Hovnanian Enterprises, Inc. Class A Aktie

Good morning, and thank you for joining us today for Hovnanian Enterprises Fiscal 2026 Second Quarter Earnings Conference Call. An archive of the webcast will be available after the completion of the call and run for 12 months. This conference is being recorded for rebroadcast. [Operator Instructions] Management will make some opening remarks about the second quarter results and then open the line for questions. The company will also be webcasting a slide presentation along with the opening comments from management. The slides are available on the Investors page of the company's website at www.khov.com. Those listeners who would like to follow along should now log on to the website.

I would like to turn the call over to Jeffrey O'Keefe, Vice President, Investor Relations.

Jeff, please go ahead.

Thank you, Didi. And thank you all for participating in this morning's call to review the results for our second quarter. All statements in this conference call that are not historical facts should be considered as forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such statements involve known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements of the company to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Such forward-looking statements include, but are not limited to, statements related to the company's goals and expectations with respect to financial results for future financial periods. Although we believe that our plans, intentions and expectations reflected in or suggested by such forward-looking statements are reasonable, we can give no assurance that such plans, intentions or expectations will be achieved.

By their nature, forward-looking statements speak only as of date they are made, are not guarantees of future performance or results and are subject to risks, uncertainties and assumptions that are difficult to predict or quantify. Therefore, actual results could differ materially and adversely from those forward-looking statements as a result of a variety of factors. Such risks, uncertainties and other factors are described in detail in the sections entitled Risk Factors and Management's Discussion and Analysis, particularly the portion of MD&A entitled Safe Harbor Statement in our annual report on Form 10-K for the fiscal year ended October 31, 2025, and subsequent filings with the Securities and Exchange Commission. Except as otherwise required by applicable securities laws, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, changed circumstances or any other reasons.

Joining me today are Ara Hovnanian, Chairman and CEO; Brad O'Connor, CFO; David Mitrisin, Vice President and Corporate Controller; Paul Eberly, Vice President, Finance and Treasurer.

I'll now turn the call over to Ara.

Thanks, Jeff. Before we begin, I'd like to take a moment to remember Ed Kangas, who passed this week. As our longest-serving Independent Director, Chair of our Audit Committee and Lead Independent Director, Ed brought valued judgment, integrity and steady guidance to our Board and our management team. His leadership and his dedication to Hovnanian spanned many years as he joined our Board shortly after retiring as Chairman of Deloitte.

Beyond his many professional contributions, he was also a trusted friend, who will be deeply missed by everyone that knew him. The Board of Directors and everyone at the company extends our heartfelt condolences for his family. I'll also apologize in advance if my voice sounds raspy. I'm on the tail end of a nasty virus that hopefully will be gone soon.

Moving on to our results for the quarter. I'll begin with a quick overview of our second quarter results and the progress we're making against our strategy in today's housing environment. Brad will then follow me with more details on our financial performance, capital position and outlook before we open the floor for questions. Turning to Slide 5. This slide highlights our second quarter performance relative to the guidance we provided at the start of the period. Despite a continued choppy demand environment, we delivered solid execution coming in at or above nearly all of our targeted metrics, including a meaningful outperformance in our adjusted gross margin.

Starting on the top line, we generated total revenues of $668 million, close to the midpoint of our projected range. Notably, our adjusted gross margin was 14.3% for the quarter, exceeding the upper end of our forecast and improving sequentially from 13.4% in the first quarter, which we believe marked the trough. We projected a trough in the first quarter with a rebound beginning in the second quarter, and that scenario has come to fruition. Our SG&A came in at 12.6%, right at the lower end and thus better end of what we expected. Our unconsolidated joint ventures contributed a $1 million loss this quarter, modestly below our expectations. This reflects start-up costs ahead of our first deliveries in several joint venture communities, which is typical in the early stages of these projects.

For the quarter, our adjusted EBITDA reached $41 million, coming in above our projected range. And our adjusted pretax income totaled $9 million, landing at the top end of our forecasted range. Stepping back, the results this quarter reflect the core of our current approach, supporting affordability with targeted mortgage rate buydowns to maintain sales pace while we work through older, lower-margin lots and quick move-in inventory. At the same time, we are transitioning toward newer communities where today's incentive environment is already built into the land underwriting, which we believe supports a path to better margins and returns over time.

On Slide 6, you'll see this year's second quarter results along last year's second quarter. These comparisons are more challenging given the lower delivery volume, slower housing market and higher incentives in the current market. But it also helps illustrate the progress we're making as the business transitions to a better margin profile. Total revenues declined 3% year-over-year, primarily because we delivered 12% fewer homes amid a more competitive selling environment. A land sale completed during the second quarter partially offset the impact of lower deliveries.

Adjusted gross margin was lower than a year ago, largely due to the higher incentives used to support affordability and sustained sales pace. Importantly, these incentives are deliberate targeted levers in our current strategy and again, as we efficiently work through older, lower-margin lots and quick move-in inventory. Despite the year-over-year decline, gross margin improved sequentially in the second quarter. As I mentioned earlier, we believe the first quarter represented a trough. Looking ahead, we expect margins to benefit as we continue to open and deliver from newer communities where today's incentive environment was already incorporated in land underwriting.

Assuming the market doesn't require meaningfully higher incentives, we believe this mix shift supports a continued gradual improvement trend. During the second quarter, incentives represented 11.9% of our average sales price with the majority tied to mortgage rate buydowns. Compared to the first quarter of '26, this represented a 70 basis point decline and marks the first time in nearly two years that incentive levels have decreased sequentially. We'll show more detail on the incentive trends in a few slides. Offsetting the year-over-year incentives, our construction costs decreased 2% year-over-year in the second quarter. Additionally, cycle times for single-family homes improved by 6 days to 138 calendar days versus the same quarter last year.

SG&A increased modestly year-over-year, largely reflecting lower revenue. Even so, profitability for the quarter came in at the upper end of our guidance range. We continue to prioritize disciplined inventory management and a steady sales pace, positioning ourselves to capitalize on attractive land opportunities that we're finding in the marketplace. I'll repeat myself again, but we believe these new land purchases can drive stronger margins and improve returns given that we're underwriting with heavy incentives today.

Looking at the sales environment on Slide 7, we had a slight year-over-year increase of 38 contracts in a home selling environment that was impacted by decreasing consumer confidence. Without the incentives we're offering, we believe that our contracts would have decreased dramatically compared to year ago levels due to ongoing market challenges and low consumer confidence. If you look at Slide 8, you'll notice that the monthly community traffic through November and April mostly trended up with 4 of the 6 months showing strong year-over-year gains.

While the last two months showed some softening among increased macro uncertainty related to the Iran war, April's rate of decline moderated versus March, which we view as a constructive signal. Our takeaway from this chart is that underlying demand and interest from consumers remains present. And as uncertainty eases, we believe the demand can translate to improved sales activity. As shown on Slide 9, contracts over the past 12 months have fluctuated month-to-month, reflecting a volatile housing market and shifts in consumer confidence. February's gain was the strongest year-over-year increase on the slide, followed by an 8% year-over-year decline in March, impacted by the start of the Iran war and then a 3% increase in April.

As of yesterday, our month-to-date contracts in May were up 12% versus the prior year, which would represent an increased trend if it holds through the end of the month. On Slide 10, despite the impact of the war, you can see that second quarter contracts per community increased ever so slightly compared to last year. This year's 11.3 contracts per community was close to the average second quarter absorption pace since '97. On Slide 11, we provide a closer look at monthly contracts per community comparing each month to the second -- in the second quarter to the same month last year. For February, the first month of the quarter, the sales pace was significantly higher than the same month last year, but the March sales pace was worse than a year ago. And then April was flat year-over-year.

Summing up the slide in one word, the environment is choppy. If you refer to Slide 12, we present contracts per community as if our quarter ended on March 31, which allows for a direct comparison with all of our peers that report contracts per community on a calendar quarter basis, which is most of them. Our 11.2 contracts per community sales pace ranks as the second highest among publicly traded homebuilders on this slide. As illustrated on Slide 13, our contracts per community increased 4% year-over-year. We are one of only two builders on this slide with year-over-year increases for this metric.

Again, our performance for these comparisons was based on an adjusted quarter ending in March for us, which allows us to have a direct comparison to our peers. Takeaway from these two slides is clear. Our focus on sales pace over price is delivering above-average sales results and helping us work through older, less profitable communities more quickly. You turn to Slide 14, you can see -- which tracks incentives. And if you look to the blue bar on the right, you can see what I mentioned earlier that incentives have finally begun to decline after three years of increases. The most dramatic jump happened at the start of '23 when incentives climbed from 3.9% in the fourth quarter of '22 to 7.4% in the first quarter of '23. Incentives have steadily increased over the past 3 years. While these higher incentives have put short-term pressure on our margins, they've been essential for maintaining a steady sales pace and allowing us to move our inventory.

Even though we saw incentives decrease in the second quarter from the first quarter, it's still up 140 basis points compared to a year ago and higher by 890 basis points versus the full year in '22, which was the last full year of normal incentives before mortgage rates spiked and it began to affect our margins and our deliveries. To make homeownership more accessible for homebuyers and again, moving through our inventory, we provided a variety of quick move-in homes through -- across our communities. It gives buyers an opportunity to benefit from the incentives, lock their mortgage rate and purchase a home faster and at a more affordable monthly cost. It's important to note that our recent land acquisitions, again, are underwritten to include these incentives while still meeting our return targets.

As our new communities come online, again, I'll keep repeating this, we do expect to see stronger margins going forward. On Slide 15, you'll see that at the end of the second quarter, we had 5.8 quick move-ins per community. This pretty much matches the previous quarter and highlights our progress in streamlining our quarter -- our inventory, excuse me. By closely coordinating starts with our sales pace, we've reduced our QMI count and kept inventory levels balanced.

QMIs are homes that are under construction at the moment they begin or have completed that haven't yet been sold. Looking at Slide 16, our number of QMIs have dropped from 1,163 at the end of January of '25 to 731 at the end of April of '26, a 37% reduction in just over a year. In the second quarter, QMIs accounted for 68% of total sales. While this is down from the previous high of 79%, it's significantly higher than our historical average of about 40%. Meanwhile, sales of to-be-built homes, those constructed based on customers' orders rose from 21% to 32%. If these patterns hold, we expect to see more to-be-built deliveries in the second half of '26 and into fiscal '27.

As is typical, to-be-built margins in the second quarter were higher than our QMI margins. Having more to-be-built deliveries going forward will be beneficial to our gross margin and our overall profitability. With our current inventory of 731 quick move-in homes, we're well positioned to satisfy existing homebuyer demand. We'll continue to adjust our starts as needed, making sure we maintain the right balance, enough QMIs to meet demand without overshooting. This strategy allows us to sign contracts and close on homes more quickly within the same quarter, leading to fewer homes left in backlog and a higher conversion rate from backlog to deliveries.

In the second quarter of '26, 41% of the homes we delivered were both sold and closed in the same quarter. That's the highest percentage we've recorded since we began tracking this metric in '23. While this makes it a bit harder to predict next quarter results, it led to a backlog conversion rate of 85%, much higher than our historical average of 61% for the second quarter since '98. We continue to closely manage our QMIs for each quarter, making sure that the rate at which we start homes matches the rate at which we sell them. We try to sell the QMIs before they are finished.

Over the past year, our finished QMIs decreased 55% from 304 at the end of last year's second quarter to 137 finished QMIs at the end of the second quarter of '26. If you look at Slide 17, you'll see that despite higher mortgage rates and slower sales pace nationwide, we managed to increase prices -- net prices in 44% of our communities during the second quarter. This quarter, we raised prices or decreased incentives in a larger percentage of our communities than we have over the last two years. As the number of communities with price increases has increased, so has the geographic dispersion of those communities.

To wrap up, we're actively managing our inventory to speed up sales of quick move-in homes, steadily clearing our lower-margin land and keeping our sales pace consistent. At the same time, we're positioning ourselves on new land to capitalize on new land opportunities that promise better margins and higher returns. I'll now turn it over to Brad O'Connor, with hopefully a less raspy voice than mine, our Chief Financial Officer.

Take it away, Brad.

Thank you, Ara. Turning to Slide 18. We ended the second quarter with $442 million in liquidity, well above our target range even after spending $232 million on land and land development and $10 million on stock repurchases. This is the third quarter in a row that our liquidity was above $400 million, reflecting our disciplined approach to capital and land management. Turning to Slide 19. As of April 30, 2026, our maturity ladder reflects the refinancing completed last fall. Today, except for our revolving credit facility, all outstanding debt is unsecured. This provides greater financial flexibility, further reduces risk and supports our long-term plans. On Slide 20, we highlight the progress we've made over the past few years in increasing equity and reducing debt.

Over that time, equity has grown by $1.3 billion and debt has been reduced by $749 million. Net debt to capital is now 43.1%, a substantial improvement from 146.2% at the start of fiscal 2020. While we still have work to do, we remain on track toward our 30% net debt to capital target. With $222 million in deferred tax assets, we do not expect to pay federal income taxes on approximately $700 million of future pretax earnings, which supports cash flow and capital flexibility. Turning to Slide 21. This quarter, we had 148 communities open for sale, unchanged from last year. While the total count is steady, there's been meaningful activity over the past year as we opened 75 new communities and closed 75 others.

The flat count reflects the balance of those actions, not a lack of portfolio refresh. Looking forward, our newer communities are positioned to outperform older ones, and we believe they will increasingly support improved margins and returns as they become a larger part of our delivery mix. Slide 22 details our land position. We ended the second quarter with 33,632 domestic controlled lots, equivalent to a 6.5-year supply. Including joint ventures, we now control 36,621 lots. This excludes lots in our Saudi operation. Our total domestic lot count declined 21% year-over-year, reflecting our intentional approach to land acquisitions and our willingness to step away from opportunities that do not meet our underwriting standards.

Our inventory of owned lots has also trended down, consistent with our continued shift toward a more land-light model. Slide 23 shows the age of our lot position, both owned and optioned, broken down by the year each lot was controlled. The number in each bar represents the total lots controlled in that year, and the number below each bar indicates the percentage of incentives used on homes delivered during that year. This slide illustrates that by the second quarter of '26, slightly more than 22,000 or 66% of our owned and option lots were initially controlled after fiscal 2023 when we began underwriting land acquisitions assuming a meaningfully higher incentive environment.

In the second quarter, 45% of our deliveries came from lots acquired in 2023 or earlier, which creates margin pressure because those lots were purchased assuming materially lower incentives, but less so than we experienced in previous quarters when more than 50% of our deliveries were from similarly aged lots. We're making a measured transition from older, lower-margin lots to newer land opportunities that better fit today's incentive landscape. To help navigate current market conditions, we are also working constructively with certain land sellers where we have option agreements with the goal of appropriately sharing the pain and aligning on outcomes that work for both parties. Encouragingly, even with today's incentive environment, we continue to see attractive opportunities that meet our margin and IRR thresholds.

On Slide 24, you can see our land and development spending trends over the past 6 quarters, along with the quarterly average for 2024. We scaled back land and development investment as we responded to changing market dynamics with a modest uptick in the second quarter, reflecting development activity to bring new communities online. Each acquisition is carefully evaluated, factoring in current pricing, incentives, construction costs and sales velocity, so we can allocate capital thoughtfully and remain responsive to market conditions. Our focus remains on sustainable growth in both revenue and profitability, supported by disciplined underwriting, a land-light approach and active capital management.

