, we haven't seen much impact there as well.

Speaker #6: Yeah. Other things, Jay, I mean, data center buyers. We're paying significantly for certain land. I mean, is that starting to impact the land market?

Phillip Creek: There's things, Jay, data center buyers overpaying significantly for certain land. Is that starting to impact the land market here and there? Data center people hiring a lot of subs and suppliers to do work for them, pressures on concrete and energy because of that. There's a lot of things going on. Again, we think we're pretty positioned with our staffs and our focus, and just deal with those things as best you can.

Speaker #6: Here and there. Data center people, hiring a lot of substance suppliers to do work for them, freshers on concrete. Energy because of that. There's a lot of things going on.

Speaker #5: And so far, we haven't seen much impact there as well.

Speaker #3: Yeah, there are things, Jay. I mean, data center buyers are overpaying significantly for certain land. I mean, does that start to impact the land market? Here and there.

Speaker #6: But again, we think we're pretty positioned with our staffs and our focus. You just deal with those things as best you can.

Speaker #3: Data center people, hiring a lot of substance suppliers to do work for them, freshers on concrete. Energy because of that. There's a lot of things going we're pretty positioned with our staffs and our focus.

Speaker #7: Right. 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.

Jay McCanless: Right. 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? If we think about the openings that y'all have for the rest of the year, are y'all trying to target that same type of balanced growth for what we're going to see in the back H2 of 2026?

Speaker #7: 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?

Speaker #3: You just deal with those things as best you can.

Speaker #6: Right, 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.

Speaker #5: We hope so. But we'll know when we know. Frankly, I was very pleased to see first six months is up 8%. Obviously, the second quarter was up more than the first.

Bob Schottenstein: We hope so, we'll know when we know. Frankly, I was very pleased to see first H1 is up 8%. Obviously, the Q2 was up more than the Q1. A little bit of volatility month to month, as Phil outlined. We think we've got good communities, that's the primary driver for that. Everybody's buying rates down, not everybody's business is up. You're always trying to balance, sick of the term, pace and price, I guess. We are. We're in the summer right now. Seasonally, it's a little bit less robust time. Excited to move into the fall when, at least historically, business tends to pick up a little bit. We feel very good about our sales, we'll see how the year shakes out.

Speaker #6: 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?

Speaker #5: We hope so, but we'll know when we know. Frankly, I was very pleased to see the first six months are up 8%. Obviously, the second quarter was up more than the first.

Speaker #5: A little bit of volatility month to month is, 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.

Speaker #5: And you're always trying to balance sick of the term pace and price, I guess. But we are. And we're in the summer right now.

Speaker #5: 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.

Speaker #5: It's a seasonally, it's a little bit less robust time, excited to move into the fall when at least historically, business tends to pick up a little bit.

Speaker #5: And you're always trying to balance—I'm sick of the term—pace and price, I guess. But we are, and we're in the summer right now.

Speaker #5: But we feel very good about our sales. And we'll see how the year shakes out.

Speaker #7: Okay. Great. Thanks for taking my questions.

Speaker #5: It's a seasonally, it's a little bit less robust time, excited to move into the fall when at least historically, business tends to pick up a little bit.

Jay McCanless: Okay, great. Thanks for taking my questions.

Speaker #5: Thank you.

Speaker #6: Thanks, Jay.

Bob Schottenstein: Thank you.

Phillip Creek: Thanks, Jay.

Speaker #2: And your last question comes from Alex Baron with Housing Research Center. Your line is open.

Operator: Your last question comes from Alex Barron with Housing Research Center. Your line is open.

Speaker #5: But we feel very good about our sales. And we'll see how the year shakes out.

Speaker #8: Yes. Thank you, gentlemen. Good morning. I wanted to ask about the jump in the G&A I guess sequentially and year-over-year what drove that? Was that just more community openings?

Alex Barron: Yes. Thank you, gentlemen. Good morning.

Bob Schottenstein: Hey.

Alex Barron: I wanted to ask about the jump in the G&A, I guess, sequentially and year over year. What drove that? Was that just more community openings?

Speaker #6: Okay. Great. Thanks for taking my questions.

Speaker #5: Thank you.

Speaker #3: Thanks, Jay.

Speaker #2: And your last question comes from Alex Barron with Housing Research Center. Your line is open.

