Good morning and thank you for joining us today for Hovnanian Enterprises Fiscal 2019 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 a slide presentation along with the opening comments from management. The slides are available on the Investor's 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, [indiscernible], and thank you all for participating in this morning's call to review the results for our fourth quarter, which ended October 31, 2019. 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 subjects to risks, uncertainties and other 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 in 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, 2018, 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 reason. Joining me today are Ara Hovnanian, Chairman, President and CEO; Larry Sorsby, Executive Vice President and CFO; Brad O'Connor, Vice President, Chief Accounting Officer and Controller; and David Bachstetter, Vice President, Finance, and Treasurer. I'll now turn the call over to Ara. Ara, go ahead.

Thanks Jeff. I am going to review the results of our four quarter and as usual, Larry Sorsby will follow me with more detail. Overall, we are pleased with the results and our quarter was in line with our guidance. Slide 4 shows the specific metrics we discussed on our last conference call. Our guidance for the gross margin for the fourth quarter was approximately 18.4%. Our actual results were slightly better at 18.9%. Second, we said that our adjusted pretax income for the fourth quarter would be enough that we would be profitable for the full year. That implied a pretax profit for the fourth quarter in excess of $40 million. Excluding the costs related to our early extinguishment of debt which was $42 million related to our recent refinancing, and excluding $3 million of land related charges, our adjusted pretax income for the fourth quarter was $45 million. This exceeded consensus estimates and for the full year our adjusted pretax profit was $10 million. Finally, we said that we expected our community count to increase in the fourth quarter and that we would exceed the 160, we ended the year with a 162 total communities which increased sequentially and was up 14% compared to a 142 communities in the fourth quarter of last year. On Slide 5, we compare year-over-year results for the fourth quarter. As you can see in the upper left-hand quadrant total revenues grew 16% from $615 million last year to $714 million during this year's fourth quarter. The growth was driven by a 17% increase in deliveries and was offset slightly by a little lower average sales price. The increase in total revenues is the result of investments that we've been making in our land position over the last two years. Moving to the…

Thanks Ara. I will start by discussing the steps we took in the fourth quarter to significantly improve our capital structure and better position ourselves to execute on our growth strategy. We successfully exchanged or refinanced over $800 million of debt. We eliminated all maturities until 2022 and pushed out over 50% of the debt coming due in 2022 and 2024. Additionally, we simplified our capital structure by creating a single collateral pool for the benefit of all secured debt holders. The long-term benefits of extending our debt maturities far outweigh the short-term impact of the $42 million charge related to early extinguishment of debt. On the top half of Slide 12 we show our maturity profile as it looked on July 31, 2019. And on the bottom half of the slide it shows our maturity ladder after we closed the financing transactions on October 312019. In summary, we refinanced $270 million of debt maturing in 2020 and 2021 and exchanged $435 million of debt that was coming due in 2022 and 2024 and extended all of those maturities to 2026. We also refinanced our $125 million revolving credit facility that was set to convert into a term loan later this month into a new seven and three quarter percent revolver maturing in 2023. The financing transactions accomplished three main objectives. Number one, it extended our debt maturity runway. Number two, it's simplified our capital structure into a single collateral pool for the benefit of all of our secured holders. And number three, it helps maintain our liquidity and allows us to continue to invest in land, rather than use our liquidity to deal with near-term debt maturities. Additionally, we have a pending exchange offer that is focused both on pushing out a portion of our remaining 2022 and 2024…

Thanks Larry. While we've been very focused on growing our top-line and more recently on refinancing our debt, we've also been making investments in our associates and our systems. Here are just a few of the investments we've made over the past year. We opened a new national Internet call center along with leading-edge software and processes. This enables us to enhance our interactions with potential customers in ways that are appropriate for today's digital world. We've dramatically enhanced our in-house sales training with processes and sales management teams that together with leveraging new technology, better prepares our sales associates to meet the needs of potential homebuyers and obviously to sell more homes. We've launched new extra suite plus floor plans across the country to meet the needs of multi-generational buyers. We have also continued to build a state-of-the-art national digital marketing team to address the ever-changing digital advertising landscape. This allows us to optimize the dollars we spend on digital advertising, including carefully managing by stores, cost-per-clicks, cost per site actions, and cost per leads. We'd begun to develop dashboard reports using Business Intelligence Software combined with our integrated systems to enhance the monitoring and managing of all of our communities. And finally, we've created a new accelerated leadership development program, which includes experiential learning in a variety of roles and departmental functions. Our focus is on preparing our associates to become future Division Presidents. I'm really excited about all the initiatives we've undertaken. These investments are very critical to our future successes. We're encouraged that the housing market remains strong, which is very evident in the recent sales success I just reported. We feel that we're well-positioned to take advantage of demographic trends, especially given our focus on the entry level homes through our Aspire offerings and empty-nester homes through our Four Seasons Active Lifestyle communities. Additionally the U.S. economy remains strong and mortgage rates are very attractive at these low levels. We believe that given this backdrop we're well-positioned to execute on our growth strategies. That concludes our formal remarks and we're happy to open it up for questions.

[Operator Instructions] Our first question comes from Megan McGrath with Buckingham Research. Your line is now open.

Hi, good morning. I wanted to follow up on your conversation around your lots and land ownership and options. We've heard from some other builders as we've worked through the last couple of months that have also had really high rates of order growth, some caution around their ability to maintain community count growth as they start to sell through these high orders. So, I'd love to hear your comments on that looking into 2020 and the amount of finished lots that you have to kind of continue this pipeline.

We feel pretty comfortable, Megan. I mean, it's always a competitive environment, but I can't say that we've seen any significant decrease in opportunities from what we saw a year ago or two years ago. We continue to be disciplined, but we're finding opportunities across the country.