As part of the updated strategy we discussed last quarter, we are concentrating on acquiring land for move-up homes in desirable A and B locations. We are also expanding our pursuit of active adult communities while reducing investment in lower-margin entry-level developments on the outskirts. Given the continued variability in the sales environment and the timing effects associated with quick move home deliveries, we are providing financial guidance for the next quarter only. Our outlook assumes market conditions remain broadly stable with no major increases in mortgage rates, tariffs, inflation, cancellation rates or construction cycle times.

As a greater portion of our deliveries come from QMIs, quarterly results can be more sensitive to closing timing and mix. Our forecast includes ongoing use of mortgage rate buydowns and similar incentives, and it does not include any changes to SG&A from phantom stock expense tied to stock price movements from the $112.44 closing price at the end of the second quarter of fiscal '26. Slide 25 shows our guidance for the third quarter of fiscal '26. We expect total revenues between $650 million and $750 million. Adjusted gross margin is expected to be in the range of 14% to 15%. We expect SG&A as a percentage of total revenues to be between 12.5% and 13.5%, which remains above our long-term objective. We expect income from joint ventures to be between breakeven and $10 million, and our guidance for adjusted EBITDA is between $30 million and $40 million.

Our expectation for adjusted pretax income for the third quarter is between breakeven and $10 million. While our third quarter profit outlook remains modest, we anticipate a rebound in adjusted pretax income during the fourth quarter of fiscal '26. The upcoming delivery of homes from our newer higher-margin communities should further enhance results primarily in the fourth quarter and beyond. On Slide 26, we show that 86% of our lots are controlled via options, up from 45% in the second quarter of fiscal 2015, reflecting our strategic focus on land light. Looking at Slide 27, we compare well to our peers in controlling land through options. In fact, we have the fourth highest percentage of option lots, placing us well above the industry median.

On Slide 28, we have the second highest inventory turnover rate among our peers. This is an important part of our strategy because it means we sell and replace our inventory more quickly than most competitors, demonstrating a more efficient use of our capital. Our strong inventory turnover is driven not just by our land-light approach, but also by our ongoing efforts to streamline operations by increasing our use of land options and shortening the time from lot purchase to construction start as well as speeding up construction completion, we're able to turn our inventory more efficiently.

On Slide 29, we show that compared to our midsized peers, we have the highest adjusted EBIT return on investment at 15.9%. On Slide 30, we show our price to book value compared to our peers. We are trading at about 20% below book value and below the median for all the peers shown on this slide. Given our high return on investment, combined with our rapidly improving balance sheet, we believe our stock continues to be undervalued.

I will now turn it back to Ara for some brief closing remarks.

Thanks, Brad. We're realistic about the environment we're operating in as mortgage rates moved higher, incentives increased, margins compressed and land values decreased accordingly, including land that we have. That's the reality of this part of the cycle. What matters is how you respond, and we are finding and underwriting new land that meets our IRR hurdles even with today's higher incentive levels. We're being disciplined, selective and patient without losing sight of our long-term returns. We're also respectful of the landholders that have optioned lots to us, sharing in the pain as we burn through older land at lower margins.

Unfortunately, in the near term, that means accepting lower margins while the market works through this uncertainty. We're not sacrificing the future or making short-term decisions that compromise long-term value even as the housing market slows amid broader geopolitical and macro pressures. I think about airlines in periods of elevated jet fuel prices like they are seeing today, they don't stop flying planes, but they manage through it, control what they can and position themselves for stronger profitability when fuel prices normalize. And that's exactly what we're doing as a homebuilder, working through higher land and incentive costs while deliberately replacing older land with better underwritten land that supports materially higher margins over time.

In today's environment, it's difficult to provide meaningful visibility beyond the next quarter. However, we believe we are well positioned for meaningful improvement in the fourth quarter, particularly in volume and gross margins as newer communities begin to deliver. And although demand may continue to fluctuate in the near term, as we've shown in some of our slides, we remain focused on execution and believe that focus can help us finish the year with solid momentum. We have a strong franchise and outstanding people and great liquidity.

We focused on execution, managing inventory tightly, monetizing our QMIs and accelerating the transition to newer, more profitable communities. We believe this disciplined approach positions us to emerge from this period stronger, more efficient and better positioned to create value from our -- for our shareholders when conditions improve. That concludes our formal comments, and I'll be happy to turn it over for questions.

[Operator Instructions] And our first question comes from [ Stephen Carlson of Cottonwood Capital. ]

Just curious on your comments for an improved Q4, if you could elaborate on what you mean by that? Are you talking about year-over-year EBITDA improvement? Or is that something that might be delayed a little bit longer?

I'll try to elaborate. And again, as I'll preface my comments with repeating the fact that it's very difficult to forecast beyond the current quarter and the next quarter. But having said that, we -- as I mentioned, we anticipate higher volume sequentially that means higher delivery volume and higher revenues, and hopefully, if this trend continues and the market stays steady, we expect continued improvement in gross margins.

So I don't want to get more specific than that, given the volatility that I've demonstrated through the slides earlier, but we're feeling optimistic that the lower margins and lower profit returns that we reported this quarter, and we're projecting the third quarter will improve quite a bit in the fourth quarter.

Yes. But -- and the improvement is, as Ara mentioned, sequential. We're not commenting on improvement over last year. We're commenting on improvement sequentially.

Okay. Great. And then just on the cash balance, I noticed a slight dip. I assume that was just from working capital use consistent with the working capital use I see last year, but there wasn't a cash flow statement. So...

Yes. No, it's actually typical for us to have our highest cash balance at year-end. We tend to have our highest delivery volume in the fourth quarter. And then normally, you actually see us frankly, lower than this in the first and second quarter than where we've been running this year because the current environment, we've not done as much land acquisition. There hasn't been as many deals that you can underwrite in the current environment. So we actually have more liquidity and more cash than we typically would in the second quarter with liquidity over $400 million at the end of the second quarter...

Yes, I'll just elaborate just even further. It's not only higher than what is typical, as Brad mentioned, but it's way above our cash and liquidity targets. We'd love to have less cash actually, which would mean that we would have invested more in new land opportunities. Thankfully, we are finding good land opportunities, but just not quite enough to absorb all of our excess cash right now.

And just last question for me. On that point, any thoughts about other than land opportunities, plans to use the cash? Or I guess the only prepayable debt you have is really the preferreds, but any thoughts on uses of cash out of the ordinary?

No. I mean you saw us opportunistically take -- spend some cash in the quarter on stock repurchases. We still have available capacity under the Board approval for additional stock repurchases if we thought that was a good use of the cash. We'd like to also continue to maintain this excess liquidity while waiting for better land deals to come along. We'd like to have some dry powder available to invest when the right time comes. But you might see us opportunistically take some stock repurchases. Debt would be difficult, as you point out. It's not really callable other than very expensive. So...

And our next question comes from Alan Ratner of Zelman.

First, on the land comments you guys made, I think you kind of alluded to having some renegotiations with land sellers and land bankers, and you kind of alluded to sharing the pain a little bit. I'm just curious if you can kind of quantify what percentage of your land book at this point have you gone back and renegotiated and actually gotten better pricing on? Is this something that's kind of still in the early innings? Or have you actually made significant headway as far as your current portfolio of land? I'm just curious.

So Alan, I'll make a couple of comments to try to help -- answer the question. We have about, I think, 19% of our option lots are actually optioned with land bankers. A lot of the options are still with the original seller until they're going through the approval process. And therefore, we wouldn't renegotiate those until it was time to take them down and potentially either not move forward.

So to your point, of the land banking volume, I couldn't give you a percentage in terms of how many we've gone back and renegotiated. But we've had -- we go community by community where we're struggling with an individual community. And for the most part, I would say land bankers have been helpful in deferrals, primarily deferrals, but there's been some assistance on price on some more struggling communities. Both sides really want to work it out and not have to exit. And so we so far have had pretty good success with that.

Great. I appreciate that extra color. Second question, just on the pricing environment. I'm curious, we've heard from some others that perhaps maybe mortgage rate buydowns aren't having quite the impact that they were having a couple of years ago when rates initially surged in terms of traffic and even getting buyers off the sidelines. We've seen some other builders kind of pivot more towards base price adjustments. So first is more of a housekeeping question. When you give those incentive numbers, is that an all-in kind of price adjustment number, incentives plus base price? Or is that only incentives? And then the follow-up to that is, have you also begun to maybe pivot more towards base price adjustments versus incentives?

I'd say it's really situational. At this point, I mean, you heard a comment from other builders that mortgage rates are not necessarily driving customers. The reality is the lack of confidence with everything that's going on globally is really the driving factor. So whether it's incentives, buydowns, base price reductions, customers are just a little more hesitant at the moment. So we deal with every single community individually. In some cases, mortgage rate buydowns are important, depending on what our competitors are doing and how customers are reacting. In some cases, a little mortgage rate buydown may be appropriate, in other cases, base price reductions. You name it, we will customize it to the situation at hand.

But I think, Alan, we have -- to my knowledge, we haven't seen a significant change in the usage of mortgage rate buydowns. And when I say that, I mean any level of mortgage rate buydowns. So some customers may only take a smaller buydown along with a different incentive. So they might just buy it down to 5.5% or something like that. But there's still a significant number of customers that are doing some form of rate buydown in their use of our incentives.

Got it. And just the other part of my question, I just wanted to confirm, the incentive numbers that you gave percentage of, I guess, original price, would that also include if you were to reduce base price? Is that embedded within that percentage?

I don't think it is. But frankly, we haven't seen widespread base price reductions. It has been very, very isolated.

Yes, I agree there. It's not in the number, but it would not be meaningful because there hasn't been very many places we've done that.

Okay. Got it. So I shouldn't interpret then that sequential decline that you saw in incentives as a shift towards more coming out of base price. Is that...

No.

And our next question comes from Alex Barron of Housing Research Center.

As far as the improvement in incentives, is that because your competitors are less aggressive at this time than they used to be, and therefore, you don't have to try to match what they're doing? Or is it just buyers are -- where you don't have to offer as much because buyers are feeling just more confident regardless of what competitors are doing?

Alex, I'd say it's multipronged. A lot of it is driven by the fact that we've got a reduced amount of QMIs. We felt like we got a little ahead of ourselves with QMIs, and we were getting more aggressive to move through those. As we brought that -- the level of QMIs down, we actually have about less than one finished QMI per community right now. We feel like we can be less aggressive in our incentives that -- and mortgage rates and the buydown cost varies week-to-week and competitors' promotions vary week-to-week. So there are many reasons. But I'd say a big chunk of it is that we have less -- fewer QMIs and feel less motivated to increase incentives to move through them.

Okay. Yes, that was going to be my next question. For perspective, what was your level of finished unsold specs maybe two quarters ago or a year ago versus where you are today?

We had it on the slide. We were at 9.3 -- was our peak, 9.3 QMIs per community in January of '25, and we're at 5.8 today. So not quite half, but quite a bit less. And it was 8.6 exactly one year ago. So significant reductions from 8.6 a year ago to 5.8 now.

And Alex, if you were focusing on finished QMIs, we peaked in the fourth quarter at about 2.5 per community. And as Ara mentioned, we're close to about 1 right now. So significant improvement in our finished -- reduction in our finished QMIs, which is really where the heavier incentives would be, which further demonstrates this point.

Yes, that's great to hear. Also, as far as your joint ventures in the Saudi Arabia operation, it seems you guys had a slight loss in the joint venture. So I was wondering what drove that and also saw zero activity in Saudi Arabia. So is that done? Or are you guys going to start something in the future there?

Yes, two comments. The JV income loss for the quarter, the loss for the quarter is not related to Saudi at all. It's no longer a joint venture, just to be clear. And the reason there was a small loss is we've just ramped up a couple of new joint ventures and had finished out some of our older ones over the last previous couple of quarters. So you're seeing a start-up phase of a couple of the new ones. They'll start to deliver in later on this year. And as we mentioned, we expect to have a small amount of income in the third quarter from JVs, and then it should grow from there.

With respect to the Saudi operation, we do have activity. We have a couple of communities that are selling but not yet delivering. So we're expecting deliveries from Saudi operations in the second half, primarily starting -- you'll start to really see it in the fourth quarter of this year.

Overall, as you might -- first of all, our Saudi operation is really minute in the overall scope. I mean it's a very small investment and relatively small number of deliveries. But having said that, as you might imagine, given the world situation in the Middle East right now, there is a lot more hesitancy there on the part of consumers than there is here. But fortunately, we're in a pretty good position with minimal investment, and we're confident that market will improve as soon as the current crisis settles down a bit.

And our next question comes from Jay McCanless of Citizens Bank.

So my first question, you all threw out a stat about dirt starts being 32% this quarter, I think, versus 21%. Was that 32% of orders or closings? And I guess, what's the max you think you could get dirt starts with the current community base?

It was 32% of sales for the quarter, Jay, just to be clear. And we're not targeting a number, so to speak. But obviously, we like to sell to-be-built homes when we can in the right communities. Margins tend to be better as we commented on, and we have seen it gradually going up over the last couple of quarters. Historically, we would have about 60% of our sales be to-be built prior to the mortgage rate increase that occurred. That really pushed us toward QMIs.

So I think over the long run, I would expect us to continue to migrate back towards that kind of number, but how long that will take remains to be seen as long as customers still value quick move-in homes, we're going to have to still offer that in some basis.

I will add that most of our communities offer both QMIs and to be built. So it's not necessarily something that we are driving. Customers often have the option in the overwhelming majority of our communities. So it just so happens that we had more to-be-built interest than QMI interest. The impact is significant. It's -- the QMIs that can deliver typically within 60 or 90 days where customers are looking for mortgage rate incentives. Obviously, to-be-built, we don't offer anything like that in the mortgage incentives.

So it is helpful to our margins, and we'll see where the market goes. In general, we are shifting away from the most affordable entry-level housing. So that would typically -- and those are the buyers, by the way, that are most dependent on buydowns in order to qualify for the mortgages. So we'd expect, but we'll see that as we continue to shift away from that segment of customer, the tertiary markets that it would be natural that we'd shift to a little less incentive with mortgage rate buydowns.

Okay. The second question I had on land sales. You have had pretty good sales and profits from that in the last two quarters. Is that a run rate we should expect going forward? Or how should we think about land sales for the rest of the year?

No. I'd say it's not -- it's really an opportunistic thing when we see an opportunity to make as much profit flipping a piece of property as building a piece of property depending on a division's capacity or need for deliveries and volume for their overhead, we'll take advantage of that. So it's not something that's planned or regular. It just comes up from time to time, and we don't have anything specific planned for the next quarter.

Okay. And then the next question I had kind of -- if you look at Slide 23, and you look at the lots that are '23 and '24 vintage, that's almost 45% of your controlled lots, but those are also the ones that I would assume are probably one of the largest drag on gross margins. I mean how quickly can you work through -- I think it's almost 16,000 lots. How quickly do you think you guys can work through that? And is that the driver for community count right now? Is it -- I guess my question is, can you not get rid of those lots because those are the communities about to come online, even though they're the ones that are still a margin drag?

I think the first thing, Jay, to keep in mind because you're grabbing '23 and '24 together. And if you look at the below the bars, you'll see that in '23, we averaged for the year, 7.9% in incentive and '24 was 8.1% and in '23, when we did -- my suspicion I don't have it off the top of my head, but we probably started the year much lower and finished the year much higher and average 7.9%. And then it kind of was more stable in '24 at 8%. My point being that those lots are actually have -- were underwritten at 8-ish percent incentives.

Now we're now running around 12%, but we're still much closer with those vintage lots than we are if you go back and look at the lots from '21 and '22. So the point that we're trying to make is it's a good thing as we get into the '23 and especially '24 vintage lots because we were underwriting it with higher incentives and therefore, expect that to -- all else being equal, expect that to improve our margins from where they are today as those communities begin to deliver.

