MI Homes Q3 2025 Earnings Call - Mortgage Rate Buy Downs Drive Sales Amid Challenging Market

Conference Operator: Good morning, ladies and gentlemen, and welcome to the MI Homes Third Quarter Earnings Conference Call. At this time, all lines are in listen only mode. Following the presentation, we will conduct a question and answer session. This call is being recorded on 10/22/2025. I would now like to turn the conference over to Phil Creek.

Please go ahead.

Phil Creek, Executive, MI Homes: Thank you for joining us today. On the call with me 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. And as to forward looking statements, I want to remind everyone that the cautionary language about forward looking statements contained in today’s press release also applies to any comments made during this call. Also be advised that the company undertakes no obligation to update any forward looking statements made during this call.

With that, I will turn the call over to Bob. Thanks, Phil. Good morning and I too want to thank you all for joining us today. Despite the continued challenging market conditions and choppy uneven demand environment, we had a very solid third quarter. We generated $140,000,000 of pre tax income, though down 26% from last year’s record third quarter results.

Our pre tax income percentage was a very solid 12% of revenue with gross margins of 24% and resulted in a strong return on equity of 16%. Consistent with our first and second quarter commentary and also consistent with what our industry peers have reported, housing demand and overall market conditions remain somewhat challenging. In our view, housing conditions are just okay, certainly not great, but still just okay, probably about a C plus and we continue to incentivize sales and drive traffic primarily with mortgage rate buy downs. The cost of such buy downs are the primary reason for the decline in our gross margins. We will continue to use such rate buy downs where necessary on a subdivision by subdivision basis in order to drive traffic and generate sales.

In terms of our third quarter performance, we closed a third quarter record 2,296 homes, a 1% increase compared to a year ago. Our third quarter total revenue decreased 1% to $1,100,000,000 We sold nineteen oh eight homes during the quarter, down 6% compared to twenty twenty four’s 2023 homes sold. And our monthly sales pace averaged 2.7 homes per community compared to a monthly pace of 3.2 homes in 2024. Year to date, we have sold 6,278 homes, down 8% from a year ago. Encouragingly, we continue to see quality buyers in terms of credit worthiness with a strong average credit score of 745 and average down payments of around 16%.

Our Smart Series, which is as we’ve stated previously, our most affordable line of homes continues to be an important contributor to sales performance. During the third quarter, Series sales comprised about 52% of total sales compared to just about 50% a year ago. We continue to make important progress in our cycle time. Our third quarter cycle time was about ten days better than last year as well as about ten days better than this year’s first quarter. We ended the quarter with two thirty three communities and remain on track to grow our community count the balance of 2025 by about 5% from 2024.

As Derek Klutch will review in a few minutes, our mortgage and title operations had a very strong quarter, highlighted by capturing a record 93% of our business in the quarter. Now I will provide some additional comments on our markets. Our division income contributions in the third quarter were led by Columbus, Chicago, Dallas, Minneapolis, Orlando and Cincinnati. New contracts for the third quarter in the Northern Region decreased by 17% and new contracts in our Southern Region increased by 3% compared to last year’s third quarter. Our deliveries in the Southern Region increased by 8% and our deliveries in the Northern Region decreased by 7% from a year ago.

59% of deliveries came out of the Southern Region, 41% out of the Northern Region. We feel very good about all 17 of our markets. That said, we are expecting particularly strong full year results in Columbus, Chicago, Dallas, Minneapolis, Cincinnati, Orlando and Charlotte. We have a strong land position. Our owned and controlled lot position in the Southern Region decreased by 6% compared to last year and increased by 3% versus last year in the Northern Region.

36% of our owned and controlled lots are in the North, the other 64% in the Southern Region. Company wide, we own approximately 24,400 lots, which is slightly less than a three year supply. In addition, we control approximately 26,300 lots via option contracts resulting in a total of 50,700 owned and controlled lots equating to about a five six year supply. With respect to our balance sheet, we once again ended the quarter in excellent shape. During the quarter, we extended our bank credit facility by five years to 2,030 and increased the borrowing capacity under that line from $650,000,000 to $900,000,000 We ended the third quarter with an all time record $3,100,000,000 of equity equating to a book value per share of $120 up 15 from a year ago.