Yes, the other thing I would add is obviously, just from a pure mathematical perspective, as you sell at a faster pace for community, it does make achieving growth and community count more difficult, because you sell through them more quickly. But obviously, what we're really after is growth and contracts growth and revenues, which we're achieving by selling faster per community and get the benefit of some overhead reduction as well. So, we'll take the faster pace even if it does modify our ability to grow community count as fast as we otherwise would.

Okay, great. That's what I was after. Thank you. And then just to follow up a little bit on pricing, your order ASP was down about 1.5. It looks like although your individual regions were down more than that, so that's partially due to mix. So, could you talk about that big shift downward to a lower price point and what you're seeing there versus any pure pricing pressure?

Yes, we have been trying to grow our Aspire line. Our Aspire line is our most affordable entry level homes. So, I'd say we're deemphasizing a little bit the move up homes, although it's not a huge segment, first time homebuyers have always been a big part of our market. But we're pushing further on increasing the mix of our lowest price.

Great. Thank you very much.

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

Hey guys, good morning. Congrats on a strong quarter and the debt refinancing.

Thank you.

A couple of housekeeping questions first. First on the SG&A, very impressive leverage. I think a year ago, you guys had kind of a one-time benefit in that number, maybe some reversal of some defect reserves. Was there any similar benefit this quarter that you can quantify?

Yes, Alan, hi thanks for the pat on the back on the good results. With respect to SG&A, last year we had an actuarial analysis that we do for the year end every year, and it resulted in a $10 million reversal of insurance reserves. I think that's what you're referring to.

Right.

This year we did that same actuarial analysis as we do every year. It resulted in a lower $6.5 million reversal this year. So, if you take the $10 million out of last year's result and $6.5 million out of this year's results, the SG&A percent would have been 10.2% last year, compared 8.7% this year, ignoring that insurance reversal in both periods, so it's a 150 basis points improvement, ignoring if you want to call the insurance reversal a one-time - I mean, happened in both periods.

Got it. Now, that's helpful, Larry. I really appreciate that. Second, I want to just make sure I understood or heard you correctly. I think, Larry, you made a comment just when you were talking about your lots supply and kind of controlling all of your expected deliveries in 2020. I thought you made a comment that you're expecting modest growth next year. And I guess I was a little surprised by that just given the fact that your backlog is up 20% entering the year and it seems like the order activity is continuing quite strong so far into the beginning of the new fiscal year. So, did I hear that correctly? And any additional commentary here you could offer there?

Yes, I did say modest. I am a CFO. So, maybe I'm a little more conservative than some. But we did say in 2021, which is really next year and we are in 2020 already this year, we expect more substantial growth.

Okay, understood. Thanks. And then if I could sneak in one last one, the order trajectory is very encouraging. Just curious, we're hearing a lot about the entry level, kind of a resurgence across the industry and you guys seem to be focusing on that as well. Within the last three, four or five months in this really strong order growth, have you seen any improvement as well and maybe the move up or higher price points or maybe some geographies that have been well publicized as maybe lagging earlier in the year thinking about like California for example?

I can say we've noted any significant shift in the last six months either in geographies or price points or target audiences. It's been fairly steady across the Board.

Got it. Thanks, Ara. Good luck, guys.

[Operator Instructions] Our next question comes from Alex Barron with Housing Research Center. Your line is now open.

Yes, hey, guys. Great job on the quarter. I wanted to ask about whether you guys were going to offer any kind of guidance at this time since we're in the new year? Any estimate on what you think you're going to try to do for revenues or orders or anything like that?

Yes, we did provide some color with respect to the first quarter in my formal remarks. We are not prepared to provide any formal guidance for the full year.

Okay. And then in terms of the DTA, what are the rules or what would it take Larry, for you guys to be able to put that back on the balance sheet now that you're profitable?

Yes, we need to be profitable on a three-year cumulative basis and be able to look forward with our internal projections, and I believe that we continue to be solidly profitable. Those are the rules. I get that right, Brad?

Yes, the only thing to make note of is that the profit that we look at is after everything else, that the loss on debt counts on that. So, if you're thinking that we're still longer in three-year cum because you're doing our adjusted profit, it doesn't work that way, so I'll just point that out.

Got it. So, it's a trailing thing.

Trailing three-years, yes.

Okay, got it okay. And then, I guess given that you guys have fixed the balance sheet quite a bit; any thoughts on - or is there any restriction why you couldn't either buy back some of the bonds that are trading at a big discount or your stock given where it's at right now?

Well, there is a complicated answer to that question. There are certain restrictions on certain debt securities being ruled by those early on others there, there aren't restrictions. From a cash usage perspective, we think it's probably more important to us in terms of using our cash to really focus on executing our growth plans. At this point, I'm trying to grow our community count, grow our revenues, get to a higher level of sustainable profitability. Once we reach those higher levels of sustainable profitability is when we'll begin to really focus on further repairing the balance sheet and trying to reduce debt.

Got it. And if I could ask one last one, I think last quarter, you guys mentioned a target of SG&A, trying to get back to towards 10%. So, should we expect that you'll see some SG&A leverage this year now that the top line seems to be growing again?

Yes, as the top line grows, there should be SG&A leverage that comes along with that. I mean, we actually just went over some results for the fourth quarter that kind of showed that. So, as revenues grow, we expect to leverage the SG&A ratio down.

Okay, thanks a lot.

Thank you.

I'm showing no further questions in queue, at this time. I'd like to turn the call back to Mr. Hovnanian, for closing remarks.

Great. Thank you very much. We were pleased with the results for the year and the quarter and we look forward to giving you more good news as 2020 unfolds. Thank you.

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