The other thing we'll mention is lot vintage certainly has a lot to do with margins, but geographic mix has even more to do with margins, and that's really critical. The Smile states that have typically done -- performed very well are certainly having a more challenging time today, Florida, Texas, the West Coast and our East Coast markets are certainly doing far, far better. So the geographic mix is probably more important than the vintage.

Okay. Great. And then just last question for me. Any idea or outlook on community count for the rest of the year and into '27?

I think what we would say on that is we've been relatively flat year-over-year. But we have -- we do expect community count to grow later this year or early into '27. We have continued to have challenges with getting communities open timely for various reasons. It's been -- that's definitely been a challenge. But we do have some communities coming online. We would expect growth towards the end of this year.

To be -- I'm sure you've heard the same thing from our peers. The whole industry is having a challenging time with land development timing and new community openings but it's also challenging because we do a re-underwriting of properties that were under contract before we close on them. So there may be communities we're planning to open. But as we get very close to taking down the land, if the economics don't work, there are times when we either renegotiate with the seller or don't move forward, as you see from impairments that -- and walkaways that we've had and all of our industry have had. But on the whole, we try to be good partners and work through some of the difficult land transactions with our partners. We value relationships. We're long-term players, and we don't want to be bad partners with everyone.

I show no further questions at this time. I'd like to turn it back to Ara Hovnanian for closing remarks.

Thanks very much. We, like all of our peers, and I'm sure like all of you that invest in our space are looking forward to stability worldwide and in the U.S. And we know there's demand out there. Our website interest and traffic at our communities is very high. Communities are -- I mean, customers are engaged. They're just hesitant to pull the trigger at volumes that we'd consider normal and at margins that we consider normal. But this too shall pass. It's part of the quintessential cyclicality of housing, and we look forward to a bright future, particularly as we bring some of our newer land parcels to market. Thank you very much.

This concludes today's conference call. Thank you for participating, and you may now disconnect.

All right. Good morning, everyone. Our next presentation will be in a fireside chat format with Hovnanian Enterprises and CFO, Brad O'Connor. I'm going to kick off with a few questions and then I would highly encourage any of you to add on as you see fit. Brad, I wanted to start off with just everyone's favorite conversation topic in the space, affordability. A lot of headlines kind of back and forth between the administration and the homebuilding sector around ways to make affordability better for all stakeholders in housing. What are you hearing from your seat? And do you think there's any momentum in Washington with regards to policy reform that could help the space?

Sure. So I mean, our CEO, Ara, has been part of those conversations with some of the other CEOs in the industry. Any regulatory changes that would improve affordability and make the opportunity for people to buy homes better would be -- we would certainly support and would love to see that. Whether there is some -- I don't think, and I don't think Ara thinks there's some silver bullet out there that's going to solve this problem.

There's been a few ideas floated the idea of limiting investors' ability to buy single-family rentals, for example, I don't think that's going to have a real meaningful impact. It's a relatively small portion of the market. There was the concept of rent to-own that was talked about a few weeks ago as well. Maybe that's a way to get some people in on first-time buying. So that could be possible. One of the things that I haven't heard talk about this time around, at least not as much is something that was used previously, which is first-time buyer tax credit. That did have some impact the last time that was used. So maybe there's an opportunity there.

But I think, unfortunately, I don't think that there's going to be a significant way to make that change happen. I think that what happens in our cycles in this industry typically takes time for land values to adjust according to what the current market is saying homes sales happen for with current incentives, et cetera. We only underwrite brand-new land deals at today's net pricing, net of incentives, current cost, current absorption basis. And we're finding some land deals that pencil it at today's prices. And so as more and more land sellers come to that reality, there'll be more land supply at better pricing and be able to continue to sell at lower prices.

It's a land supply at right price issue, I think, as much as anything, the problem is that takes time. And so unfortunately, I don't think there is a rapid change coming from government change. But anything they can do to assist would be helpful. One of the other challenges as this question has come up is that there are a lot of local costs that are driven by municipalities and local government states, development fees, specifically what I'm talking about.

And in some markets, those are very expensive. There are markets that's over $100,000. The federal government, I don't think has any way to reduce that. But if there were ways to get those kind of costs down, that would also help affordability as an input cost to the home. So unfortunately, I don't have a great answer, and it remains to be seen what comes of any of these changes, but I don't foresee it being a significant impact, at least not yet.

To your point on land prices, kind of trailing home prices, net of incentives, how far away do you think we are in terms of the effects of the last year, the elevated incentives, the effective price of a home flowing through into land valuation?

Yes. So I would say, on average, for us, it's about 2 years to 3 years on average from the time we control -- initially control a lot to getting to kind of first deliveries. And so -- and we are always underwriting our land deals at whatever the current market absorption pace, costs, sales incentives, net pricing is. So if you look back over the last few years, in 2024, our average incentive level was around 8%.

And we're now at around 12%, 12.5% in the most recent quarter, and it grew in between in steps. Prior to that 8% rate, we were closer -- we went from 3% to 8% in like a 1-year time frame. So for us, as we work through the land we controlled back in 2023 or earlier at those lower incentive levels with all the pressure on margin, we should, if nothing else changes, start to see improvement in our margins because we were underwriting those more recent deals with higher incentives.

But even the deals in 2024, we're underwriting at 8% incentives. So that's still 400 basis points worse than -- or 400 basis points worse than that now. So it's just going to take time for our margins to get back to normal for us, which is around 20%. But what I would say is it's about 2 years on average from control to kind of first delivery.

And then sticking with the incentives. So you mentioned 400 basis points worse than 8% to 12% roughly today. Are we at a ceiling in terms of incentives and buydowns? Can yourselves and the industry collectively provide more without coming underwater? And at some point, is it just more of a price versus piece?

Yes. I mean, so certainly, we are -- and we've stated this publicly, we continue to believe in high inventory return and maintaining sales pace as best we can. We think that's the most efficient way to run our business. And so we will, at each community, do what's necessary to try to maintain an appropriate pace for that community. What happens is if the incentives you need to make that happen become too significant, our land-light strategy allows us to potentially choose to leave that community.

Now we would forfeit a deposit and there's other costs that occur with that, but we don't have to continue to operate if it's a sub margin, it doesn't make any sense to continue. And so what you will -- what I think you would see from us and potentially others is ultimately, if there was more and more pressure, you might see our walkaway costs increase as a result. Good news is that hasn't happened to date. We're still managing even at these lower margins to want to continue that it's not worth it for us to walk away.

We also have not had any significant impairments of note. So we haven't gotten to the point where we're triggering land values that need to be written down. And the people we're partnering with on the land light side, whether they're developers or even land bankers are working with us on deferring takedowns and other ways to try to make sure we can work through the community and not have to walk away. But ultimately, we want to continue to drive pace. And if you can't make at least an acceptable margin and it's a lot takedown situation, you just wouldn't keep taking lots down.

So you mentioned, at least for now, the environment around developers and land bankers, you're still taking down options. How close are we to a point where you are walking away from more deals? Are we talking about, let's say, this environment persisting for another 6 to 12 months? Or can the industry absorb 6% mortgage rates for another 1.5 years to 2 years?

I mean if incentive levels stay like they are, I don't think you would see us change much of anything. The communities we're in are -- we haven't walked away to date, and these are the incentives we have. So it would take continued deterioration for that to happen. And it's hard for me to answer that question globally because every community is different.

And as you can imagine, and you'll probably ask me later what markets are better, but we have some markets that are better than others. So those communities aren't anywhere near close to having an issue where there's other communities that are in some of our more challenging markets that might be closer to having an issue. And so you're looking at each of those situations individually. Every community stands on its own.

And then just maybe drilling down a little bit more on impairment testing and what it would take to start writing down land assets. I've heard in the past some builders that gross margins are an indicator if you're underwriting a deal sub-15% gross margin, unlikely that you're going to continue moving forward with that parcel. Is there a hard and fast rule around that? Or again, is it community-specific and also determined by your outlook kind of...

So it's definitely community specific and just take an accounting lesson for just a second. What happens is you look at the remaining community life on an undiscounted cash flow basis. So what are you estimating in the revenues that are going to come in against future costs? And does the net of those things cover the current inventory value on an undiscounted basis. If it does not, and that's a negative calculation, then you have an impairment at which point you actually discount the cash flows to try to come up with the fair value that you need to write the land down to.

So long story short, where we are today, and we do that assessment every quarter. So we've had -- we had no impairments in the most recent quarter, very low -- relatively low level of impairments last fiscal year. So we haven't reached a point where there's -- I have a significant concern about any of these massive impairments coming. If for some reason, our margins went from 13% to 10%, we're probably going to have some inventory impairments, right? So -- but again, it's every community that we look at all along and look to see where that community stands. Makes sense.

Yes. Outside of incentives and price pressure, are there other levers you can pull on the cost side to maintain gross margins?

Well, we haven't been able to maintain them, unfortunately, but we can help them...

Mitigate...

I know what your question. There has been some help on the cost side. I mean, as when industry cycles like this, labor supply, we rebid our communities constantly to make sure that we're getting competitive pricing for all our materials and our labor. The labor side has been helpful. You've been able to claw back some costs there, just like the opposite happened during COVID, and we had to pay them a little more because the market got so hot.

The same is true with materials. We are seeing some give and take on the material side. There have been some challenges with some materials with tariffs. But for the most part, we've been able to keep our materials in check. Lumber has been down a little that helps. So big picture in the last year, a year ago this time, we were at a little around about $98 a square foot for construction costs, and we're right now around $96, high $95. So we've been able to bring cost per foot down given the current environment because of the pressure that's on -- just on the suppliers and labor just like it's on us.

Now I'm going to transition into markets. So can you give us kind of the lay of the land across your footprint, what MSAs are outperforming or underperforming and where you're seeing kind of the most opportunity?

Sure. So for us, our East, primarily Northeast segment has been the strongest, and that includes New Jersey, Delaware and Virginia and Maryland. And as you continue down the East Coast for us, the Carolina business, which is South Carolina and Georgia is kind of, I would say, in the middle in terms of strength. So a little worse than those other markets, but not our weakest. Our weakest markets are Dallas and Southeast Florida, which for us is kind of Palm Beach north towards Stuart, Port St. Lucie that way and Dallas.

And then I would -- the others, Houston, Orlando, Arizona and California are kind of in the middle. They're not as strong as our Northeast segment, but they're okay. And in every one of the markets, we've actually got communities that are performing quite well. But when you roll them up, those are the more challenged markets versus the better ones.

And can we walk through kind of the differentiation in product type as well kind of what you're seeing in demand?

Yes. So we operate in and have a diverse product portfolio. We have everything from first-time, move-up, luxury and our active adult portfolio. And I would say that on the whole, the first time, maybe to no one's surprise, the first-time product has been the most challenged. It's most -- with an affordability issue that tends to be what happens. So that's been our most challenging market. And I would say the opposite, active adult has probably been our strongest in the current market, and that's -- they need less or no mortgage, and they've had the advantage of a pretty strong equity market. So that certainly helped that customer base.

So from a product perspective, that's how I would say. And the market rate stuff has kind of been in between. I would -- in most cases, I would say closer to the active adult than the first time, but it really depends on where it is. I mean one of the decisions we made in the last maybe 6 months or so is it's time, we're going to start to focus less on the periphery markets where you see more of the first-time stuff and move more towards A and B locations and focus more on market rate, what I call non-first-time buyer and active adult and kind of get away from that first-time buyer product.

It tends to be in markets that are more challenged in the downturn. It also has 2 of the biggest homebuilders in play in almost every one of our markets that we compete within that space, and that's challenging to do. So I think you're going to see us shift away from first time. It's going to take time for that to happen, but you're going to see that over time shift away from first-time buyer product and go more towards the normal move up kind of market rate product and active adult.

That's helpful. You mentioned Northeast is your strongest market. Was weather a factor in January, February impacting any sort of traffic?

I mean it would have had an impact. Interestingly, it had an impact on the day of or the next day. But for the most part, it really didn't. And January and February were both stronger months for us year-over-year. So the good news, at least from our perspective is that while November and December were down year-over-year, January and February both picked up and picked up as you would normally see from a spring selling season perspective, like starting to see the improvement.

Traffic actually started doing that back in August. So from August through January, 5 of those 6 months traffic was up year-over-year. And then we started to see that come through in the contracts year-over-year from an absorption pace perspective in January and February. And we're hopeful that, that will continue into March and the rest of the spring selling season. But at least there was some optimism around what we saw in January and February from a sales perspective.

Do you keep stats around kind of traffic versus contract, like how kind of...

Conversion?

Conversion, yes.

We do keep conversion for traffic. And sometimes it's actually opposite of what you would think in other words. Sometimes conversion is actually higher than you might think because there's just nobody -- the only people that are showing up are people that really want to buy versus tire kickers. So you have to take conversion with a grain of salt. In the macro, I don't think our conversion has changed that significantly. And again, we look at it division by division and community by community. But -- and it tends to be, for whatever reason, a little different in different divisions or different markets.

That's helpful. Any early insights into the spring selling season outside of what you just said around January and February?

No. I mean, like I said, we're really hopeful that March continues the trend we saw in January and February. It remains to be seen what happens as a result of this weekend's events and going forward and what that does to sentiment. But hopefully, that's a short blip, and we're back on track with the improvement we've been seeing in January and February.

And has that January and February improvement been driven by any particular product or market? Has the entry-level buyer base started to slowly reemerge with headline mortgage rates at least below 6%?

I think that's helping. I think it's helping. I mean, as most of you would know, we've been offering incentives for mortgage rate buydowns well below 6% for a long time. But there's definitely, I think, you typically do see a psychological change in buyers as rates move down, you get a little bump from that. So that could be a little bit of what's helped us in January and February. But we will see.

I don't -- it has been across the board. It isn't like we only saw the improvement coming from one of the product segments. And it's actually been in almost all the markets as well. I would say Southeast Florida, Dallas still -- they've actually improved, but they're still weaker compared to others. But it's been across the whole company where we've seen that improvement in January and February.

Great. I'll pause there and see if there are any questions in the audience.

You mentioned, the desire to move into more [ move-up ] buyers. Do you have -- is there a stated mix that you would like to get to? Also, can you talk about the margin differential within the 2 different buyer segments?

Yes. So from a stated mix percentage, I don't -- we don't have targets like that. What I can tell you is today, active adult 20-ish percent, Jeff, right? Definitely would like to see that grow. And the first-time buyer was 42% in terms of the product. And the reason I'm focusing on the product is it's not just first-time buyers that buy that product. In fact, we know that it's actually quite a bit of second time or third-time buyers that are actually buying our first-time product because first-time product has actually gotten that much more expensive than it used to be that first-time buyers can't afford it.

But what I would expect to see is that 42% gradually goes down as we move away from that product portfolio and you see active lifestyle or active adult move into the 30s, something like that and then the market rate or move-up buyer, luxury buyer makes up the delta. But with respect to your margin question, the answer is on a -- there is a delta for us currently and has been for the last few years that's pretty meaningful in that, I would say, on average, the first-time product, our Aspire product is 600 to 700 basis points lower than what the kind of move-up in active lifestyle are.

So for us, it's been meaningful. I mean the other part of the challenge for us with the Aspire product in terms of being on the periphery, it's also competing with Lennar and Horton who dominate that market. And so you're competing with them on cost and price. It's just shown to be very challenging for us.