We had zero borrowings under the $900,000,000 unsecured line and over $700,000,000 in cash, all resulting in a very strong debt to capital ratio of 18% down from 20% last year and a net debt to capital ratio of negative 1%. As I conclude, let me just say, we remain quite optimistic about our business and continue to believe that our industry will benefit from the undersupply of homes and growing household formations throughout our markets. Our backlog remains healthy and with our strong balance sheet and strong liquidity, we have tremendous flexibility as conditions evolve. We are well positioned as we begin the 2025. With that, I’ll turn it over to Phil.

Thanks, Bob. Our new contracts were down 6% when compared to last year. They were flat in July, up 4% in August and down 18% in September and our cancellation rate for the third quarter was 12%. Last September sales were strong. It was our second highest September in our history.

And during the third quarter, our sales were really pretty consistent. We sold six eighteen in July, we sold six sixty in August and six thirty in September. 50% of our third quarter sales were to first time buyers and 75% were inventory homes. Our community count was two thirty three at the end of the third quarter compared to two seventeen a year ago, up 7%, with the Northern Region up 9% and the Southern Region up 6%. The breakdown by region is 96 in the Northern Region and 137 in the Southern Region.

During the quarter, we opened 14 new communities while closing 15. We currently estimate that our average twenty twenty five community count will be about 5% higher than last year. We delivered a record 2,296 homes in our third quarter, delivering 89% of our backlog and about 35 of our third quarter deliveries came from inventory homes that were sold and delivered in the quarter. At September 30, we had 5,000 homes in the field versus 5,100 homes in the field a year ago. Revenue decreased 1% in the third quarter and our average closing price in the third quarter was 477,000 a 2% decrease when compared to last year’s third quarter average closing price of $489,000 Our third quarter gross margin was 23.9%, down three twenty basis points year over year with 60 basis points of the decline due to $7,600,000 of inventory charges.

The breakdown of the inventory charges is $6,000,000 of impairments and $1,600,000 of lot deposit due diligence costs that were written off. And our construction costs were down about 1% in the third quarter compared to the second quarter. Our third quarter SG and A expenses were 11,900,000.0 of revenue compared to 11,200,000.0 a year ago. Our third quarter expenses increased 6% versus a year ago. Our increased costs were primarily due to higher community count and higher selling expenses.

Interest income, net of interest expense for the quarter was $4,500,000 Our interest incurred was $8,700,000 We had solid returns for the third quarter given the challenges facing our industry. Our pretax income was 12% and our return on equity was 16%. During the quarter, we generated $157,000,000 of EBITDA compared to $198,000,000 in last year’s third quarter and our effective tax rate was 23.8% in the third quarter compared to 22.9% in last year’s third quarter. Our earnings per diluted share for the quarter decreased to $3.92 per share from $5.1 last year and our book value per share is now $120 a $16 per share increase from a year ago. Now Derek Klutch will address our mortgage company results.

Derek Klutch, President of Mortgage Company, MI Homes: Thanks, Phil. Our mortgage and title operations achieved pretax income of $16,600,000 an increase of 28% from $12,900,000 in twenty twenty four’s third quarter. Revenue increased 16% from last year to a third quarter record $34,600,000 due to higher margins on loans sold, a higher average loan amount and an increase in loans originated. The average loan to value on our first mortgages for the third quarter was 84% compared to 82% in twenty twenty four’s third quarter. We continue to see an increase in the use of government financing as 55% of the loans closed in the quarter were conventional and 45% FHA or VA compared to 6634% respectively for twenty twenty four’s third quarter.