Speaker #6: You're talking SG&A expenses?

Speaker #7: Yes. Thank you, gentlemen. Good morning. I wanted to ask about the jump in the G&A I guess sequentially and year-over-year what drove that? Was that just more community openings?

Phillip Creek: You're talking SG&A expenses?

Speaker #8: Yeah, the corporate G&A.

Alex Barron: Yeah, the corporate G&A.

Speaker #5: 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 types of things.

Phillip Creek: 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. 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. Stay on that as top as we can as all time, like we always have.

Speaker #3: You're talking SG&A expenses?

Speaker #7: Yeah, the corporate G&A.

Speaker #5: We are opening more stores, and that generates some additional expenses. We do have 3% more people than a year ago. We are also spending more dollars in the sales area as far as promoting and advertising and lead getting, and all those type things.

Speaker #5: So that's where those cost increases are coming from. We felt pretty good. They're only up 3%. Of course, we're driving it down. That drives the percentage up.

Speaker #5: But we stay on that as top as we can as all-time like we always have.

Speaker #8: 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 cost or just a change in the product or a mix of everything?

Alex Barron: Okay. I apologize if you mentioned it, maybe. On the gross margin improvement this Q2, was that mainly a reduction of incentives or lowering your costs or just a change in the product, or a mix of everything?

Speaker #5: So that's where those cost increases are coming from. We felt pretty good. They're only up 3%. Of course, our revenue down. That drives the percentage up.

Speaker #5: But we stay on that as top as we can, as all-time, like we always have.

Speaker #5: It's a combination of things. As Bob said, we've been very pleased with it performance of the communities we've opened the first half of this year.

Phillip Creek: It's a combination of things. As Bob said, we've been very pleased with the performance of the communities we've opened the H1 of this year. We did open 49 new stores. Some of those communities we opened in the Q1 gave us some closings in the Q2. We did have sticks and bricks down a little bit. Of course, we had lot costs up. You try to always price to market, wherever you have pricing power, which we do have in a few communities, we do that. It's a combination of things. As far as rate buy-down cost, as a company, we did spend more buying down rates in the Q2 than we did the Q1. Again, right now with mortgage rates up to 7, again, that drives some of those costs up.

Speaker #7: Okay, and I apologize if you mentioned that already, but on the gross margin improvement this quarter, was that mainly a reduction of incentives, a lowering of your costs, or just a change in the product, or a mix of everything?

Speaker #5: And we did open 49 new stores and some of those communities. We opened in the first quarter gave us some closings in the second.

Speaker #5: We did have sticks and bricks down a little bit. And of course, we had lot cost 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.

Speaker #5: It's a combination of things. As Bob said, we've been very pleased with our performance of the communities we've opened the first half of this year.

Speaker #5: And we did open 49 new stores and some of those communities. We opened in the first quarter. Gave us some closings in the second.

Speaker #5: So it's a combination of things as far as rate buy-down cost. As a company, we did spend more buying down rates in the second quarter than we did the first quarter.

Speaker #5: We did have sticks and bricks down a little bit. And of course, we had a lot cost 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.

Speaker #5: And again, right now with mortgage rates up to 7, again, that drives some of those costs up. But there's a lot of moving parts that grow into the that go into that gross profit number.

Speaker #5: So it's a combination of things. As far as rate buy-down cost, as a company, we did spend more buying down rates in the second quarter than we did the first quarter.

Phillip Creek: There's a lot of moving parts that go into that gross profit number. We're really pleased with what we were able to accomplish in the Q2.

Speaker #5: But we're really pleased with what we were able to accomplish in the second quarter.

Speaker #8: Okay. Got it. Thank you, guys.

Alex Barron: Okay, got it. Thank you, guys.

Speaker #5: And again, right now with mortgage rates up to 7%, again, that drives some of those costs up. But there are a lot of moving parts that go into that gross profit number.

Speaker #5: Thanks.

Speaker #2: And concludes your question and answer session. I will now turn the conference back to Mr. Phil Creek for closing remarks.

Phillip Creek: Thanks.

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

Speaker #5: Thank you. Joining us. See you next quarter.

Speaker #5: But we're really pleased with what we were able to accomplish in the second quarter.

Phillip Creek: Thank you for joining us. See you next quarter.