You had some helpful comments on margin as far as material costs. You said that lumber has been down. Just on the flip of that, like what is still giving you some pricing power or some pricing challenges as far as like what's not coming down right now given the backdrop? Because most of the building products companies are struggling quite a bit right now.

Yes. I would say just -- I mean, lumber is such a significant component. It really drives a lot of our construction costs overall. So on the rest of the material side, I don't think there's anything of note either direction, frankly. There's some that are up a little and some that are down a little, but it isn't -- there's not something that sticks out as a meaningful mover one way or the other.

Other questions, I'll continue. We've seen a little bit of M&A in the space recently with the Risewell Landsea transaction last year. You guys have also done a consolidation transaction in KSA. How do you see the homebuilding -- the U.S. homebuilding industry continuing to evolve as gross margins continue to be strained and large-scale builders tend to be able to withstand that a bit more?

Yes. I mean, I guess it wouldn't surprise me if consolidation of some form continue for all the reasons you say. I mean there's definitely efficiencies potentially to be had in size. For us specifically, we believe that we need to continue to grow in the markets that we're in. We're only in the top 5 builders and maybe 2 of the 14 divisions that we have. And therefore, we would like to use our capital and find growth in those markets that would be more efficient to us.

We already have the overhead. We already have the division offices and the President and the controller, et cetera. So for us, any acquisition, I think, would just -- would more likely be like a regional local builder and a way to acquire lots and get bigger in that particular market, and you get more efficient in that division by doing so. In the grander scheme, though, you could see other larger builders acquire just like what you saw with Tri Pointe, et cetera.

For us specifically, I don't think that's really in the cards. We still have a way to go in terms of -- we're going to get to it probably, but we're debt to cap is 42%. Our target is 30%. I don't really want to take on significantly more debt to do any kind of acquisition. So I don't think you'll see us do anything like that. And I don't think we are really in play from being an acquirer because the Hovnanian family still controls and wants to operate the business.

What are you seeing in terms of land spend? Obviously, just given some of the uncertainty around the market right now and existing land supply, do you expect land spend to continue moderating over the course of the year?

Yes, I do unless the market changes dramatically. We definitely have -- if you look at our statistics, our land spend is down, I think what are we averaging, Jeff, like $150 million a quarter when it was about $250 million in 2024, just to give you an order of magnitude. So it's definitely down, and that's just because we're not finding land deals that underwrite that makes sense to use our capital on.

And so the corollary is we now have significant liquidity. We typically have a target range around $200 million of liquidity, and we ended the first quarter at the end of January with $470 million of liquidity. We'd rather have that invested in inventory that was earning a 20% return. We're just not buying enough deals that can do that at the moment. And so we're going to wait and be disciplined in our land acquisition approach and look for deals that can hit those hurdle rates.

And then on that topic of liquidity and being above your target, how do you think about capital allocation outside of land spend, debt buybacks, stock buybacks, other forms of investment returns?

Sure. So we recently did our refinancing in September, which was great to get done. We moved from all secured debt to unsecured other than the revolver we have today. and pushed out our maturities. So to take out that debt, it's trading above par, has significant call premiums, et cetera. So not likely to spend any money on that at the moment.

And we've done some stock buybacks over the last couple of years when price seemed appropriate to do so. And we have authority to continue to do some of that, but it hasn't been anything of significance compared to some of our peers. So we're just going to keep the powder dry, so to speak, if that's what it takes and look for the land deals that pencil.

And you alluded to this earlier, debt to cap 42% going down to 30%. What could keep you away from focusing on that trajectory? Obviously, you mentioned M&A is not a priority right now in inorganic growth, but is there something out there that would keep you away from.

I mean I think it's just -- if the market continues to be challenging, it slows our profit and equity growth that -- to me, that's the one driver that would keep us from being able to continue to move in that direction or just takes longer than we currently think it will. I mean even today, we're probably, I don't know, 2 or 3 years away from being able to hit that kind of a target unless the market improves and we can get there more rapidly. And obviously, if it gets worse, it would take us a little bit longer.

Can you expand a little bit more on the land underwriting challenges? How -- can you expand a little bit more on the land underwriting challenges? How much of that is maybe you guys underwriting to a conservative future kind of housing market in terms of what you could realize on the underwrite versus maybe the inventory that you have? Like what is the benchmark that you guys are using to decide this is not penciling and how much of it is conservatism around kind of future home price growth or otherwise?

So the way that we underwrite is we don't believe we have a good crystal -- any better crystal ball than anybody else. So we underwrite using today's costs, today's absorption paces, today's net pricing, so inclusive of incentives and underwrite to basically a 20% or higher IRR. And we have a profit requirement, it has to be operating profit of 6%. So that -- those are the -- and we just -- we don't try to guess at what's going to happen in the future for all the -- you can guess one way and be wrong.

So I wouldn't say we're more conservative. I'd just say we use what today is. And the way we do that, we look at our own communities if we're in that market already, but we also look at our competitor communities and what they're selling for and what their paces are, and that's how we set the underwriting and look at those projects. So if ultimately, paces end up being stronger than we thought or we get a little less incentives, we should outperform the underwriting. And obviously, the opposite occurs if it goes the other way.

But that's how we do it. We don't try to guess at those future dates, future things. And by the way, I think that -- I think the other builders are mostly doing the same thing. And the reason I think that is I think many builders are seeing the same thing we are, which is reducing their lots control because they're not finding deals that pencil. And that's the kind of pressure that you need so that land sellers start to expect less on the land price.

So I asked a lot of builders this question last year in terms of magic number or crystal ball in terms of mortgage rates. Obviously, given the buydown environment that we're in, you're already effectively offering 5% or below to a lot of your homebuyers. If mortgage rates were to get to 5%, is -- does anything change? Or how does...

It's hard to -- I think so. And the reason I think so, I think there's a psychological aspect of rates and what people think is an acceptable rate. And therefore, you -- just by the nature of rate reductions, you get more people that come out. So I do think there's some benefit there. I also think -- and I think we talked about this last year that if rates come down, there are people that currently will not move from their existing home because they have a 3% rate and there may be a point where they don't have to get all the way to 3, but it is 5 enough for them to be comfortable that they want to move because they need a bigger house now or whatever the case may be, and they've been holding off.

Now that obviously creates an additional supply unit, but the person that's selling has to have some where to go, and we're a choice for that. So I think what happens in that instance is you just have more activity in general and perhaps that helps us.

So you believe that activity net -- would be a net positive in terms of that supply...

I think I certainly think it's an opportunity. Yes.

Any other questions? If not, I think we'll leave it there. Thanks a lot, Brandon.

Thank you.

Good morning, and thank you for joining us today for Hovnanian Enterprise's Fiscal 2026 First Quarter Earnings Conference Call. An archive of the webcast will be available after the completion of the call and run for 12 months. This conference is being recorded for rebroadcast [Operator Instructions].

Management will make some opening remarks about the first quarter results and then open the line for questions. The company will also be webcasting a slide presentation along with the opening comments from management. The slides are available on the Investors page of the company's website at www.khov.com. Those listeners who would like to follow along should now log on to the website.

I would like to turn the call over to Jeff O'Keefe, Vice President, Investor Relations. Jeff, please go ahead.

Thank you, Michelle, and thank you all for participating in this morning's call to review the results for our first quarter. All statements on this conference call that are not historical facts should be considered as forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such statements involve known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements of the company to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements.

Such forward-looking statements include, but are not limited to, statements related to the company's goals and expectations related to its financial results for future financial periods. Although we believe that our plans, intentions and expectations reflected and are suggested by such forward-looking statements are reasonable, we can give no assurance that such plans, intentions or expectations will be achieved.

By their nature, forward-looking statements speak only as of the date they are made are not guarantees of future performance or results and are subject to risks, uncertainties and assumptions that are difficult to predict or quantify. Therefore, actual results could differ materially and adversely from those forward-looking statements as a result of a variety of factors. Such risks, uncertainties and other factors are described in detail in the sections entitled Risk Factors and Management's Discussion and Analysis, particularly the portion of MD&A entitled Safe Harbor Statement in our annual report on Form 10-K for the fiscal year ended October 31, 2025, and subsequent filings with the Securities and Exchange Commission. Except as required by applicable securities laws, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, changed circumstances or any other reason.

Joining me today are Ara Hovnanian, Chairman and CEO; Brad O'Connor, CFO; David Mitrisin, Vice President, Corporate Controller; and Paul Eberly, Vice President, Finance and Treasurer. I'll now turn the call over to Ara. Ara, go ahead.

Thanks, Jeff. I'll start by highlighting our first quarter performance and sharing insights into how we're navigating the current housing market. Brad will then dive deeper into our results and our strategy and followed by an opportunity for your questions. Let me begin with Slide 5. Here, we share our first quarter results alongside the guidance we provided earlier. Even with ongoing challenges both in the U.S. and around the world, our team consistently delivered, meeting or exceeding guidance across all the metrics for the quarter.

Beginning at the top of the slide, total revenues reached $632 million, approaching the high end of our guidance range. Adjusted gross margin came in at 13.4% in the quarter, which was just shy of the midpoint of our expectations. Our SG&A came in at 13.3% better than the low end of our guidance. Income from unconsolidated joint ventures totaled $3 million, this was slightly below the midpoint of our expectations, although income from consolidation of certain joint ventures exceeded our expectations as we'll discuss in a moment. We're satisfied to report that both of the profit figures we guided to beat expectations. Adjusted EBITDA for the quarter was $63 million, which was significantly higher than our guidance range. Adjusted pretax income was $31 million, also significantly above the range we forecasted. We'll discuss this more later in our presentation.

On Slide 6, we show the first quarter results compared to last year's first quarter. The comparison is difficult mainly because we've offered even greater incentives this year to maintain sales pace which has driven much of the year-over-year decline in profit. In addition, deliveries were lower due to slower market conditions. In the upper left-hand section of the slide, you can see that our total revenues fell by 6% compared to last year. We delivered 12% fewer homes, which was the main reason for the decrease but the land sale in the first quarter helped offset some of that decline. Turning to adjusted gross margin, we saw a year-over-year decline, primarily due to the additional incentives provided to help buyers manage affordability and challenges, a theme you'll hear throughout our presentation.

Our current approach emphasizes maintaining steady sales and clearing older lower-margin lots and older QMIs. Looking ahead, as we open new communities where these incentive costs are already factored in during land acquisition, we anticipate stronger gross margins provided the market doesn't require further increases in incentives. But based on our recent sales, which we'll share in a moment, we don't anticipate that to happen. In this year's first quarter, incentives accounted for 12.6% of the average sales price. The majority of this cost was attributed to mortgage rate buydowns and essential tool for unlocking affordability and driving demand. This represents an increase of 40 basis points from the fourth quarter of '25.

The quarter-to-quarter increases are beginning to level off, although it's still up 290 basis points compared to the same quarter a year ago and higher by 960 basis points versus the full fiscal year in '22, which was before the mortgage rates spiked began affecting margins on our deliveries. Offsetting the year-over-year increases in incentives, our base construction and option costs per square foot on delivered homes decreased 2% year-over-year in the first quarter.

Additionally, our cycle times for single-family detached homes decreased 17 days to 133 calendar days in the first quarter of '26 compared to the same quarter a year ago. Looking at the bottom left section you'll see that our total SG&A expenses as a percentage of total revenue went up a bit in the first quarter. This was due to our revenue decreasing more than our SG&A costs even though we managed to reduce absolute SG&A expenses compared to last year. At the corporate level, we're investing more heavily in technology and processes for the future. While this should yield savings in the future, it is adding to SG&A in the current periods.

Moving to the bottom right-hand section of the slide, while our profit exceeded our guidance, it declined 24% year-over-year primarily due to higher levels of incentives used this year. Our approach remains focused on efficiently turning over existing inventory advancing sales of quick moving homes and emphasizing a steady sales pace. At the same time, we're positioning ourselves to capitalize on new land opportunities that are expected to deliver improved margins and returns.

Now looking at the sales environment on Slide 7. We're still using mortgage rate incentives to help boost sales, we had a reduction of only 35 contracts in a significantly slower delivery home environment. We think the drop would have been larger without the incentives we're offering. The decline mainly reflects ongoing market challenges and low consumer confidence by offering incentives, we're able to ease some of these difficulties and especially affordability and keep sales activity steady.

On the encouraging side, if you turn to Slide 8, you'll see monthly traffic per community from August through January. Compared to last year, traffic increased significantly in 5 of the 6 months shown. The percentage increases grew steadily over the last 4 months with January showing the largest jump on the slide, an impressive 40% increase compared to the same month last year. The trend of increased traffic has continued in February. We're seeing encouraging sign of increased buyer engagement compared to last year. That said, continued economic and global uncertainties are causing some prospective buyers to remain cautious about committing to a purchase.

As shown on Slide 9, a contracts over the past 12 months have fluctuated from month to month, reflecting ongoing shifts in a volatile housing market and consumer confidence and sentiment. January's 11% gain stands out as the highest year-over-year increase on the slide. And while 1 month does not make a trend, it's a promising sign. As of yesterday, our month-to-date contracts in February of '26, which is almost over, are up 13% over the prior year, gaining a little momentum.

On Slide 10, you can see that the first quarter contracts per community have held fairly steady at about 9.5 contracts per community for the past 3 years. Notably, this year's first quarter was higher than the '97 through '02 levels that we consider a normal sales environment.

On Slide 11, a we provide a closer look at monthly contracts per community comparing each month in the first quarter to the same month last year. For the first 2 months of the quarter, the sales pace was lower than the same month last year. But the January '26 sales pace was better than a year ago, so we're off to a better start than a year ago. This was the third metric for the month of January that showed significant improvements year-over-year, giving us hope that the spring selling season this year could be better than last year. Further, our contracts per community for February of '26 are on track to be higher than the same month a year ago.

As shown on Slide 12, the value of incentives and mortgage rate buydowns has increased significantly over the past 4 years. The most notable surge occurred in early '23 when incentives rose sharply from 3.9% in the fourth quarter of '22 to 7.4% in the very next quarter, the first quarter of '23. Since then, incentives have continued to climb almost every quarter to the current level of 12.6% in this year's first quarter. While these higher incentives have put short-term pressure on our margins, they've been essential for maintaining steady sales and moving inventory.

As I said earlier, happily, the amount of incentives seems to be reducing from quarter-to-quarter in the recent months. To further support buyers, we continue to offer a strong selection of quick move in homes or QMIs, as we call them. This approach allows buyers to take advantage of available incentives and purchase homes quickly and affordably. It's important to note that our new land acquisitions build in these levels of incentives and still meet our return requirements. This should lead to much better margins in the future as these new communities begin delivering.

On Slide 13, we show that at the end of the first quarter, we had 5.7 QMIs per quarter. This marks the fourth quarter in a row where the number of QMIs per community has gone down, reflecting our ability to align starts with sales pace and optimize inventory levels. QMIs are homes that we've started framing but have not yet sold.

As shown on Slide 14, the number of QMIs fell from 1,163 at the end of January '25 and to 742 at the end of January '26, that represents a 30% decrease in 1 year. In the first quarter, QMI sales comprised 71% of our total sales down from a record 79% in prior quarters, but still well above our historical norms of above 40%. The corollary is that our to-be-built home sales homes that are built to customers orders increased from 21% to 29%. Assuming these trends continue, our percentage of to-be-built deliveries will be higher in the second half of '26.

To-be-built margins in communities that had both to-be-built and QMI deliveries in the first quarter were 780 basis points higher than QMI margins. Having more to-be-built deliveries in the second half of the year will be beneficial to our gross margins and overall profitability. We feel we can meet the current level of demand with the 742 QMIs that we have. We'll make appropriate adjustments up or down to our starts to ensure that we have enough QMIs to satisfy demand and not get ahead of ourselves at the same time.