Our average mortgage amount increased to $406,000 compared to $403,000 last year. Loans originated increased to $18.48, which was up 9% from last year, while the volume of loans sold increased by 19%. Finally, as Bob mentioned, our mortgage operation captured 93% of our business in the third quarter and this was up from 89% last year. Now, I

Phil Creek, Executive, MI Homes: will turn the call back over to Phil. Thanks, Derek. Our financial position continues to be very strong highlighted by Moody’s recent upgrade of our credit rating and the extension of our unsecured credit facility to September 2030, which increased our borrowing capacity from $650,000,000 to $900,000,000 And we ended the third quarter with no borrowings under this facility and had a cash balance of $734,000,000 We continue to have one of the lowest debt levels of the public homebuilders and are well positioned with our maturities. Our bank line matures in 2030 and our public debt matures in 2028 and 02/1930. Our unsold land investment at ninethirty is $1,800,000,000 compared to $1,600,000,000 a year ago.

And at September 30, we had $931,000,000 of raw land and land under development and $859,000,000 of finished unsold lots. During the third quarter, we spent $115,000,000 on land purchases and $181,000,000 on land development for a total of $297,000,000 And at the end of the quarter, we had seven seventy six completed inventory homes and 3,001 total inventory homes. And of the total inventory, twelve forty five were in the Northern Region and seventeen fifty six were in the Southern Region. At 09/30/2024, we had five fifty five completed inventory homes and 2,375 total inventory homes. We spent $50,000,000 in the third quarter repurchasing our stock and have $100,000,000 remaining under our current Board authorization.

And since the start of 2022, we have repurchased 15% of our outstanding shares. This completes our presentation. We will now open the call for any questions or comments.

Conference Operator: Thank you. Ladies and gentlemen, we will now begin the question and answer session. Your first question comes from Ken Zener with Seaport. Your line is now open.

Ken Zener, Analyst, Seaport: Good morning,

Phil Creek, Executive, MI Homes: Good morning.

Ken Zener, Analyst, Seaport: If we could talk about orders a little bit. You had, as we measure, kind of normal seasonality, which is pretty impressive and they so so market you reflect. Can you talk to that dynamic of you wanting to achieve, right, what we see as seasonality? I mean, you might look at it differently, but and the use of incentives and if you could quantify the incentives level in general and the mix between price and mortgage buy down and closing costs, please?

Phil Creek, Executive, MI Homes: Yes, great question. Clearly, a somewhat challenging market unpredictable too. From week to week, a fair amount of intra market volatility within our divisions. One month certain of our divisions might have stronger sales and then unexpectedly things slow down then they pick back up. As I said, I think things are just okay.

That said, it’s critically important for us to drive traffic and do everything we can to incent sales in this market. And I don’t think we’re alone in this, but we have concluded that there is no better way to do that than through the selective use of mortgage rate buy downs. We have not offered any specifics on the exact amount that we’re spending. It tends to change over time based upon what’s happening in the market. You can go on our website and you can see that both with respect to conventional as well as FHA, we’re offering rates in the very high fours.

And that is we have found that to be a pretty good sweet spot to do what we are currently doing. Absent the inventory charges that Phil mentioned that accounted for about 60 to 70 basis points of our gross margin decline, our margins are down about two fifty basis points year over year. And I would just simply say that the majority of that is due to mortgage rate buy downs. There is some subdivision by subdivision incentivization that might be going on here and there. But the significant majority of it is rate buy downs.

And then frankly, some of the other decline is just increased cost on the land side. We’ve had a lot of success. I don’t think we’re alone on this, which is also encouraging. You don’t want to be the only one doing something because it may not be sustainable. But we’ve had a lot of success on our sticks and bricks, raw materials and costs with our subcontractors and suppliers relatively flat to down, which has been very encouraging notwithstanding all the chatter about impact of tariffs.

We have seen no impact of tariffs to date. I think the jury’s out on how things shake out as we move into next year. But thus far, we haven’t seen any of that flow through to our results. But we’re going to continue as I said, Ken, to use rate buy downs as the primary driver for both traffic and sales as long as it keeps working. And with if rates were to drop, there’s been a little bit of movement recently, it didn’t seem to have that much of an impact on demand.

