Hovnanian Enterprises, Inc.

Good morning and thank you for joining us for today's Huvanian 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 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 section entitled Risk Factors and Management Discussion Analysis, particularly the portion of MD&A entitled Safe Harbor Statement and our end report on Form 10-K for the fiscal year ended October 31st, 2024, and subsequent filings with the Securities and Exchange Commission. Except as required by applicable security laws, we undertake no obligation to publicly update, will 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 Meitresen, Vice President, Corporate Controller, and Paul Eberle, 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 five. 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 pre-tax income was $49 million, close to the midpoint of our guidance. On slide six, we show the fourth quarter results compared to last year. 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 lots 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 buy downs, 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. Were it not for the considerable cost of making homes affordable through mortgage rate buy-downs, 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 interests 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 QMIs, 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 seven, 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 eight, 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 three of the four 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 nine 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 months 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 30th, 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 us the fourth highest among all the publicly traded home builders. As illustrated on slide 13, contracts per community declined year over year for a vast majority of the home builders reporting this metric. Although any decrease is less than ideal, our performance surpassed all but two 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 two 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 two years, about 70% of our buyers have used mortgage rate buy-downs. As shown on slide 14, the total value of incentives and buy-downs has grown considerably over the last four 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 QMI's as we call them, enabling customers to benefit from incentive programs and secure homes quickly and cost effectively. On slide 15, 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 QMIs per community has gone down, reflecting our ability to align starts with sales pace and optimize inventory levels. QMIs are homes that we have started framing but have not yet sold. As shown on slide 16, the number of QMI's 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 QMIs, 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, it led to a backlog conversion ratio of 102%. much higher than the historical average of 66 percent for fourth quarters since 98. that was it also was the first time we've ever been above a hundred percent 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 seven slide 17 you'll see that despite higher mortgage rates and a slower sales pace nationwide, we managed to increase net prices in 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.