Operator: Thank you. This concludes today's conference call.

Speaker #7: Okay, got it. Thank you, guys.

Speaker #5: Thanks.

Speaker #2: And that concludes our question and answer session. I will now turn the conference back to Mr. Phil Creek for closing remarks.

Speaker #5: Thank you. Joining us. See you next quarter.

Operator: Thank you for standing by. My name is Frilla, and I will be your conference operator today. At this time, I would like to welcome everyone to the M/I Homes Second Quarter Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, please press star one again. Thank you. I would now like to turn the conference over to Phillip Creek. You may begin.

Phil Creek: 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 non-public items with you directly. 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.

Phillip Creek: 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 non-public items with you directly. 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.

Bob Schottenstein: We were pleased to generate a 10% return on equity for Q2. Contributing to our solid returns was a Q2 gross margin of 22%, which includes $4 million of inventory charges. Notably excluding those charges, our Q2 gross margins would have approached 22.5%, which is slightly better than our Q1 gross margins. We closed 2,206 homes in the quarter, down 6% compared to a year ago. For H1, 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 Q2 record new contracts resulted in a monthly sales pace average of three point four homes per community, compared to a pace of three 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%.

Bob Schottenstein: Our mortgage company had a terrific and very strong Q2, 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, Fort Myers, and 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.

Bob Schottenstein: 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 M/I Homes is well-positioned to have a solid 2026. With that, I'll turn it over to Phil.

Phil Creek: Thanks, Bob. As far as the financial results, we had record Q2 new contracts up 15% compared to last year. Our sales were up 13% in April, up 23% in May, and up 9% in June. Our cancellation rate for the Q2 was 8%. 50% of our Q2 sales were to first-time buyers and 78% were inventory homes. Our community count was 234 at the end of the Q2, 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 2,206 homes in the Q2, and about 42% of these deliveries came from inventory homes that were both sold and delivered within the quarter.

Phillip Creek: Thanks, Bob. As far as the financial results, we had record Q2 new contracts up 15% compared to last year. Our sales were up 13% in April, up 23% in May, and up 9% in June. Our cancellation rate for the Q2 was 8%. 50% of our Q2 sales were to first-time buyers and 78% were inventory homes. Our community count was 234 at the end of the Q2, 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 2,206 homes in the Q2, and about 42% of these deliveries came from inventory homes that were both sold and delivered within the quarter.

Phil Creek: At 30 June, we had 5,100 homes in the field, flat versus a year ago. Revenue decreased 9% in the Q2. We delivered fewer homes than a year ago, and our average sale price declined. Our Q2 results included $5 million of land sales profit versus $3 million in last year's Q2. 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 Q1, and our cycle time improved also by a couple of days. Our Q2 SG&A expenses were 12.6% of revenue, compared to 11.3% a year ago. Our Q2 expenses increased 3% versus a year ago.

Phillip Creek: At 30 June, we had 5,100 homes in the field, flat versus a year ago. Revenue decreased 9% in the Q2. We delivered fewer homes than a year ago, and our average sale price declined. Our Q2 results included $5 million of land sales profit versus $3 million in last year's Q2. 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 Q1, and our cycle time improved also by a couple of days. Our Q2 SG&A expenses were 12.6% of revenue, compared to 11.3% a year ago. Our Q2 expenses increased 3% versus a year ago.

Phil Creek: 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 Q2, 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 Q2, 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 $3.02 per share from $4.42 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.

Phillip Creek: 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 Q2, 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 Q2, 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 $3.02 per share from $4.42 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.

Derek Klutch: Thanks, Phil. Our mortgage and title operations achieved pre-tax income of $14.4 million, in line with $14.5 million in 2025's Q2. Revenue increased 3% from last year to $32.3 million due to a higher average loan amount and slightly higher margins on loans sold, offset by a decrease in loans originated. The average loan to value on our first mortgages for the Q2 was 85%, compared to 83% in 2025's Q2. 65% of the loans closed in the quarter were conventional and 35% FHA or VA, compared to 51% and 49% respectively for 2025's Q2. Our average mortgage amount increased to $405,000 in 2026's Q2 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%.

Derek Klutch: Finally, our mortgage operation captured 96% of our business in the Q2, up from 92% last year. Now I'll turn the call back over to Phil.