By focusing on QMIs, we sign and deliver more contracts within the same quarter. This approach means that we have fewer homes in backlog at the end of each quarter but a higher rate of converting backlog to deliveries. In the first quarter of '26, 41% of the homes we delivered were both sold and closed within the same quarter, the highest percentage we've recorded since we began tracking this metric in '23. While this makes it a bit harder to predict next quarter's results, it led to a backlog conversion ratio of 88%, much higher than our historical average of 56% for the first quarter since '98. We continue to closely manage our QMIs for each community, making sure the rate at which we start these homes matches the rate at which we sell them. Try to sell the QMIs before they are finished. Over the past year, our finished QMIs decreased 22% from 319 at the end of last year's first quarter to 248 finished QMIs at the end of the first quarter of '26.

If you look at Slide 15, you'll see that despite higher mortgage rates and a slower sales pace nationwide, we managed to increase net prices in 32% of our communities during the first quarter. More than half of these price increases happened in Delaware, Maryland, New Jersey, South Carolina, Virginia and West Virginia, some of our stronger markets.

In summary, our strategy continues to prioritize the swift turnover of inventory, maintaining robust sales of quick move-in homes ensuring a consistent sales pace and burning through our lower-margin land. At the same time, we're preparing to take advantage of emerging land opportunities that should result in stronger margins and returns. In addition, we've shifted our focus on new land acquisitions away from lower-margin entry-level homes on the periphery to more move-up homes in the A and B locations as well as focusing on more active adult communities. By staying disciplined in these areas, we're well positioned to adapt to market shifts and drive substantial growth in the future.

I'll now turn it over to Brad O’Connor, our Chief Financial Officer.

Thank you, Ara. Before I get to the next slide, I want to comment on the other income line on our income statement. In the first quarter of fiscal '26, we took full control of 2 joint ventures that were previously not consolidated. For one of these joint ventures, this happened after our partners received their final cash distributions, which met their preferred return goals slightly earlier than anticipated because of the solid performance of the communities. For the other, it happened when we acquired a controlling interest in a previously unconsolidated joint venture in the Kingdom of Saudi Arabia. We then added the remaining assets and liabilities of both of these joint ventures to our balance sheet at fair value resulting in a gain of $27 million recorded as other income.

Importantly, the individual communities from these joint ventures continue to meet our standard return metrics even after the step-up to fair value and after current incentives. As a reminder, this has become a normal part of the life cycle of our joint ventures as we have had other income from JV-related transactions 5x in the past 11 quarters.

Before commenting further on our U.S. results, I want to briefly touch on our international operations. Although our operations in the kingdom of Saudi Arabia are not expected to contribute materially in the near term, the country's growing need for housing and the scale of the opportunity reinforces our confidence in the long-term prospects of this market. For fiscal '26, we only expect about 300 deliveries from the Kingdom of Saudi Arabia demonstrating the minor impact it will have on operations this year.

Turning to Slide 16. We finished the quarter with 151 communities open for sale, up slightly compared to a year ago. We continue to see steady progress in increasing our community count as we focus on growing revenue. While challenging market conditions remain a hurdle, our expanding number of communities is helping us maintain overall home delivery levels. Looking ahead, we believe our newer communities are well positioned to deliver stronger results than older ones, supporting our ongoing growth plans.

Slide 17 details our land position. We ended the first quarter with 35,560 domestic controlled lots, equivalent to a 6.7-year supply. Including joint ventures, we now control 38,764 lots. Our consolidated domestic lot count decreased 18% year-over-year, reflecting disciplined land acquisition and a willingness to walk away from or postpone less attractive opportunities. You can see our land control position has begun to stop the steep decline and flatten as land sellers are getting more realistic on values in many markets, and we were able to replace our deliveries and walkaways with new acquisitions that meet our return criteria, even with today's incentives. Also of note on this slide is the steady decline in owned lots. It has decreased sequentially in almost all of the quarters shown in alignment with our land-light strategy.

Slide 18 shows the age of our lot position, both owned and optioned, broken down by the year each lot was controlled. The number in each bar represents the total lots that were controlled in that year, the number below each bar indicates the percentage of incentives used on homes delivered during that year. This slide illustrates that by the first quarter of '26 almost 23,000 of our owned or option lots were initially controlled in either fiscal '24, '25 or '26, by which time we are assuming more significant incentives in our underwriting of land acquisitions. In the first quarter, a majority of our home deliveries came from lots acquired in 2023 or earlier. These older lots present more margin challenges since they were originally purchased with much lower incentives than we're currently offering.

As we move forward, we're steadily transitioning away from these less profitable lots to newer land that aligns better with the day's incentive environment, though the shift is gradual. At the same time, we're collaborating with some land sellers under option agreements to find solutions that help us share the market challenges and ease the impact. Our strategy remains clear. We're intentionally selling through lower-margin lots to free up capacity for new acquisitions that support our margin and IRR goals. The good news is we're still finding new land opportunities that meet our underwriting criteria even with current high incentives and the current sales pace.

On Slide 19, we show our land and land development spend for each of the past 5 quarters and the quarterly average for all of 2024. Land and development spend has decreased in response to market conditions reflecting disciplined capital allocation and rigorous evaluation of every acquisition, factoring in current prices, incentive levels, construction cost and sales pace. We continue to identify compelling opportunities in our markets and remain laser-focused on revenue and profit growth for the long term. Our commitment to disciplined underwriting and strategic investment will drive continued success. In line with our evolving strategy, we're prioritizing the acquisition of land for move-up homes and prime A and B locations and expanding our focus on active adult communities, moving away from lower-margin entry-level developments on the outskirts.

Turning to Slide 20. We ended the first quarter with $471 million in liquidity, well above our target range even after spending $181 million on land and land development and $9 million on stock repurchases. Usually, our liquidity decreases sequentially during the first quarter. However, thanks to our disciplined approach to land management, we saw the opposite, liquidity actually increased in the first quarter of '26 compared to the fourth quarter of '25, as a matter of fact, it is the second highest liquidity for any quarter on the slide.

Slide 21 shows our current maturity ladder as of January 31, 2026. This reflects the refinancing we completed last fall. For the first time since 2008, all of our debt, aside from our revolving credit facility is now unsecured. This shift enhances our overall financial strength by increasing our flexibility, lowering our risk profile and positioning us well for long-term expansion. This refinancing is the most recent step in a decade-long process that illustrates our disciplined financial management and reinforces our ongoing commitment to a robust stable capital structure.

On Slide 22, we highlight how we've successfully increased our equity and reduced our debt over the past few years. Over that time, equity has grown by $1.3 billion and the debt has been reduced by $754 million. Net debt to capital is now 41.4%, a substantial improvement from 146.2% at the start of fiscal 2020. While we still have work to do, we remain on track toward our 30% net debt to cap target. With $223 million in deferred tax assets, we will not pay federal income taxes on approximately $700 million of future pretax earnings, enhancing cash flow and supporting growth.

Given the current volatility and challenges with predicting margins, we are only providing financial guidance for the next quarter. Our outlook assumes that marketing conditions remain stable with no major increases in mortgage rates, tariffs, inflation, cancellation rates or construction cycle times. As we rely more on QMI sales forecasting profit is tougher, while we performed at the top of our guidance for many quarters. Our goal is to provide realistic guidance that we can meet or beat if conditions are favorable. Our forecast includes ongoing use of mortgage rate buydowns and similar incentives but it does not include any changes to SG&A expense from phantom stock cost tied to stock price changes from the $112.65 closing price at the end of the first quarter of fiscal '26.

Slide 23 shows our guidance for the second quarter of fiscal '26. Our expectation for total revenues for the second quarter is between $625 million and $725 million. Adjusted gross margin is expected to be in the range of 13% to 14%. We expect the range of our SG&A as a percentage of total revenues to be between 12.5% and 13.5%, which is still higher than usual. One of the reasons the SG&A ratio is running a little high is that we are making significant investments to improve processes and technology in many areas to significantly increase our efficiency in future years.

We expect income from joint ventures to be between breakeven and $10 million, and our guidance for adjusted EBITDA is between $30 million and $40 million. Our expectation for adjusted pretax income for the second quarter is between breakeven and $10 million. Our second quarter guidance includes proceeds from a land sale that has already closed in the second quarter. While our second quarter profit outlook remains modest, we anticipate a rebound in adjusted pretax income during the latter half of fiscal 2026. Historically, our earnings have shown a tendency to strengthen as the year progresses and recent trends, including improved contract activity in January and February support this expectation. Additionally, the upcoming delivery of homes from our newer, higher-margin communities should further enhance results primarily in the fourth quarter.

On Slide 24, we show 86% of our lots controlled via option up from 44% in fiscal 2015, reflecting our strategic focus on land light. Looking at Slide 25. we remain strong compared to our peers in controlling land through options. In fact, we have the fourth highest percentage of option lots, placing us well above the industry median of 57%. On Slide 26, we have the second highest inventory turnover rate among our peers. This is an important part of our strategy because it means we sell and replace our inventory more quickly than most competitors, demonstrating a more efficient use of our capital. This reflects many other factors in addition to land light. We see more opportunities to use land options as well as reduced lot purchase to construction start and construction start to completion cycle times, which would further help us improve our inventory turnover.

On Slide 27, we show that compared to our midsize peers, we have the second highest adjusted EBIT return on investment at 17.2%. On Slide 28, we show our price to book value compared to our peers. We are trading slightly above book value and right at the median for all the peers shown on this slide. Given our high return on investment, combined with our rapidly improving balance sheet, we believe our stock continues to be undervalued.

I'll now turn it back to Ara for some brief closing comments.

Thanks, Brad. Despite a challenging housing environment, marked by affordability pressures and continued economic uncertainty, we delivered a first quarter that met or exceeded our guidance. While profitability declined year-over-year primarily due to higher incentives to support our sales in a very tough market, our focus on steady sales pace and efficient inventory turnover is paying off. We continue to prioritize sales pace over price, utilizing mortgage rate buydowns and other incentives to help drive demand and help more buyers overcome affordability challenges. Although, our recently -- our recent to-be-built contracts are yielding higher margins and they've begun to increase as a percentage of our total sales.

On the topic of affordability, we appreciate any support from the federal government that could make homes more affordable and encourage more buyers to enter the market. Our strategy, while pressuring near-term margins enables us to clear older lower margin loss and position us for improved profitability as newer margin -- newer communities come online, communities that were already underwritten with today's higher incentive environment in mind.

As we look ahead, we expect adjusted pretax income to improve in the latter half of '26 supported by stronger contract activity in the early months of the year, more higher-margin to-be-built homes and the anticipated contribution from our newer communities. While second quarter profits may be muted, we remain confident in our trajectory. We believe the delivery of higher-margin homes will bolster results as we transition to the back half of the year and grow our home deliveries and revenues. Operationally, we've made significant progress in aligning our inventory with current demand. The number of quick move in homes per community has declined for 4 straight quarters demonstrating our ability and agility and strong execution.

Our backlog conversion ratio hit 88%, well above historical averages for the first quarter and we remain confident in our ability to meet homebuyer demand going forward. We feel like we're making great progress in burning through some of our lower-margin land and older QMIs, setting us up for a solid future. On the land side, we exercised discipline by walking away from less attractive properties, primarily during the entitlement process and reducing our lot count by 18% year-over-year. We continue to secure new opportunities that meet our margin and return targets. Our land light strategy with 86% of our lots controlled via options combined with one of the highest inventory turnover rates in the industry ensures that we remain nimble and capital efficient. We remain confident that we have sufficient land control to produce solid growth as the housing market returns to normal.

Financially, our balance sheet and liquidity are strong, we ended the quarter with $471 million in liquidity, increased equity and further reduced net debt. With a net debt-to-capital ratio that has improved dramatically over the past few years, we're well positioned for long-term growth. Our recent refinancing moves have enhanced our flexibility and lowered our risk profile. Looking ahead, we expect that gross margins in the second half of '26 will gradually improve as we transition to newer, higher-margin communities. Our guidance for the second quarter assumes a steady market and continued focus on sales pace with prudent expense management and ongoing investment in process and technology improvements.

Finally, as we've seen in the past, we expect significant volume in the latter half of the year. In summary, we're navigating a tough market with discipline and agility and a strategic focus on sales pace, inventory efficiency and land-light operations that should deliver tangible results. We remain committed to sustainable growth and value for our shareholders as the market conditions evolve.

That concludes our formal comments, and I'll be happy to turn it over to any questions.

[Operator Instructions] Our first question is going to come from Alex Barron with Housing Research Center.

Yes, I guess on the topic of incentives and their pressure on margins. I'm kind of wondering if you guys feel there's going to be an opportunity this year to -- or is it worth the trade-off to maybe offer less incentives and maybe get slightly high -- lower sales pace but higher margins. How are you guys thinking or navigating through that right now?

Well, Alex, that's a good question, and it's certainly one that all homebuilders are looking at. Some of our peers have clearly made the decision to offer less incentives, seek higher gross margins even with the slower volume that it usually translates to. In our case, we'd rather focus on pace versus price, so we'll keep up the incentives. We really want to burn through some of our lower-margin land. And you can't do that if you're trying to squeeze every last dollar of profit. The market has shifted since we contracted for some of the land parcels years ago. So we just want to burn through those, clear our balance sheet as we've been doing drive liquidity. We're at the second highest we've been in many, many years, most of it just sitting in cash and prepare ourselves for the land opportunities that are clearly showing up now as land sellers are becoming a little more realistic given the incentives that most are offering.

Got it. And in terms of your percentage of specs QMI versus built-to-order, I know in the last few years, you guys have shifted more towards specs. What percentage are you doing of each? And are you thinking of doing something more balanced?

Well, as we mentioned in the call, QMI sales actually dropped from 79% to 71% and that wasn't actually part of a conscious strategy to do that. It just so happens that some of our offerings really drove -- we often offer both QMIs and to-be-built, and it just so happens that the demand for to-be-built in our markets has been growing recently, again, not through a specific strategy, but it's just the markets of the reality. And the good news is they have significantly higher profit margins and less incentives. Customers that want what they want are willing to pay for what they want. So that's been a beneficial trend.

[Operator Instructions] I am showing no further questions at this time. I would now like to turn the call back to Ara for closing remarks.

Thanks so much. We're satisfied with our results exceeding. Meeting and exceeding our guidance is not easy in this environment. So we look forward to giving better results yet in the following quarters in the remainder of the year. Thank you so much.

This concludes our conference call for today. Thank you all for participating, and have a nice day. All parties may now disconnect.

Good morning, and thank you for joining us for today's Hovnanian Enterprises Fiscal 2025 Fourth Quarter Earnings Conference Call. An archive of the webcast will be available after the completion of the call and run for 12 months. This conference is being recorded for rebroadcast and all participants are currently in a listen-only mode.

Management will make some opening remarks about the fourth quarter results and then open the line for questions. The company will also be webcasting the slide presentation, along with the opening remarks from management. The slides are available on the Investor page of the company's website at www.khov.com. Those listeners who would like to follow along should now log into the website.

I would now like to turn the call over to Jeff O'Keefe, Vice President, Investor Relations. Jeff, please go ahead.

Thank you, Michelle, and thank you all for participating in this morning's call to review the results for our fourth quarter. All statements on this conference call that are not historical facts should be considered as forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such statements involve known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements of the company to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements.