That’s a bit of a fit and start kind of a situation. But if rates begin to drop the cost of such buy downs, hopefully will drop as well. And then more importantly, if we do see a drop in rates that could help unlock the existing home market, which we’re getting these results really without much help from the sale of existing homes. That could be a big tailwind for housing if and when that begins to unlock because even though inventory levels of existing homes in our markets are not anywhere near the all time highs, they are up considerably year over year and over the past two years and past three years. It’s a long answer to your question.

I hope it tells you most of what you asked.

Ken Zener, Analyst, Seaport: Yes, and appreciate it. My second question, because you report that South as a segment versus the North, the South obviously has Texas, Florida, which can be different which are different markets. Gross margins were about the same last quarter in those regions, EBIT a little different. But could you comment on kind of prior to the Q coming out, the gross margin trends we’re seeing in those two segments? And if you any comments you could to illuminate the aggregation of Texas and Florida would be appreciated.

Thank you, sir.

Phil Creek, Executive, MI Homes: I’ll say a couple of things about it. For us, Orlando on the East relative East Coast is stronger than Tampa and Sarasota, Fort Myers where we have a relatively new operation. So it’s not really that meaningful in terms of results. But demand and margins for us are clearly holding up better in Orlando than they are in Tampa and Sarasota. I think Austin in Texas, that market was rev hot couple of years ago and over the last twelve to eighteen months, it’s cooled considerably.

It’s probably struggling the most in Texas. We have seen margins drop also in Houston and Dallas, but comparatively, think they’re still holding up quite well. We’re expecting as I said a strong year in Dallas. Charlotte and Raleigh have both been pretty good. And as I also mentioned, we’re expecting a strong year in Charlotte.

So, not to be snarky, but it’s a bit of tale of 17 cities. They’re all a little bit different. And we’ve long said that this business is a subdivision business. We got about two thirty three of them and we try to manage them that way. But within the cities, what I’ve just described is probably a pretty good snapshot from 10,000 feet.

If you look also, this is Phil, if you look at community count, last year, our average community count was up about 7% and this year, our estimate is we will be up about 5% on average. We feel good about that. If you look inside those numbers, as I said, both regions do have community count growth. Our Florida community count has actually been down a little bit this year. Our Texas community count has been up a little bit.

And as Bob said, in general, our Midwest and Carolina business as far as pricing and margins and so forth held up a little better than Texas and Florida. But overall, we feel really good about where we are.

Ken Zener, Analyst, Seaport: Thank you.

Phil Creek, Executive, MI Homes: Thanks.

Conference Operator: Your next question comes from Alan Ratner with Zelman and Associates. Your line is now open.

Alan Ratner, Analyst, Zelman and Associates: Hey, Bob. Hey, Phil. Good morning. Thanks for taking

Phil Creek, Executive, MI Homes: morning, Alan. Information

Alan Ratner, Analyst, Zelman and Associates: So Bob, a lot of chatter over the last few weeks about some tweets from our administration and the FHFA about the homebuilders business. And I’m just curious, have you had any discussions with the administration or have any thoughts on, I guess, some of the headlines are out there?

Phil Creek, Executive, MI Homes: We have not had any discussions at this point and nothing is currently planned for us. Obviously, we’re aware of it. Look, think the I don’t know if I can comment much more. I read what you read. I think that the good news from my view and this is both at the local and state level as well as federal.

There’s a lot of talk right now about what can be done to help unlock if you will housing, improve affordability. We’re seeing it at a lot of different levels. I was in an event last night where that was the primary topic of discussion as it relates to markets in the Midwest. I’ll be in an event in another week or two as it relates to just Ohio where that is a primary topic. I think people understand how important housing is as a driver of the overall economy and that housing while it’s certainly by no means dead, it’s underperforming.

And we need to be building more homes and we need to make sure we do the smartest and best things to help create that environment. I think we’ll get there eventually, but if there could be some policies here or there at the local level, we certainly would welcome those. We have long said, and I think this view is widely shared. But we have long said that the greatest impediment in our judgment to affordability and to improve volume levels is local zoning regulations. And some markets are more favorable than others, but that to me is remains the biggest impediment.