Phil Creek: 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 30 June is $1.9 billion, compared to $1.7 billion a year ago. At 30 June, we had $800 million of raw land and land 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.

Phillip Creek: 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 30 June is $1.9 billion, compared to $1.7 billion a year ago. At 30 June, we had $800 million of raw land and land 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.

Phil Creek: Of the total inventory, 1,125 are in the Northern region and 1,714 are in the Southern region. At 30 June 2025, we had 586 completed inventory homes and 2,726 total inventory homes. We spent $50 million in the Q2 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.

Phillip Creek: Of the total inventory, 1,125 are in the Northern region and 1,714 are in the Southern region. At 30 June 2025, we had 586 completed inventory homes and 2,726 total inventory homes. We spent $50 million in the Q2 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.

Alan Ratner: Hey, guys. Good morning. really strong results-

Phil Creek: Morning, Alan

Phillip Creek: Morning, Alan

Alan Ratner: in a tough market. Hey, Bob. I was intrigued by the comment you made about the maybe the somewhat modest mix 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? I have a follow on from that.

Alan Ratner: Yeah. No, that was great. Appreciate the added thoughts there. I'm guessing this might be related, but what I wanted to pivot to next was the gross margin, which, good to see some sequential improvement there. I was hoping you can kind of drill into the drivers of that. You mentioned costs being down a little bit quarter over quarter.

Bob Schottenstein: Yeah.

Alan Ratner: Is there any mixed impact from move-up as well in that?

Bob Schottenstein: Maybe slightly.

Alan Ratner: Okay

Bob Schottenstein: I think our cost, I know a couple builders mentioned they had a 5% improvement in cost. We didn't see that much. When we say improvement in cost, it's not apples and bananas, it's apples to apples. We haven't de-specced or changed any of the fit or finish. We probably got 1%, 2%, 3% improvement depending upon the market. That's helped a little bit. There's a lot of uncertainty still, and we were pleased to see margins slightly improve or at least not get any worse. Look, let me say it this way. If it weren't for mortgage rate buydowns 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. Having said that, I want to emphasize something that I said.

Bob Schottenstein: 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. The 22% is an average. We've got 234 communities. A very meaningful number of the communities are well north of 22, 23, 24%. 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've expected. Look, you never know whether a community is going to perform as good as you hope it will.

Bob Schottenstein: 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.

Phil Creek: Alan, just add a couple of things. This is Phil. We opened 49 new stores the H1. 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. It is kind of focused a little more on the high price point. As far as margins and cost pressure and those type things, our finished lot cost compared to a year ago is up about 8%. 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.

Phillip Creek: Alan, just add a couple of things. This is Phil. We opened 49 new stores the H1. 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. It is kind of focused a little more on the high price point. As far as margins and cost pressure and those type things, our finished lot cost compared to a year ago is up about 8%. 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.

Phil Creek: There are pressures on the cost of those buydowns and so forth. Again, it's kind of a subdivision by subdivision business, and that's what we'll continue focusing on.

Phillip Creek: There are pressures on the cost of those buydowns and so forth. Again, it's kind of a subdivision by subdivision business, and that's what we'll continue focusing on.

Alan Ratner: Thank you so much for that added detail, Phil. Good to hear your voice as well, and thank you very much.

Bob Schottenstein: Thanks, Adam.

Operator: Your next question comes from Kenneth Zener with Seaport Research. Your line is open.

Kenneth Zener: Good morning, everybody.

Bob Schottenstein: Morning.

Bob Schottenstein: Well, what we gave you was that from a sales standpoint in Q2, 78% were specs. As far as deliveries in Q2, 42% of the deliveries were sold and closed in the quarter.

Kenneth Zener: And-

Bob Schottenstein: 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 to-be-builts are better. In some, just slightly. In others, it could be 100 or 200 basis points, perhaps more in a couple of select instances. In general, the margins are higher on to-be-builts. It's just the differences can vary pretty meaningfully between market to market.

Kenneth Zener: We continue to manage our spec levels closely, as always. Our improved cycle time, 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. When you look at the mid-year completed houses and inventory, it's 510. Last year was 586. We actually have less completed specs. Again, having said that, with our cycle time, we help that. 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, our more affordable price, Smart Series, we have a few more specs, but we manage our spec levels very closely. Thank you very much.