Such forward-looking statements include, but are not limited to, statements related to the company's goals and expectations with respect to its financial results for future financial periods. Although we believe that our plans, intentions and expectations reflected in/or suggested by such forward-looking statements are reasonable, we can give no assurance that such plans, intentions or expectations will be achieved. By their nature, forward-looking statements speak only as of the date they are made are not guarantees of future performance or results and are subject to risks, uncertainties and assumptions that are difficult to predict or quantify. Therefore, actual results could differ materially and adversely from those forward-looking statements as a result of a variety of factors.

Such risks, uncertainties and other factors are described in detail in the section entitled Risk Factors and Management's Discussion and Analysis, particularly the portion of MD&A entitled Safe Harbor Statement in our annual report on Form 10-K for the fiscal year ended October 31, 2024, and subsequent filings with the Securities and Exchange Commission. Except as required by applicable security laws, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, changed circumstances or any other reason.

Joining me today are Ara Hovnanian, Chairman and CEO; Brad O’Connor, CFO; and David Mitrisin, Vice President, Corporate Controller; and Paul Eberly, Vice President, Finance and Treasurer.

I'll now turn the call over to Ara.

Thanks, Jeff. I'll begin by reviewing our fourth quarter results, and I'll discuss our strategic positioning in the current housing market. After my remarks, Brad will follow with additional details, and we'll open up the floor for your questions.

Let me begin with Slide 5. Here, we present our fourth quarter guidance alongside of our actual results. Despite persistent political and economic uncertainty at home and abroad, our team delivered results meeting or beating our guidance across each of these key metrics.

Beginning at the top of the slide, our revenues reached $818 million, surpassing the midpoint of our guidance. Adjusted gross margin came in at 16.3% for the quarter, near the high end of our guidance. SG&A was 11.2%, near the lower end of our guidance. Income from unconsolidated joint ventures totaled $13 million, slightly above our expectations. Adjusted EBITDA for the quarter was $89 million, also exceeding our guidance range, and adjusted pretax income was $49 million, close to the midpoint of our guidance.

On Slide 6, we showed the fourth quarter results compared to last year. The year-over-year comparisons are challenging to say the least, in almost all metrics given that '24 was an excellent year for us and the environment became much, much more challenging in '25. In the upper left-hand portion of the slide, our total revenues declined by 17% year-over-year, primarily driven by a 13% reduction in deliveries and the absence of a significant land sale that occurred in the fourth quarter of last year.

Moving to the adjusted gross margin. We saw a year-over-year decline primarily driven by higher incentives offered to support affordability. Our focus on pace over price and our short-term strategy to move through lower margin loss are laying the foundation for stronger performance when the market stabilizes and as we open communities with our newer land acquisitions that factored in higher incentives while still achieving normal return metrics.

In the fourth quarter of this year, incentives accounted for 12.2% of the average sales price. The majority of this cost was attributed to mortgage rate buydowns an essential tool for unlocking affordability at the moment and driving demand. This represents an increase of 60 basis points from the third quarter of '25 up 370 basis points compared to a year ago and higher by 920 basis points versus fiscal '22 before the mortgage rate spike began affecting margins on our deliveries. [ Whereas ] not for the considerable cost of making homes affordable through mortgage rate buydowns, our gross margins would actually be quite robust.

Moving to the bottom left, you'll notice that our total interest expense ratio increased compared to last year. This is mainly due to other interest related to a few large communities in planning where interest is expensed immediately rather than capitalized. These communities were on our balance sheet before land banking, hence, the increased interest.

Moving to the bottom right-hand section of the slide. Importantly, while our profitability stayed within guidance, it was certainly a big reduction from last year's strong performance. These results are consistent with our strategy of moving through older vintage lots, selling our QMI's, prioritizing sales pace over price and clearing our balance sheet to make way for new land contracts, which are projected to carry significantly higher margins and returns.

Turning to the sales environment on Slide 7. We continue to use mortgage rate incentives to support our sales. Although the number of contracts in the fourth quarter fell by 8% compared to last year, it basically reflects the overall market conditions. Last year's fourth quarter was a particularly strong quarter for sales, making a difficult comparison for this year. Our use of incentives has helped soften some of the challenges and maintain steady activity.

Turning to Slide 8. This slide displays traffic per community for each month in the fourth quarter as well as the month of November. Compared to last year, traffic increased significantly in 3 of the 4 months. These results clearly highlight a positive trend, buyer interest has grown compared to last year. However, many potential buyers are still hesitant to move forward and enter contracts given a lot of economic and world uncertainty. You can see that contracts during the year on Slide 9 show that it was quite choppy every month.

Looking at Slide 10, you'll notice that quarterly contracts per community declined this year compared to the fourth quarter of last year. Similar to our year-over-year monthly results, our quarterly year-over-year results were also volatile. These comparisons demonstrate how challenging the current environment is. The contracts per community in the fourth quarter of '25 were 16% below the level seen during the '97 to '02 period, one of the few that we consider a normal sales environment.

On Slide 11, we provide a closer look at monthly contracts per community comparing each month in the fourth quarter to the same month last year. This year, sales pace for each month in the fourth quarter was lower than the same month last year and below our normal levels.

If you refer to Slide 12, we present contracts per community as if our quarter ended on September 30, allowing for a direct comparison with all of our peers that report contracts per community on a calendar quarter basis, which is most of them. With 9.6 contracts per community, our sales pace ranks as the fourth highest among all the publicly traded homebuilders.

As illustrated on Slide 13, contracts per community declined year-over-year for a vast majority of the homebuilders reporting this metric. Although any decrease is less than ideal. Our performance surpassed all but 2 of our peers. These comparisons are based on an adjusted quarter ending in September for us, which allows us to have a direct evaluation and comparison compared to our peers. The takeaway from these last 2 slides is clear. Our focus on sales pace over price is delivering above-average sales results and strengthening our margin position. I recognize, however, that it's sad to point out that we are one of the least bad in a difficult market, but that will eventually change. For the past 2 years, about 70% of our buyers have used mortgage rate buydowns.

As shown on Slide 14, the total value of incentives and buydowns has grown considerably over the last 4 years. Incentives began to rise sharply in early '23, jumping from 3.9% in the fourth quarter of '22 to 7.4% in the first quarter of '23. While these higher incentives have put short-term pressure on our margins, they've helped us keep our sales steady and move through loss with lower margin potential. To further support homebuyers, we are maintaining a robust inventory of Quick Move In Homes or QMIs, as we call them, enabling customers to benefit from incentive programs and secure homes quickly and cost effectively.

On Slide 15, a we show that at the end of the fourth quarter, we had 6.5 QMIs per community. This marks the third quarter in a row where the number of QMI per community has gone down, reflecting our ability to align starts with sales pace and optimize inventory levels. QMI's are homes that we have started framing but have not yet sold.

As shown on Slide 16, the number of QMIs fell from 1,163 at the end of January of '25 to 907 at the end of October of '25. This represents a 22% decrease over that period. It demonstrates our flexibility in aligning supply with current demand and optimizing our approach to meet buyers' needs while maintaining operational efficiency. In the fourth quarter, QMI sales comprised 73% of our total sales down from the record of 79% in prior quarters, but still well above our historical norms of about 40%. By focusing on QMI we sign and deliver more contracts within the same quarter. This approach means we have fewer homes in backlog at the end of each quarter, but a higher rate of converting backlog to deliveries.

In the fourth quarter of '25, 36% of our homes delivered were both contracted and delivered in the same quarter. While this makes it a bit harder to predict next quarter's results, has led to a backlog conversion ratio of 102%, much higher than the historical average of 66% for fourth quarter since '98. That also was the first time we've ever been above 100% in any quarter. We continue to closely manage our QMIs for each community, making sure the rate at which we start these homes matches the rate at which we sell them.

If you look at Slide 17, you'll see that despite higher mortgage rates and a slower sales pace nationwide we managed to increase net prices and 36% of our communities during the fourth quarter. More than half of these price increases happened in Delaware, Maryland, New Jersey, South Carolina, Virginia and West Virginia, some of our strongest markets. However, we've also been successful and have communities in some of our most challenging markets, typically in A and B locations that have great returns. Our approach remains to prioritize sales pace, but when the market strength is evident, we capitalize on opportunities to raise prices and reduce incentives.

I'll now turn it over to Brad O’Connor, our Chief Financial Officer.

Thank you, Ara. Before I get to the next slide, I want to comment on the other income line on our income statement. During the fourth quarter of fiscal 2025, we assume control of 2 previously unconsolidated joint ventures after our partners receive their final cash distributions achieving their preferred return requirements. As a result, we consolidated the remaining assets and liabilities of these successful joint ventures at fair value, recording a gain of $18.9 million in other income. This type of consolidation has become more common and we anticipate another similar event in the first quarter of fiscal '26. Importantly, these communities continue to meet our standard return metrics even after the step-up to fair value and after current incentives.

Turning to Slide 18. We finished the quarter with 156 communities open for sale, reflecting steady growth as we focus on expanding our top line. We expect newer communities to outperform older vintages supporting our growth strategy. Unfortunately, the difficult market is currently a headwind to our growth. But the larger higher community count is allowing us to generally maintain our volume.

Slide 19 details our land position. We ended the fourth quarter with 35,883 controlled lots, equivalent to a 6.5 year supply. Including joint ventures, we now control 38,742 lots. Our lot count decreased 14% year-over-year, reflecting disciplined land acquisition and a willingness to walk away from or postpone less attractive opportunities. Even with fewer lots, we remain well positioned to increase our home deliveries in the coming years.

On the far right side of the slide, you can see that our lot count decreased sequentially for the third quarter in a row. These recent declines are reflective of the operating environment. We walked away from almost 15,000 lots during fiscal '25, including almost 6,000 lots in the fourth quarter. Having said that, our land teams remain active, securing 9,600 lots under contract in the last 3 quarters, 3,100 in the fourth quarter, all meeting or exceeding our margin and IRR hurdles even after factoring in current high incentives.

Slide 20 shows the age of our lot position, both owned and option broken down by year -- by the year each lot was controlled. The number above each bar represents the percentage of total lots that were controlled in that year. The number below each bar indicates the percentage of incentives used on homes delivered during the year. This slide illustrates that by the fourth quarter of this year, 62% of our land was initially controlled in either 2024 or 2025, by which time we were assuming more significant incentives in our underwriting of land acquisitions. However, 87% of our deliveries in the fourth quarter were from lots of vintages from 2023 or earlier. Those vintages are more challenging from a margin perspective because we were assuming much lower incentives when they were underwritten. We are working through those lots, as you can see on this slide, but it is a gradual transition.

The process of shifting our land position towards lots that were purchased with greater incentives is slow and ongoing. We are working through the older, less profitable lots and replacing them with newer land acquisitions that offer better returns. In today's challenging market, we're also working with some land sellers who we have option agreements with mutually beneficial solutions where we bolster a little bit of the pain in a difficult market.

Strategically, we decided to sell through lower margin lots to make room for new land acquisitions that meet our IRR targets. The good news is we are still finding new land opportunities that meet our underwriting criteria even with current high incentives and the current sales pace. Given our recent land acquisitions that begin delivering in 2026 we expect our gross margin percentage to bottom in the first quarter of fiscal '26 and to gradually improve in the following quarters.

On Slide 21, we show our land and land development spend each quarter of fiscal '25 and the quarterly average for all of 2024. Land and development spend has decreased in response to market conditions, reflecting disciplined capital allocation and rigorous evaluation of every acquisition, factoring in current prices, incentive levels, construction costs and sales base to ensure IRRs above 20%. We continue to identify compelling opportunities in our markets and remain laser-focused on revenue and profit growth for the long term. Our commitment to disciplined underwriting and strategic investment will drive continued success.

Turning to Slide 22. We ended Q4 with $404 million in liquidity, well above our targeted range even after spending $199 million on land and land development. We completed a significant refinancing during the fourth quarter, which is highlighted on Slide 23. The top of the slide shows our maturity ladder as of July 31, 2025. This refinancing shown on the bottom portion of the slide marks a major milestone for us. For the first time since 2008, all of our debt, except for our revolving credit facility is now unsecured. This change strengthens our balance sheet going forward, providing us with greater financial flexibility, reducing risk and positioning us for future growth. The successful refinancing underscores our disciplined approach to managing debt and emphasizes our commitment to maintaining a strong and stable financial foundation.

On Slide 24, we highlight how we've successfully increased our equity and reduced our debt over the past few years. Over that time, equity has grown by $1.3 billion and the debt has been reduced by $754 million. Net debt to capital is now 44.2%, a substantial improvement from 146.2% at the start of fiscal 2020. While we still have work to do, we remain on track toward our 30% net debt target.

With $230 million in deferred tax assets, we will not pay federal income taxes on approximately $700 million of future pretax earnings, enhancing cash flow and supporting growth. Given the current volatility and challenges with predicting margins, we are only providing financial guidance for the next quarter. Our outlook assumes that market conditions remain stable with no major increases in mortgage rates, tariffs inflation, cancellation rates or construction cycle times. As we rely more on QMI sales forecasting profits is tougher, while we performed at the top of our guidance for many quarters, our goal is to provide realistic guidance that we can meet or beat, if conditions are favorable. Our forecast includes ongoing use of mortgage rate buydowns at similar incentives and it does not include any changes to SG&A expenses from [ Fantom ] stock cost tied to stock price changes from the $120.23 closing price at the end of Q4 fiscal 2025.

Slide 25 shows our guidance for the first quarter of fiscal '26. Our expectation for total revenues for the first quarter is between $550 million and $650 million. Adjusted gross margin is expected to be in the range of 13% to 14%. This is lower than our typical gross margin, particularly because of increased cost of mortgage rate buydowns and our focus on pace versus price. Assuming no further deterioration in the market, we expect our gross margin to bottom in the first quarter of '26 with margins gradually increasing each quarter and the remainder of '26. We expect the range of SG&A as a percentage of total revenues to be between 13.5% and 14.5%, which is still higher than usual. One of the reasons the SG&A ratio is running a little high is that we are expecting community count growth, and we have to make new hires in advance of those communities.

In addition, we are making significant investments to improve processes and technology in many areas to significantly increase our efficiency in future years. We expect income from joint ventures to be between breakeven and $10 million and our guidance for adjusted EBITDA is between $35 million and $45 million. Our expectation for adjusted pretax income for the first quarter is between $10 million and $20 million. This includes the expectation of other income from the consolidation of the joint venture in the first quarter when the partner is expected to reach their full returnable capital as prescribed in the JV agreement. As a reminder, this has become a normal part of the life cycle of our joint ventures is that we have had other income from JV-related transactions 4x in the past 10 quarters. Our first quarter guidance also includes proceeds from a land sale we expect to close in the first quarter.

On Slide 26, we show 85% of our lots controlled via option, up from 46% in fiscal 2015 reflecting our strategic focus on [ landline ].

Looking at Slide 27, we remain strong compared to our peers in controlling land through options. In fact, we have the fourth highest percentage of option lots placing us well above the industry median of 58%.

On Slide 28, we have the second highest inventory turnover rate among our peers. This is an important part of our strategy because it means we sell and replace our inventory more quickly than most competitors demonstrating a more efficient use of our capital. This reflects many other factors in addition to land light. We see more opportunities to use land options as well as reduce lot purchased a construction start and construction start to completion cycle times, which would further help us improve our inventory turnover.

On Slide 29, we show that compared to our midsized peers. We have the second highest adjusted EBIT returns on investment at 17.7%.

On Slide 30, we had the 5 larger builders and we still ranked fifth highest overall. Our adjusted EBIT return on investment is a true measure of pure homebuilding operating performance. Over the last several years, we've consistently had one of the highest ROIs among our peers.