We’re all sick of the NIMBY term, the NIMBYism and the anti growth, again, some markets, the situation is more acute than in others. I think there’s a reason why Texas has led the nation in housing production. I don’t know if it’s 15%, 18% of total new home production, but it’s a big number. And I think in general, while it’s not easy there either, there’s just been a much more favorable zoning climate that has contributed to more development and frankly more affordability. So that’s what I

Alan Ratner, Analyst, Zelman and Associates: And yes, that seems to be the general sentiment so far is that at least builders are happy to see it being talked about. So hopefully, there could be some real change implemented from whatever discussion.

Phil Creek, Executive, MI Homes: Right. It’s always bad when no one wants to talk to you. Be careful what you wish for. And as long as there’s conversation, you got a chance.

Alan Ratner, Analyst, Zelman and Associates: Exactly. All right. A couple of quick ones on just the margin, both gross and SG and A. So on gross margin, it looks like this quarter, obviously, are still under a little bit of pressure, but it looks like things are stabilized a bit quarter over quarter. I know you don’t guide, but maybe just if you could talk to the puts and takes going forward in terms of land costs flowing through.

It sounds like construction costs are stable. Pricing and incentives, I mean, should we are we kind of getting a little bit closer to the bottom here on margin do you think or is there more room for margins to drop in over the next handful of quarters?

Phil Creek, Executive, MI Homes: Well, I think we’re a lot closer to the bottom than we were last quarter. How close are we? That remains to be seen. Look going into this year, even though we didn’t share this internally, we believe that our margins would be under pressure somewhere this was internal budgeting between two hundred and three hundred basis points because we knew we were going to have to spend a lot of money on mortgage rate buy downs as we’ve talked about this call, second quarter, first quarter. Absent the impairments, they’re about two fifty basis points down year over year.

Could they drop a little more perhaps? I think we’re getting close to some point. And the other thing that’s hard to gauge and no one knows the answer to this is even though we may continue to be spending money on rate buy downs, if the cost drops by 50 to 100 basis points, that’s a big plus on the margin side. And Phil, I don’t know if you have anything to add on that. Yeah.

The pressures we have really, you know, as we said in the third quarter, we sold 75% specs. The second quarter was like 73%. So it is up a little bit. And in general, our specs have a lower average sale price than our to be built and they also have a lower margin. So the amount of specs continues to be a pressure.

Also Bob mentioned higher land costs. We do have higher land costs coming through than we did a year ago. The good news is the last couple of quarters, development costs, which actually were increasing more than the raw land, land development cost seemed to have stabilized. And obviously, we are being very careful as far as buying new land parcels since we do feel very strong about our land position and also the choppy market conditions. So we are doing all we can.

You are always market pricing. We always need a certain amount of volume to come through. But overall, we think our margins are holding up pretty well. But again, there do continue to be pressures. And we have certain internal targets.

We want to always have hopefully double digit pretax income percentage. We were 12% for the quarter. Given the market, we feel really good about that. Given our size, we feel particularly good about our return on equity. It’s lower than it was a year ago, but it’s still a very, very I think respectable 16%.

We’ve got minimum targets on that that we’re hitting and we’re going to keep aiming to hit those targets.

Alan Ratner, Analyst, Zelman and Associates: Absolutely. All right, guys. Well, appreciate all the thoughts and best of luck and happy holidays, but we don’t talk before then.

Phil Creek, Executive, MI Homes: Yes. Take care of yourself, Alan.

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

Buck Horne, Analyst, Raymond James: Good morning, to go back to those regional Yes, good morning. I want to go to the regional splits on the order growth trends between the North and the South. Just if I heard correctly, I believe you still had higher year over year community count in the North Region, but orders dropped off 17%. I know there was a tough comp against last year, but just sounded like markets like Columbus and Cincinnati and Chicago were doing better. But just wondering if you can add any color kind of that divergence in order trends.

Phil Creek, Executive, MI Homes: I think we’re very pleased with how well our Midwest markets have held up. They may be off from where they were a year ago, but I think they’re very strong operation in Columbus, Cincinnati, frankly, Indianapolis. I didn’t call out Indianapolis, but we have a much improved operation in Indianapolis over where we were several years ago, very bullish about that market as well. Chicago is having a very strong year for us as is Minneapolis. And there’s sometimes there’s little noise in these numbers given when new communities open up and you got to sort of look over a longer period of time.