Phillip Creek: We continue to manage our spec levels closely, as always. Our improved cycle time, 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. When you look at the mid-year completed houses and inventory, it's 510. Last year was 586. We actually have less completed specs. Again, having said that, with our cycle time, we help that. 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, our more affordable price, Smart Series, we have a few more specs, but we manage our spec levels very closely.

Kenneth Zener: Thank you very much.

Kenneth Zener: My second question is, Bob, it's kind of big picture. Despite all the industry headwinds, margins are higher than pre-COVID. Generally for the industry, what we're seeing so far, stable quarter-to-quarter. You guys are actually starting more homes than you've had orders. What are you worried about in the second half? You could say the industry in general, into 2027. Given that, with the rate buydown benefits you highlighted, it seems that you are somewhat insulated from any near-term moves in the tenure, given that you can just buy down. What is kind of the worry that you see out there? Thank you.

Bob Schottenstein: Well, 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. For M/I 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. 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, I think that's true of a number of our competitors.

Bob Schottenstein: 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. 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 buyers that are potential buyers that are waiting to join homeownership, 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. We're really bullish long term.

Bob Schottenstein: I think right now the buyer pool is relatively constrained, and we're all fighting for those that are out there. What each of us do can impact the others. We try to focus on what we think is best for our business. Look, I think there's just a lot of uncertainty. I think we're well-positioned to deal with it. I'm not afraid of anything, and I don't want to sound arrogant because that's not good. At the beginning of this year, I think most people thought rates might come down through the year. Wrong, so far. At the beginning of this year, no one anticipated the conflict in Iran. It looks like it's going to be with us for a while. The impact that's had on oil prices and consumer sentiment, none of that was foreseeable at the beginning of the year.

Bob Schottenstein: Between now and the end of the year, things will happen that none of us can imagine right now. 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 2 or 3-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. 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.

Bob Schottenstein: We've got a few places that are struggling right now, 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. 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. 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.

Kenneth Zener: Understood. Much appreciated. Thank you.

Bob Schottenstein: Thanks.

Operator: Your next question comes from Buck Horne with Raymond James. Your line is open.

Buck Horne: Hey, thanks. Good morning, guys, congrats on the great quarter. Appreciate all the color 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 H2 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?

Bob Schottenstein: Buck, the backlog margin really is pretty consistent the last few quarters. Almost half of our houses specs are getting sold and closed in the quarter. I'm sure you can guess that the specs in general tend to have a lower average sale price than the to-be builds, backlog houses, and so forth. Also the margins tend to be a little bit lower. There are pressures. I talked about our land costs, finished lots being up 8% versus a year ago. With mortgage rates up a little bit, that puts pressure on that buydown amount. Most builders are still 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.

Phillip Creek: Buck, the backlog margin really is pretty consistent the last few quarters. Almost half of our houses specs are getting sold and closed in the quarter. I'm sure you can guess that the specs in general tend to have a lower average sale price than the to-be builds, backlog houses, and so forth. Also the margins tend to be a little bit lower. There are pressures. I talked about our land costs, finished lots being up 8% versus a year ago. With mortgage rates up a little bit, that puts pressure on that buydown amount. Most builders are still 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.

Bob Schottenstein: We expect to open more new stores in the H2 than we did the H1, and a number of those that we open in the Q3 will also generate closings for us this year. We don't give gross margin estimates. 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, our community count is flat at 630 versus a year ago. We do expect that to increase in the H2. Right now, we do have about 3% more people. Again, 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.

Phillip Creek: We expect to open more new stores in the H2 than we did the H1, and a number of those that we open in the Q3 will also generate closings for us this year. We don't give gross margin estimates. 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, our community count is flat at 630 versus a year ago. We do expect that to increase in the H2. Right now, we do have about 3% more people. Again, 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.

Buck Horne: Got it. Helpful color. Appreciate that, Phil. Just on the land and the lots under contract, just going back to highlighting that you've increased the number of lots under contract in the north by a pretty considerable percentage, I think 24%. Then looks like you're letting some of those options burn off in the south a little bit here. 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 in the land market? How would you characterize the strategy and the repositioning of the lots?