On Slide 31, we show our price to book value compared to our peers. We are trading slightly above book value and just below the median for all the peers shown on the slide. These last 2 slides emphasize the point but given our high return on investment, combined with our rapidly improving balance sheet, we believe our stock continues to be undervalued.

I'll now turn it back to Ara for some brief closing comments.

Thanks, Brad. Five years ago, we were above median compared to our midsized peers in EBIT ROI, which we believe is the true key operating metric for homebuilders from our perspective. Four years ago, we were also above median and ROI. For the past 3 years, we have been #1 or the #2 performer in ROI. Our operating model is yielding industry-leading results. It's true that we have a high debt-to-cap ratio and higher interest rates than many of our peers, which means that we have been more sensitive to margin compression. However, as we've shown you, we have been steadily increasing our equity and decreasing the amount of debt. With our recent refinancing, we've decreased the cost of our debt.

Our fourth quarter pretax was significantly impacted by the heavy fees to pay off our debt early during the refinancing, but the interest savings would quickly bring back the benefits and the longer maturities give us the flexibility to deal with market uncertainties. We have plenty of work ahead of us. But the key is that we have the right operating model that is producing top results on an ROI basis. As Brad mentioned, we're making heavy investments in business process redesign, technology and in searching for new opportunities and cost reductions that will make us even more competitive in the future.

Our land position, as shown on Slide 32, is heavily weighted to the Northeast which is over 53% of our lots controlled, and that's important because the Northeast is one of our most profitable segments. It is lowest in the Southeast, a more challenging market at the moment, where we only control 17% of our total lots. Finally, the West has 30% of our lots. While our short-term sales have been below last year, as I mentioned earlier, traffic per community is up fairly significantly over the last year in recent months. Buyers are definitely out there looking, but with all the world and economic uncertainty, they are hesitating at the moment, but that will eventually pass. Our new land acquisitions, particularly the land and lot contracts in the last year have been underwritten with significant incentives that should yield dramatically better gross margins and returns.

In addition, on Monday morning, I can look back and say we were too heavily invested in the more affordable tertiary markets with entry-level homes. This has been the more challenging segment of the housing market, and we have been staying clear of these locations in our new land acquisitions. Conversely, our active adult segment has been performing quite well, and we are focusing more on this segment, which is currently only about 19% of our deliveries. Regarding our move-up product, clearly, the A and B locations are performing the best all over the country, and that's where we're concentrating our efforts on new land acquisitions.

By focusing on pace over price, maintaining a higher inventory of Quick Move In homes, we're able to sign and deliver more contracts each quarter, convert backlog at a higher rate and keep our communities active and burn through our older land that has lower embedded margins. This clears our balance sheet for newer land acquisitions underwritten to provide solid returns even with the current high incentives. As Brad mentioned, our internal guidance suggests that margin should bottom out in the first quarter and begin to steadily increase in subsequent quarters if the market conditions remain similar to current conditions.

That concludes our formal comments, and we're happy to turn it over for Q&A now.

[Operator Instructions] Our first question comes from the line of Natalie Kulasekere with Zelman.

Are you doing anything to offset some of the pressure from gross margins? Have you seen any cost improvements, maybe direct cost improvements, have you been able to negotiate anything lower with your vendors? Yes. Just any color on that would be great.

I mean we have consistently gone back in existing communities and certainly for new communities to rebid with suppliers, trade partners, et cetera. We've had some success controlling costs and reducing costs in some places. We're down pretty significantly in costs on a per square foot basis from 2 years ago. Over the last -- over this year, we're basically holding steady so any increases being caused by tariffs or other things have been offset by savings elsewhere. So we've been able to manage costs flat, and we'll continue to pursue ways to reduce costs either with trades or changing material suppliers, et cetera.

I'll mention one additional thing. We have -- we've seen several of our peers have success with buying down a 7-year arm versus a 30-year fixed. That has 2 benefits, one, you can qualify buyers at a lower rate and at the same time, actually save cost, which helps margins. So we're going to begin advertising and promoting that program more aggressively starting this weekend. And if it's as successful as we're seeing, that incremental portion of our buyers that use a 7-year arm will help our margins.

Okay. That's helpful. And when you expect gross margin to take higher through the year next year, is that driven by a mix impact? Or is it because you think you will be done selling through underperforming assets at that point?

It's a mix because you're working through the older stuff. So yes, as we continue to work through the older, more challenging property and bring on deals we identified in 2024 and 2025 that mix shift to newer land will help our margins improve.

[Operator Instructions] I am showing no further questions at this time. And I would like to hand the conference back to Ara Hovnanian for closing remarks.

Thank you very much. Well, needless to say, we're pleased that we met or beat all of our guidance metrics. Disappointed in the absolute results but we look forward to our performance bottoming out in this upcoming quarter and then beginning our improvement from there.

Thanks so much, and we look forward to reporting better and better results in future quarters.

This concludes today's conference call. Thank you for participating, and you may now disconnect. Everyone, have a great day.

Good morning, and thank you for joining us today for Hovnanian Enterprises Fiscal 2025 Third Quarter Earnings Conference Call. An archive of the webcast will be available after the completion of the call and run for 12 months. This conference is being recorded for rebroadcast [Operator Instructions]. The company will also be webcasting a slide presentation along with the opening comments from management. The slides are available on the Investors page of the company's website at www.khov.com. Those listeners who would like to follow along should now log on to the website.

I would like to turn the call over to Jeff O'Keefe, Vice President, Investor Relations. Jeff, please go ahead.

Thank you, Michelle, and thank you all for participating in this morning's call to review the results for our third quarter. All statements in this conference call that are not historical facts should be considered as forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such statements involve known and unknown risks, uncertainties and other factors, that may cause actual results, performance or achievements of the company to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Such forward-looking statements include, but are not limited to, statements related to the company's goals and expectations with respect to its financial results for future financial periods.

Although we believe that our plans, intentions and expectations reflected in or suggested by such forward-looking statements are reasonable, we can give no assurance that such plans, intentions or expectations will be achieved. By their nature, forward-looking statements speak only as of the date they are made, are not guarantees of future performance or results and are subject to risks, uncertainties and assumptions that are difficult to predict or quantify. Therefore, actual results could differ materially and adversely from those forward-looking statements as a result of a variety of factors. Such risks, uncertainties and other factors are described in detail in the sections entitled Risk Factors and Management's Discussion and Analysis particularly the portion of MD&A entitled Safe Harbor Statement in our annual report on Form 10-K for the fiscal year ended October 31, 2024, and subsequent filings with the Securities and Exchange Commission.

Except as otherwise required by applicable security laws, we undertake no obligation to publicly update or revise any forward-looking statements or whether -- or revise any forward-looking statements, whether as a result of new information, future events or changes in circumstances or any other reason.

Joining me today on the call are Ara Hovnanian, Chairman, President and CEO; and Brad O’Connor, Chief Financial Officer; David Mitrisin, Vice President, Corporate Controller; and Paul Eberly, Vice President, Finance and Treasurer.

Ara, you can go ahead.

Thanks, Jeff. I'm going to review our third quarter results, and I'll also comment on the current housing environment. Brad will follow me with more details as usual. And of course, we'll open it up to Q&A afterwards. Let me begin on Slide 5. Here, we show our third quarter guidance compared to our actual results. Given all of the political and economic uncertainty that was present throughout the quarter, we're pleased that we met or exceeded the guidance we provided for all of the metrics. Starting at the top of the slide, revenues were $801 million, which was right at the midpoint of our guidance. Our adjusted gross margin was 17.3% for the quarter, which was just below the midpoint of the guidance range. Our SG&A ratio was 11.3%, which was better than the midpoint of our guidance. Our income from unconsolidated joint ventures was $16 million, which was within the guidance range, although on the lower end. Adjusted EBITDA was $77 million for the quarter, which was above the high end of the guidance range. And finally, our adjusted pretax income was $40 million, which was at the very top of our guidance range.

While this is adjusted pretax income, which excludes land charges, we did have higher walkaway costs and impairment charges during this year's third quarter. The majority of the impairments were in the West segment and were related to communities where we also walked away from land that we didn't -- that didn't meet our return thresholds.

Again, given the challenging operating environment, we're satisfied that we are able to meet or exceed the guidance we provided.

On Slide 6, we show our third quarter results compared to last year's third quarter. Keep in mind that last year's third quarter was particularly strong, partly because it contained $46 million from a gain on consolidation of a joint venture. As Brad will discuss later, we anticipate yet another gain from consolidation of a joint venture in the fourth quarter.

Given the current high level of incentives, it's no surprise that adjusted gross margin and adjusted pretax profit experienced year-over-year declines. Starting in the upper left-hand portion of the slide, you can see that our total revenues increased 11% year-over-year due to an increase in deliveries.

Moving across the top to adjusted gross margin, our gross margin was down year-over-year, mainly due to increased incentives for affordability and also related to our focus on pace versus price, and our short-term strategy of burning through low-margin lots. During this year's third quarter, incentives were 11.6% of the average sales price. The majority of this cost is related to buying down mortgage rates. This is up 390 basis points from a year ago. It's up 110 basis points from the second quarter of '25, and it's up 860 basis points from fiscal year '22, which was prior to the mortgage rate spike impacting our deliveries.

Other than the extraordinary cost to buy down mortgage rates to make our homes affordable today, our gross margin would be very healthy.

Moving to the bottom left, you can see that our total SG&A improved 110 basis points year-over-year to 11.3%. In the bottom right-hand portion of the slide, you can see the negative impact the gross margin decline had on our year-over-year profitability. Again, while much lower than last year, it was at the top of our guidance range, which was consistent with our focus on burning through our older vintage lots and QMIs and emphasizing sales pace over price and clearing our balance sheet for our new -- our newer land contracts, which have much higher margins.

If you turn to Slide 7, you can see that contracts for the third quarter increased 1% year-over-year.

Once again, there was considerable variability in monthly sales shown on Slide 8. Contracts were down 4% in May, then bounced back with a 1% increase in June and followed by a 7% increase in July.

On Slide 9, you can see that the most recent 3 months continued a trend of choppiness over the last year.

If you turn to Slide 10, you can see that contracts per community increased this year compared to last year's third quarter. Additionally, the 9.8 contracts per community in this year's third quarter was higher than our quarterly average of 9.1 for the third quarter since 2008, but we didn't get back to the '97 through '02 levels that we consider to be a normal sales environment.

On Slide 11, we give more granularity and show the trend of monthly contracts per community compared to the same month a year ago and to long-term monthly averages. Here, you can see that for the first 2 months of the quarter, this year's sales pace was lower than last year. This trend flipped in the month of July when we sold 3.4 homes per community compared to 3.2 homes in July '24. When you look at the most recent month compared to the monthly average since 2008, the last 2 months of the quarter were better than the long-term average.

Turning to Slide 12, we show contracts per community as if we had a June 30 quarter end. This way, we can compare our results to our peers that report contracts per community on the calendar quarter end. At 9.6 contracts per community, our sales pace is the third highest among the public homebuilders.

On Slide 13, you can see that year-over-year contracts per community declined for all homebuilders shown on the slide that report this metric. While any decline is not desirable, we outperformed all, but 2 of our peers. Again, this was as if our quarter ended in June so that we can compare our results to these other companies. Our July quarter was stronger with a 3% year-over-year increase in contracts per community, and the month of July was up 6% over the prior year in contracts per community. What we're trying to illustrate in these last 2 slides is that even though the recent sales pace is not what everyone had hoped for, our focus on pace over price has resulted in an above average number of contracts per community for us compared to our peers.

On Slide 14, you can see that for a considerable percentage of our deliveries, our homebuyers continue to utilize mortgage rate buydowns. The percentage of homebuyers using buydowns in this year's third quarter was 75%. The buydown usage in our deliveries indicates that buyers continue to rely on these home -- on these rate buydowns to combat affordability at the current mortgage rates.

Given the persistently high mortgage rate environment, we assume buy-downs will remain at similar levels going forward. In order to meet homebuyers' needs from lower mortgage rates uncertainty, we're intentionally operating at an elevated level of quick move-in homes or QMIs, as we call them, since QMIs with a delivery date in 60 to 90 days can have mortgage rates bought down and locked in a cost-efficient manner.

On Slide 15, we show that we had 8.2 QMIs per community at the end of the third quarter. This is the second consecutive quarter of sequential reductions in QMI per community. We are down from 9.3 in the first quarter of '25 to 8.6 in the second quarter of '25 to 8.2 in the third quarter. This gets us closer to our current target of about 8 QMIs per community with varied delivery dates and model types. As a reminder, we define QMIs as any unsold home where we've begun framing.

On Slide 16, we show the decline in total QMIs from January '25 until July '25. Here, you can see that QMIs decreased from 1,163 in January to 1,073 in April and then to 1,016 in July. This is a 13% decrease from January to July.

In the third quarter of '25, QMI sales were 79% of our total sales. This was equal to last quarter, which was the highest quarter since we started reporting this number 12 quarters ago. Historically, that percentage was 40%, about half. So obviously, the demand for QMIs remains high, so we're comfortable with the current level of QMIs in this environment.

We ended the third quarter with 323 finished QMIs on a per community basis that puts us at 2.6 finished QMIs per community. The focus on quick move-in homes results in more contracts that are signed and delivered in the same quarter. That leads to lower levels of backlog at quarter end but a higher backlog conversion rate. During the third quarter of '25, 34% of our homes delivered in the quarter were contracted in the same quarter. This obviously makes it a little more challenging when providing guidance for the next quarter. It also resulted in a high backlog conversion ratio of 84%, which is significantly higher than the third quarter average backlog conversion ratio of 55% going all the way back to 1998.

We continue to manage our QMIs on a community level, and we're highly focused on matching our QMI start pace with our QMI sales pace.

If you move to Slide 17, you can see that even with higher mortgage rates and the slower-than-anticipated sales pace nationally, we are still able to raise net prices in 21% of our communities during the third quarter. 71% of the communities with price increases were in Delaware, Maryland, New Jersey, South Carolina, Virginia and West Virginia, which are among our better performing markets.

While the sales environment has been difficult, we've been focusing on pace versus price as we have been for many quarters now, but we're still raising prices and lowering incentives when our sales pace at certain communities warrant it.

Economic uncertainty, high mortgage rates, affordability and low consumer confidence have caused many consumers to delay purchasing a new home. To increase our sales pace and make our homes affordable, we continue to offer mortgage rate buydowns. Our gross margins, ignoring the mortgage rate incentives, continue to be strong. However, offering mortgage rate buydowns is very expensive and continues to negatively impact our gross margin at many locations.

Our new land purchases show excellent margins at the current sales pace and price and excellent IRRs even after the expense of buydowns.

I'll now turn it over to Brad O’Connor, our Chief Financial Officer.

Thank you, Ara. Turning to Slide 18. You can see that we ended the quarter with a total of 146 open-for-sale communities, which is the same total as last year's third quarter. 124 of those communities were wholly owned. During the third quarter, we opened 25 new wholly-owned communities and sold out of 26 wholly-owned communities. Additionally, we had 22 domestic unconsolidated joint venture communities at the end of the third quarter. We closed 1 during the quarter.

We continue to experience delays in opening new communities, primarily related to utility hookups and permitting delays throughout the country. We do expect unit count will grow sequentially in the fourth quarter of fiscal '25.

The leading indicator for further community count growth is shown on Slide 19. We ended the quarter with 40,246 controlled lots, which equates to a 7-year supply of controlled lots. Our lot count increased 2% year-over-year, but 36% from 2 years ago. If you include lots from our domestic unconsolidated joint ventures, we now control 43,343 lots.