But we remain bullish about the Midwest, bullish about the Carolinas. I don’t think Florida has a few struggles here and there, particularly on at least for us on the West Coast. And Texas is a little bit of a transition, but there’s still tremendous economic vitality generally speaking throughout nearly every one of our markets. We’re relatively newcomer in Nashville, we’ve got high hopes for Nashville going forward, lots of job growth there, lots of projected household formations. Houston and Dallas continue to be very strong markets in terms of just total macroeconomic conditions, maybe off a little bit.

I get that Austin slowly, slowly coming back. In generally in migration still in Austin, terrific place. Glad we’re there. If we weren’t, we’d open up there. So we feel very good about all of our markets.

And I think the diversity, you never hit this, you never hit on all cylinders. If you do, it’s lucky. There’s always something somewhere. And I think it’s important to have the geographic diversities, the geographic diversity that we have. And I think it’s particularly helpful to us right now, where there’s a little bit of a slowdown in Florida and parts of Texas as well.

But the Midwest as a Midwestern, I’m glad to see the Midwest standing pretty tall these days. Buck, this is Phil. When you actually look at the numbers, as I said, our third quarter sales overall really were pretty consistent, six eighteen in July, six sixty in August and six thirty in September. The real last September, we sold like seven seventy five homes last September and the Midwest was really strong last September for different reasons. We do run periodic sales events.

Last September was the start of a sales event. So that is really the reason that you are seeing the down sales quarter to quarter. The Midwest sales, as Bob said, really were fairly decent, pretty consistent through the quarter. It’s really just last September was a little unusual.

Buck Horne, Analyst, Raymond James: Got you. That’s very helpful color. I appreciate that. Yes, thanks for all the details there. Really good.

Going to G and A and kind of selling costs, I think one of your competitors noted that just in this competitive environment, there’s a lot of spec homes that a lot of builders are trying to clear before year end. And they’re one of the tools to utilize is more co brokers and utilizing more realtors to try to get those inventory homes cleared before year end. Are you guys pursuing a similar strategy? Should we think about that being an added cost into the fourth quarter in terms of just selling expenses?

Phil Creek, Executive, MI Homes: Phil is going to give you the best and most detailed answer, but I just want to say a couple of things first. We’ve got over 200 more completed specs today than we did a year ago at this time. And it’s probably a little more than we’d ideally like to have. We’re very, very careful from a management standpoint paying close attention to that broker co op percentage. Wish Frank, we welcome brokers, we need brokers company wide we’re in the low to we’re in the mid 70s, I think 75%, 76%, maybe 77%.

I don’t know the exact percentage Phil does. I wish it were lower. We have a lot of programs that that we think are effective in bringing that down without alienating an important part of our selling efforts, which is the third party brokers. Phil, I don’t know if you want to comment any further. Yes.

When you look at the SG and A, as I said, the actual expenses were up 6% versus a year ago. We have 7% more communities and you do have cost for every store maintaining those stores. We have 3% more people. Again, we have 7% more stores, those type of things. We also did have a slightly higher sales commission rate internal and external, again trying to drive traffic and sales.

So that’s how we kind of get to that 6% increase, Buck. One thing we have not done, there might be one or two minor exceptions. We’re not out there incentivizing traffic or sales by offering more money to the third party brokers. Some of our peers have, we’re not doing that. We don’t feel we need to do it.

We also think that it’s like a lot of things in life. Once you start, it’s hard to stop. Right.

Buck Horne, Analyst, Raymond James: Yes. All right. That’s really helpful. Appreciate that added color. My last, if I can sneak it is just given the strength of the balance sheet here and the cash position and the increased financial flexibility you got with the credit facility, is there anything that’s necessarily holding you back from accelerating repurchases in the year end, working capital needs or otherwise or you just want to continue to be very programmatic and consistent on that?