Bob Schottenstein: Nothing's really changed, Buck. We focus first and foremost on what we own. We want to own a 2 to 3-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 or 25. Again, nothing real significant. Inside that 23,000 or so lots, we like to own a 1-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.

Phillip Creek: Nothing's really changed, Buck. We focus first and foremost on what we own. We want to own a 2 to 3-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 or 25. Again, nothing real significant. Inside that 23,000 or so lots, we like to own a 1-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.

Phil Creek: 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 $1 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. Those numbers move around a little bit. Overall, owning 2 to 3 years and controlling 4 to 5 years, that really hasn't changed. It's just those numbers move around a little bit.

Phillip Creek: 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 $1 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. Those numbers move around a little bit. Overall, owning 2 to 3 years and controlling 4 to 5 years, that really hasn't changed. It's just those numbers move around a little bit.

Buck Horne: Yeah. Got it. Are you trying to rebalance it to more 50/50 going forward?

Bob Schottenstein: No, not necessarily. It's not a top-down.

Buck Horne: Okay.

Bob Schottenstein: We don't manage it that way.

Phil Creek: No.

Phillip Creek: No.

Phil Creek: Also, just talking about 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. 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. We're seeing a few more of those opportunities that make sense. Again, we'll take advantage of that because it's a shorter time to get those lots on the books and get communities open. We're really happy with where our land position is.

Phillip Creek: Also, just talking about 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. 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. We're seeing a few more of those opportunities that make sense. Again, we'll take advantage of that because it's a shorter time to get those lots on the books and get communities open. We're really happy with where our land position is.

Buck Horne: Sounds good, guys. Congrats again. Appreciate the color.

Bob Schottenstein: Thanks.

Operator: Your next question comes from Jay McCanless with Citizens Bank. Your line is open.

Jay McCanless: 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 entry-level?

Bob Schottenstein: First of all, not every move-up deal looks more attractive.

Jay McCanless: Okay.

Bob Schottenstein: The ones that are being presented to us by our divisions, some just are penciling better. Is it a massive trend? I wouldn't 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 factors. What do you think the sales pace is going to be? Based on what? What's happening in that 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? Apologies for the cliché, but that's the art of the deal. A lot more art than science goes into that.

Bob Schottenstein: Yes, you can look at comps, you can see what other builders are doing, at the end of the day, the long lead times associated with most transactions, when you're doing that underwriting, you're at least 6 months, if not more, away from when you're going to open. What are rates going to be? What this 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. 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, they're not all the same.

Bob Schottenstein: 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. 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. The other thing I'll say is this, and we've said this a few times, I think, on these calls. You're wrong when you think you have an A location tied up. If you really believe it's an A, we'll often squint pretty hard before we'll walk away from that.

Bob Schottenstein: I've often said I'd rather overpay for an A location than to try to steal a B. The A locations are the ones that really produce the results regardless, oftentimes, of the macroeconomy.

Jay McCanless: The second que-.

Bob Schottenstein: Excuse me.

Jay McCanless: No problem. Second question I had, when you look at the mortgage rate buydowns, I guess, where are you buying on average down to right now? What is the rate you seem to get buyers to move them?

Bob Schottenstein: 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. This is the second or third or fourth quarter in a row we've been north of 90%. A great mortgage operation, they're very focused on every day what's happening in the market and how to think about rate buydowns. Could not be more pleased with the execution of our mortgage company. Important part of our business. Right now, our government program for specs, slightly below five, 4.78, 30-year fixed. Our longer-term rate lock, as well as the spec rate for conventional, is slightly above five.

Phil Creek: Also one thing there, Jay. Again, 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 cost help, those type things. A few customers do like ARMs. 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. We think that's been very helpful to us.

Phillip Creek: Also one thing there, Jay. Again, 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 cost help, those type things. A few customers do like ARMs. 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. We think that's been very helpful to us.

Jay McCanless: Okay. That's great. 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, 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.

Bob Schottenstein: There's a lot going on. 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. We're only in the first or second inning of. The ink's still wet on some of those deals. It'll remain to be seen. So far, I don't know, Phil, if you or Derek have any different view. I don't think we've seen much.

Phil Creek: No.

Phillip Creek: No.

Bob Schottenstein: As well as on the supplier side. We've got, we think, excellent long-term relationships, national accounts, if you will, with some of the biggest suppliers and companies in the industry. So far, we haven't seen much impact there as well.