We added 3,500 lots in 30 future communities during the third quarter. Our land teams are actively engaging with land sellers, negotiating for new land parcels that meet our underwriting standards even with high incentives and the current sales pace. In fiscal '24, we began talking about our pivot to growth. This followed a stretch of several years when we used a significant amount of cash generated to pay down debt. One interesting trend to point out about the growth on this slide, our lot options grew by more than 13,000 and our lots owned shrunk by more than 2,400 lots as we continue to focus on our land-light strategy.

On the far right side of Slide 20, you can see that our lot count decreased sequentially for the second quarter in a row. These recent declines are reflective of the operating environment. We are definitely being more selective with the new lots that we control during these last 2 quarters. And we also walked away from about 6,500 lots during the same 2 quarters, including 4,059 lots in the third quarter. Having said that, we were able to put 6,500 lots under contract in the last 2 quarters that met or exceeded our margin and IRR hurdle rates even after factoring in our current high level of incentives.

On Slide 21, we show our land and land development spend for each quarter going back 5 years. You can see from much of the time, shown on this slide, how that pivot to growth impacted our land and land development spend. However, for the past 2 quarters, you can see decreases due to the current market environment. This is another indication of our discipline in underwriting new land acquisitions.

Again, we always use current home prices, including the current high level of mortgage rate buydowns and other incentives, current construction cost and current sales base to underwrite to a 20% plus internal rate of return. And then right before we were about to acquire the lots, we re-underwrite them based on the then current conditions just to be sure that it still makes sense to go forward with the land purchase. We feel good that our new acquisitions will yield solid IRRs since we are building in huge incentives and a slower sales pace. Our underwriting standards automatically adjust to any changes in market conditions.

We are still finding opportunities in our markets and are very focused on growing our top and bottom lines for the long term, but we are not stretching to make deals work. We are being very disciplined Thus, we would expect our land and land development spend in the fourth quarter will be significantly less than last year.

On Slide 22, we show the percentage of our lots controlled via option increased from 46% in the third quarter of fiscal '15 to 86% in the third quarter of fiscal '25. This is the highest percentage of option loss we've ever had, continuing our strategic focus on land life.

Turning now to Slide 23. You see that we continue to have one of the highest percentages of land controlled via option compared to our peers, Needless to say, with the fourth highest percentage of option lots, we are significantly above the median.

On Slide 24, compared to our peers, we have the third highest inventory turnover rate. High inventory turns are a key component of our overall strategy. We believe we have opportunities to continue to increase our use of land options and further improve our inventory turns in future periods. Our focus on pace versus price is evident here.

Turning to Slide 25. Even after spending $193 million on land and land development, we ended the third quarter with $278 million of liquidity, which is well above our targeted liquidity range.

Turning to Slide 26. This slide shows our maturity ladder as of July 31, 2025. Keep in mind that during the second quarter, we paid off early the remaining $27 million of the 13.5% notes, our highest cost debt that was scheduled to mature in February of 2026. This is the latest example of the steps we have taken over the past several years to improve our maturity ladder and reduce our interest cost. We remain committed to further strengthening our balance sheet going forward.

Turning to Slide 27. We show the progress we've made to date to grow our equity and reduce our debt. Starting on the upper left-hand part of the slide, we show the $1.3 billion growth in equity over the past few years. During that same time period, on the upper right-hand portion, you can see the $769 million reduction in debt. On the bottom of the slide, you can see that our net debt to net cap at the end of the third quarter of fiscal '25 was 47.9%, which is a significant improvement from our 146.2% at the beginning of fiscal '20. We still have more work to do to achieve our goal of 30%, but we are comfortable that we are on a path to achieve our targets soon.

Before we move on, I want to comment briefly on our interest expense for the quarter. Our interest expense as a percentage of total revenues increased year-over-year in the third quarter to 4.2% compared with 4% in the prior year's third quarter despite reductions in our debt balance. This increase was predominantly due to a year-over-year increase in land banking arrangements under inventory not owned, Note that when we land bank inventory after we already purchased the lots, we must reflect the transaction as a financing, showing the inventory and inventory not owned and the cash received as a liability from inventory not owned. The cost paid to the land banker in this situation is shown as interest expense. When the land banker purchases [indiscernible] indirectly from the seller, the cost paid to the land banker is shown as part of land cost and cost of sales. The latter cases are more common approach, but sometimes we are unable to align the timing of the purchase with the land banker, and therefore, we own the lots for a short period of time before the land bank revise them. While land banking is more expensive than the debt, the downside risk is lower and more significant market downturns.

Given our remaining $221 million of deferred tax assets, we will not have to pay federal income taxes on approximately $700 million of future pretax earnings. This benefit will continue to significantly enhance our cash flow in years to come and will accelerate our growth plans.

Regarding guidance, given the volatility and the difficulty in projecting margins with moving interest rates and volatility in general, we will focus our guidance only on the next quarter. Our financial guidance assumes no adverse changes in current market conditions, including no further deterioration in our supply chain or material increases in mortgage rates, tariffs, inflation or cancellation rates. Our guidance assumes continued extended construction cycle times averaging 5 months compared to our pre-COVID cycle times for construction of approximately 4 months.

As we continue to be more reliant on QMI sales, forecasting profit becomes more difficult. We recognize that we beat pretax guidance in the first quarter and performed at the very high end of the guidance range in the second and third quarters. Notwithstanding the challenge of projecting even 1 quarter in this environment, we endeavor to provide guidance that we can meet and if situations are ideal. Our guidance assumes continued use of mortgage rate buydowns and other incentives similar to recent months. Further, it excludes any impact to SG&A expenses from our phantom stock expense related solely to the stock price movement from the $119.47 stock price at the end of the third quarter of fiscal '25.

Slide 28 shows our guidance for the fourth quarter of fiscal '25 compared to actual results for the third quarter of '25. Our expectation for total revenues for the fourth quarter is between $750 million and $850 million, the midpoint of our total revenue guidance would be the same as the third quarter. Adjusted gross margin is expected to be in the range of 15% to 16.5%. This is lower than a typical gross margin, particularly because of the increased cost of mortgage rate buydowns and our focus on pace versus price.

We expect the range of SG&A as a percentage of total revenues to be between 11% and 12%, which is still higher than usual. One of the reasons our SG&A is running a little high is that we are gearing up for significant community count growth, and we have to make new hires in advance of those communities. Our expectations for adjusted pretax income for the fourth quarter is between $45 million and $55 million. This would be down from last year, but up from our third quarter. This includes the expectation of other income from the consolidation of a joint venture in the fourth quarter when the partner is expected to reach their full return of all capital as prescribed in the JV agreement.

As a reminder, this has become a normal part of the life cycle of our joint ventures as we have had other income from JV related transactions 3x in the past 9 quarters.

Moving to Slide 29. We show all of the guidance we gave for the fourth quarter. The only 2 lines on here that we have not mentioned are income from unconsolidated joint ventures and adjusted EBITDA. We expect income from joint ventures to be between $8 million and $12 million, and our guidance for adjusted EBITDA is between $77 million and $87 million.

Turning to Slide 30. We show that our return on equity was 19%. Over the last 12 months, we are the second highest amongst our midsized peers shown in the dark green on this slide and the fourth highest including the larger peer group. Obviously, this is helped by our higher leverage.

On Slide 31, we show that compared to our peers, we have one of the highest adjusted EBITDA returns on investment at 22.1%. On this basis, we are the highest amongst the midsized peers and fifth highest overall. While our ROE was helped by our leverage, our adjusted EBIT return on investment is a true measure of pure homebuilding operating performance. Over the last several years, we've consistently had one of the highest ROIs and ROEs among our peers.

On Slide 32, we show our price to book value compared to our peers, and we are slightly higher than the median for all of the peers shown on the slide.

On Slide 33, we show the trailing 12-month price-to-earnings ratio for us and our peer group. Based on our price to earnings multiple of 7.24x using Wednesday stock price of $148.95, we were trading at a 31% discount to the homebuilding industry average P/E ratio, if you consider all public builders, and at 18% discount when considering our midsized peers, even though we have the highest ROI among the midsized peers. We recognize that our stock may trade at a discount to the group because of our higher leverage, but our leverage has been shrinking and our equity has been growing rapidly.

On Slide 34, we show that despite our extremely high ROE, there are a number of peers that have a higher price-to-book ratio than us. This slide more visually demonstrates how much we are undervalued relative to other builders when looking at the relationship between ROE and price to book. A very similar result exists when looking at ROE to price to earnings.

On Slide 35, you can see an even more glaring disconnect with our high EBIT ROI and RPE. We have the fifth highest even ROI and yet our stock trades at the lowest multiple to earnings of the entire group. These last 6 slides further emphasize our point that given our high return on equity and return on investment, combined with our rapidly improving balance sheet, we believe our stock continues to be the most undervalued in the entire universe of public homebuilders.

I'll now turn it back to Ara for some brief closing comments.

Thanks, Brad. I want to emphasize that in this more challenging environment, we continue to work with some of our land sellers currently under option in order to find a compromise where we both share a bit of the pain in a slow market. We've made a strategic decision to burn through certain less profitable land parcels at lower gross margins that clear the way for our newer land acquisitions, which meet our historical return metrics even after the big incentives. Fortunately, we're still finding new land opportunities that meet our return hurdles, again, even after the high level of incentives and at the slower sales pace.

To wrap up, we met or exceeded our expectations for the third quarter. Regardless of market conditions, we closely monitor our communities and adjust our local strategies on a weekly basis. Given the tough operating environment, we are focusing on this even more today. Our goal is to be able to deliver a strong ROE and ROI results even in difficult markets.

That concludes our formal comments, and we'll be happy to turn it over for Q&A now.

[Operator Instructions] And our first question comes from Alan Ratner with Zelman & Associates.

First, I'd love to just drill in a little bit on the improvement you guys saw in order activity in July. I'm curious if you feel like that was more macro and market-driven based on maybe some of the tariff noise subsiding and rates coming down? Or were there any company-specific actions you guys took to drive that improvement, i.e., higher incentives or community openings or anything like that?

I'd say in general, Alan, as you saw with our incentives, we did increase incentives a bit this quarter versus last quarter. But overall, I'd say the market is more macro economic and political uncertainty news-driven. I mean, it's just amazing. If there's a good headline, sales are good that weak. If there's a bad world headline, the sale -- it can go back and forth and back and forth. But other than a slightly more buydown rate, we really didn't do anything very different. It was more macro.

Got it. And then just in terms of August activity month to date, would you say that, that July improvement has continued thus far? Or is it just remaining choppy here so far?

I would say -- go ahead.

I would say it's just remaining choppy. I think we see weak changes just like we kind of showed in the monthly data just bounces back and forth.

Got it. Okay. Appreciate that. Second question on the gross margin guide down sequentially. Obviously, it makes sense given the strategy you guys are working through some of the maybe the underperforming assets. But I'm just curious if you can kind of give some framework on how you have a very helpful slide in there with the vintage of your lots and you can kind of see, I guess, the land that was underwritten during a better time. When you think about the headwind that might continue from working through these assets, is this like a couple of quarter type phenomena? Is this something that's likely going to persist through '26? Just can you help frame the size of the bucket of assets that you're kind of focusing on earning through at this point?

It's hard to comment on that. And I can't say we specifically project it. The prices and the margins are not just lot vintage driven, but are also geography driven. I mentioned earlier, in the markets that are mostly East Coast that are doing far, far better than some of our West Coast markets, plus Texas has been a little slower and Florida has been a little slower. So some of it depends on really burning through the tougher communities in the tougher geographies. Having said that, too, we are having some success working with our -- the sellers of loss to us to share some of the pain, which helps margins and allows us to feel more comfortable burning through some of the lower margins rather than walking from lots.

We prefer not to walk from a lot to where we really can avoid it. So the long-winded answer, Alan, is, I'm not sure we really haven't focused on how long it's going to be. I will say that we've reduced the number of lots that we bought in '23 and '24 by almost 2,000 homes, and we've increased our recent purchases, our recent lots that we bought this year in '25 by about 1,000 homes. So the recent purchases have excellent margins even with the rate buydown as we said several times.

So when that gets into a better balance, I can't quite say, but I'm feeling pretty good about our new land acquisitions and eager to clear the road in our balance sheet to pursue more and more of the new land acquisitions.

That's great. I appreciate that. And Brad, can I just squeak in one last housekeeping question. The consolidation on the JV next quarter, did you give a dollar amount, what's going to flow through the other income line?

We didn't give a dollar amount, but on those 3 previous transactions, I mentioned, we averaged about $30 million. And this will probably be in that same neighborhood.

And that's embedded within the pretax, correct?

Correct.

[Operator Instructions] Our next question comes from Jay McCanless with Wedbush.

I guess, first, can we talk about the balance sheet and what type of debt restructuring opportunities might be out there at this point?

Sure. I mean we -- as as we've said in the past, I'm always looking at ways to continue to improve our balance sheet. And one of those that we talked about previously with the market is the idea of refinancing our secured debt into unsecured, and it's something we're certainly continuing to take a look at, and we'll take advantage of it if the opportunity arises, sometimes pay a lot of attention to on a regular basis.

Yes. Overall, I'd say the market for high yield, even in the homebuilding industry is getting a little better and a little stronger. So we think there will be opportunities in the very near future.

Okay. Great. And then the second question, kind of following on what Alan was asking. Are there opportunities maybe to do bulk sales in terms of moving through some of these lots, going ahead and taking an even larger gross margin hit to get that off your books so that these newer communities and the better gross margins can shine through a little easier?

We look at that regularly, and we're constantly looking at the potential loss in a sale or a walk away versus building out. And we haven't done a lot of land sales in bulk. We have done a couple of walkaways, but generally speaking, as I mentioned earlier, we're finding some better opportunities with sharing the pain with our land-light partners. So I think that's probably more of the strategy.

I will also say -- I can't -- we mentioned -- Brad mentioned 3 times in the last 9 quarters, we've had a gain from consolidation. We've also had probably 3 or 4 quarters with gains from land sales. So we tend to do more of the latter, the gain from land sales than the loss from land sales. And it makes sense if you consider 85% of our lots are optioned. We don't have a lot of bulk land on our balance sheet today to sell in bulk at a loss. But we do have, from time to time, entitled land that's more than that where the entitlements come through a little earlier than we planned and more than we need for a given market, and we've been having good success selling those at a profit.

Just to add to your comments, one of the land sales we had earlier this year was basically what you described. It was an underperforming community that we did flip to somebody else. So it's something we do look at, as Ara described.

Got it. Okay. Great. And then the 21% of communities where you could raise price this quarter. I know that we're mostly focused in the Northeast, Mid-Atlantic. And I think this is the second quarter in a row, we're all seeing good performance there. But diving down a little bit further, is that entry-level, active adult? Any color you can give us on what buyer groups are resilient enough where you can raise price at this point?

I'd say generically, the entry level is the tougher market. We've had some good success in active adult as a couple of our peers have had. And we've had some good success on first time and second time move up. It's been a more challenging environment in the tertiary super low entry price points.

There are no further questions. I'd like to turn the call back over to Ara for any further comments.

Thank you very much. Again, we're pleased to have met our expectations and guidance even though we're not as good as we performed last year. But we are excited about the opportunities in the land market and replenishing our land supply, and we'll look forward to delivering some good results. I think we've shown that we have a great franchise that can really deliver some industry-leading ROEs and ROIs. And I think as we continue to replace our land position with newer and newer land parcels, I think our performance is going to get just that much better. Thanks very much.

Thank you. This concludes our conference call for today. Thank you all for participating, and have a nice day. All parties may now disconnect.