Phil Creek, Executive, MI Homes: Yeah, I mean, I’ll say one thing and then I think Phil is going to add to this, which is which he should. Job one is to grow the company, job and to do so with a very strong balance sheet. We thought we had a strong balance sheet back in 02/2004, February, only to learn that we didn’t. Our debt to cap was in the high 40s, low 50s. So were many of our peers.

We’re not going back to that movie. And we’re gonna maintain a very, very strong balance sheet with comparatively low debt levels as we are right now. That is our goal going forward. We also want to grow the company. But when we have this excess cash and for all these other reasons, we think we can also at the same time without compromising growth selectively buyback shares.

Phil, I don’t know if you want to add anything. Exactly. We continue every quarter with our Board to talk about stock repurchases and so forth. We have consistently for the last few quarters repurchased $50,000,000 a quarter. As far as the bank line, the bank line was going to mature in December ’26.

We really did not want to get within a one year window of that. We just offer safety and flexibility plus it now is a five year term. We thought it made sense to go from $6.50 to 900. We are definitely kind of low leverage conservative type people. We do like to keep that leverage low especially during these times.

I do have 3,000 specs compared to 2,300 or so a year ago. We think that makes a lot of sense in today’s market, especially take advantage of these rate buy downs, which are a lot more effective in shorter periods of time. So we are just going to continue to adapt as best we can to market conditions, but keeping a strong balance sheet and strong liquidity is definitely job one.

Buck Horne, Analyst, Raymond James: All right, guys. Congrats. Good luck. Thanks. Thanks for the color.

Phil Creek, Executive, MI Homes: Thanks so much.

Conference Operator: Your next question comes from Jay McCanless with Wedbush. Your line is now open.

Jay McCanless, Analyst, Wedbush: Hey, good morning guys.

Phil Creek, Executive, MI Homes: Good morning, Jay. Good Jay.

Jay McCanless, Analyst, Wedbush: Good morning. Just wanted to ask where your gross margins are right now on spec versus your build to order homes?

Phil Creek, Executive, MI Homes: They’re a little lower. You know, it really depends on the community. Every location is a little is different. But in general, they’re just a little lower than to be built.

Jay McCanless, Analyst, Wedbush: And then, Bob, you were talking about some some of your competitors increasing co broker spend. I guess, in terms of some of the larger competitors who said they might be pulling back a little bit. Are you seeing any evidence of that in the field or is everyone selling pretty hard to get lighter ahead of the spring season?

Phil Creek, Executive, MI Homes: I don’t think I made a comment about pulling back. What I said is that we have not elected to pay brokers more to drive traffic and incent sales. Our co op rate has remained consistent throughout all of our divisions probably over the last five years. We’ve tried to be very consistent on that, do what we can to have the best relationships we can, but not interested in buying the business and fearful of how you go back to where you once were if you start that as I made comment. I don’t know if and I’m not saying a lot are doing it, but I know there’s a few examples out there of some that are.

Whether they’ve pulled back, I don’t know. I don’t have current information on that. What was the other part of your question?

Jay McCanless, Analyst, Wedbush: Well, just the our people we’ve heard that some of your competitors are slowing down starts, but at the same time, we’re hearing a lot of conversation about aggressively selling into year end. I mean, to me, it feels like this is just a normal year where where the industry is a little heavy on inventory. People are gonna have to sell aggressively in the year end. Is is that what you’re seeing out in the field right now? Or people being a little more reason with some of the discounts and incentives

Phil Creek, Executive, MI Homes: always a community that’s always a community by community discussion. I mean, some builders 100% spec, you know, they’re fairly aggressive, some are not. It just depends on the location, etcetera. And you just need to be aware of what’s going on in the marketplace. Getting back to kind of our sales effort, we are trying to focus very much on internally to make sure we are getting all the leads that we can, that we follow-up on the leads as best we can.

We have more people focused on those leads. We have in most of our communities, you know, more than one sales person. We try to be focused very much on controlling all the things we can control. We’re spending more money today on sales training and driving leads online than we ever than we have in a long, long time and we’re gonna continue to. That’s the blocking and tackling of our business.