Phil Creek: There's things, Jay. Data center buyers overpaying significantly for certain land. Is that starting to impact the land market here and there? Data center people hiring a lot of subs and suppliers to do work for them, pressures on concrete and energy because of that. There's a lot of things going on. Again, we think we're pretty positioned with our staffs and our focus, and just deal with those things as best you can.

Phillip Creek: There's things, Jay. Data center buyers overpaying significantly for certain land. Is that starting to impact the land market here and there? Data center people hiring a lot of subs and suppliers to do work for them, pressures on concrete and energy because of that. There's a lot of things going on. Again, we think we're pretty positioned with our staffs and our focus, and just deal with those things as best you can.

Jay McCanless: Right. 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? If we think about the openings that y'all have for the rest of the year, are y'all trying to target that same type of balanced growth for what we're going to see in the back half of 2026?

Bob Schottenstein: We hope so, we'll know when we know. Frankly, I was very pleased to see H1 is up 8%. Obviously, Q2 was up more than Q1. A little bit of volatility month to month as Phil outlined. We think we've got good communities, that's the primary driver for that. Everybody's buying rates down, not everybody's business is up. You're always trying to balance, sick of the term, pace and price, I guess. We are, we're in the summer right now. Seasonally, it's a little bit less robust time. Excited to move into the fall when, at least historically, business tends to pick up a little bit. We feel very good about our sales, we'll see how the year shakes out.

Jay McCanless: Okay, great. Thanks for taking my questions.

Bob Schottenstein: Thank you.

Phil Creek: Thanks, Jay.

Phillip Creek: Thanks, Jay.

Operator: Your last question comes from Alex Barron with Housing Research Center. Your line is open.

Alex Barron: Yes. Thank you, gentlemen. Good morning.

Bob Schottenstein: Hey.

Alex Barron: I wanted to ask about the jump in the G&A, I guess, sequentially and year-over-year. What drove that? Was that just more community openings?

Phil Creek: You're talking SG&A expenses?

Phillip Creek: You're talking SG&A expenses?

Alex Barron: Yes, of course, the SG&A. Mm-hmm.

Phil Creek: 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. 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. We stay on that as top as we can as all time, like we always have.

Phillip Creek: 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. 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. We stay on that as top as we can as all time, like we always have.

Alex Barron: Okay. I apologize if you mentioned it maybe. On the gross margin improvement this quarter, was that mainly a reduction of incentives, or lowering your cost, or just a change in the product, or a mix of everything?

Phil Creek: It's a combination of things. As Bob said, we've been very pleased with the performance of the communities we've opened the H1 of this year. We did open 49 new stores, and some of those communities we opened in the Q1 gave us some closings in the Q2. We did have sticks and bricks down a little bit, and of course, we had lot 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. It's a combination of things. As far as rate buydown cost, as a company, we did spend more buying down rates in the Q2 than we did the Q1. Again, right now with mortgage rates up to 7, again, that drives some of those costs up.

Phillip Creek: It's a combination of things. As Bob said, we've been very pleased with the performance of the communities we've opened the H1 of this year. We did open 49 new stores, and some of those communities we opened in the Q1 gave us some closings in the Q2. We did have sticks and bricks down a little bit, and of course, we had lot 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. It's a combination of things. As far as rate buydown cost, as a company, we did spend more buying down rates in the Q2 than we did the Q1. Again, right now with mortgage rates up to 7, again, that drives some of those costs up.

Phil Creek: There's a lot of moving parts that go into that gross profit number. We're really pleased with what we were able to accomplish in the Q2.

Phillip Creek: There's a lot of moving parts that go into that gross profit number. We're really pleased with what we were able to accomplish in the Q2.

Alex Barron: Okay, got it. Thank you, guys.

Phil Creek: Thanks.

Phillip Creek: Thanks.

Operator: That concludes your question and answer session. I will now turn the conference back to Mr. Phillip Creek for closing remarks.

Phil Creek: Thank you for joining us. See you next quarter.

Phillip Creek: Thank you for joining us. See you next quarter.

Operator: Thank you. This concludes today's conference call. You may now disconnect.

Q2 2026 M/I Homes Inc Earnings Call

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