Don’t often mention that on calls like this, but I’d rather spend money on that than on realtors. I’d rather spend money on that than on incentives. Now we may have to do both sometime, but it all starts with us. And it’s easy to get complacent during hot markets, But now more than ever, focusing on us is just absolutely the most important thing we can do. And we have an opportunity.

I mean, year we opened about 75 stores. You know, this year, we’re gonna open more than 75 stores. So again, different location, different product, different price point in many situations, those are the things we control. So those are the things we focus on, you know, every day. And yeah, we do have higher spec limits.

But again, we don’t accept going in that specs have to be a lower margin. Hopefully, we’re putting the the best products on the best lots and that we’re getting paid for that because that’s the way the business is right now. And and you know, I wanna give an I’m gonna give a very specific example. I bragged about the fact that our mortgage and title operations had a tremendous quarter because they did. And I mentioned that we had a record capture rate of 93%.

I think a year ago was like 84% or something like On 80 the one hand, you could say, well, it should be higher because you’re so aggressively using mortgage rate buy downs. And that is true, it should be higher. But I think it’s even higher than it would be because of the training and the efforts that we’re putting on the side of making certain that at each branch, each mortgage and mortgage branch that we’re doing the best we can to help people figure out the financing that’s best for them in this somewhat challenging market. And we could easily be happy with a capture rate of 85% or 88% would probably be at or near best in class. But with this higher capture rate, not only does that contribute to profitability, but we think it’s contributing to sales performance.

And every buyer is different. Some buyers, especially more affordable homes, they may very well need help in closing costs. Some builder some buyers do need help. They want a thirty year fixed lowest rate possible. Some buyers are okay with arms.

Some are okay with buy downs. So, you know, again, it just depends on what the customer needs. We’re not just throwing the most money at every deal we have.

Jay McCanless, Analyst, Wedbush: Understood. And thank you for that. I guess the last one for me, with the balance sheet as strong as it is right now, is there any thought to doing some M and A, especially in the Midwest down into the Carolinas where you’re already seeing pretty strong performance?

Phil Creek, Executive, MI Homes: There’s nothing on the horizon. If something happened to show up in one of our existing markets or perhaps in a market that we’re not in, that we thought made a lot of sense, I think we take a very serious look at it. I mean, the last six months, we’ve probably looked at a couple of deals. But right now, our job is to make sure we keep our balance sheet really strong to your point and to grow in our existing markets. Every one of our existing markets has growth goals.

We’ve said this before and I’ll say it again right now, our run rate today is around 9,000 units. We believe in the 17 markets that we’re in that we can grow 13,000, 14,000 units without opening up in any new markets, just with the headroom that we have within our existing geographic footprint. That if we could grow that way, that would be the one that would be the most desirable. On the other hand, if something showed up and it made sense, we’d analyze it like any other land dealer opportunity, but there’s nothing planned at this point.

Jay McCanless, Analyst, Wedbush: Okay. And then one more just kind of following that. Any inclination to talk about 26 community count, especially the amount of lots you guys have built up, it feels like you all can grow count and possibly unit volumes in 2026. Any thoughts on that?

Phil Creek, Executive, MI Homes: Guy, you mean you’re asking for guidance on projected community count growth for 2026?

Jay McCanless, Analyst, Wedbush: I would never ask you for guidance, Bob. I’m just asking for how you’re feeling about potential growth for next year.

Phil Creek, Executive, MI Homes: I think there will be community count growth next year. Yes. Mean, we own 24,000 lots and We expect to have community count, yes, next year. Our target is always to grow community count in that 5% to 10% range a year. Like I said, last year was 7%, this year is probably going to be about five Even though we’ve slowed land purchases down the last couple of quarters, we’re still in great shape to continue growth.

Jay McCanless, Analyst, Wedbush: Sounds great. Okay. Thanks guys. Appreciate it.

Phil Creek, Executive, MI Homes: Thanks Jay. It.

Conference Operator: There are no further questions at this time. I will now turn the call over to Phil for closing remarks.

Phil Creek, Executive, MI Homes: Thank you very much for joining us. Look forward to talking to you next quarter.

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