Good morning, and thank you for joining us today for Hovnanian Enterprises' Fiscal 2023 Fourth Quarter Earnings Conference Call. An archive for 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 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 like to turn the call over to Jeff O’Keefe, Vice President, Investor Relations. Jeff, please go ahead. Jeff O’Keefe : Thank you, Michelle, and thank you all for participating in this morning's call to review the results for our fourth quarter and year ended October 31, 2023. 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 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, 2022, 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, whether as a result of new information, future events, changed circumstances or any other reason. Joining me today on the call are Ara Hovnanian, Chairman, President, and CEO; Brad O'Connor, CFO and Treasurer; and David Mitrisin, Vice President, Corporate Controller. I'll now turn the call over to Ara.

Thanks, Jeff. I'm going to review our full year and fourth quarter results, and I'll comment on the current housing environment. Brad O'Connor, our CFO, will follow me with more details, and of course, we'll open it up to Q&A afterward. Our results from the fourth quarter benefited from strong demand for new homes, which is supported by strong demographic trends, a resilient job market, and a low supply of existing homes for sale. On slide five, we show our full year of guidance in the first column and our final results for all of fiscal ‘23 in the second column. Beginning at the top, our total revenues were $2.76 billion above the high end of our guidance range. Our adjusted gross margin was 22.7% for the quarter, which is toward the high end of the range. Our SG&A ratio was 11.1%, which is at the very low end of the guidance. The combination of revenues above the upper end of the guidance, margins being near the top of the guidance, and SG&A being very close to the bottom of the guidance, contributed to a great year. In addition, we had a great quarter for land sales and JV profits. The combination resulted in EBITDA and pre-tax income being significantly above the guidance we gave. Our adjusted EBITDA was $427 million. Our adjusted pre-tax income was $283 million. Our fully diluted EPS was $26.88 per share, well above the high end of our guidance range. And finally, our book value came in at $73 per common share, also above the high end of our range. Needless to say, we're pleased with our performance for the full year. If you go back to this time last year, when sales in the housing market stalled due to a quick climb in mortgage…

Thank you, Ara. Before I get further along, I want to take a moment to talk about the 2,176 deliveries and $9.4 million of profit from our unconsolidated joint venture in the Kingdom of Saudi Arabia. During the fourth quarter, we delivered the vast majority of our backlog from one large project, which led to a significant profit. The project was done in conjunction with the Kingdom's Ministry of Housing and was structured such that the homes were recognized as deliveries all at once. That project is basically complete, and we are beginning the startup phase on two new communities. Those two new communities, along with an additional community not yet started, will provide an opportunity for another 1,000 homes with several more in the works. The Saudi government is involved in all three projects. In fiscal ‘24, we don't expect this unconsolidated joint venture to contribute significant deliveries or income since the new communities are in startup mode. However, the housing market in Saudi Arabia is rock solid and is not exhibiting the same slowdown that we are seeing in the U.S. The reservations at our newest community, which opened recently, have been robust. Now, beginning with slide 17, you can see that we ended the quarter with a total of 129 communities open for sale. 113 of those communities were wholly owned. We opened 22 new wholly owned communities and closed 11 wholly owned communities during the fourth quarter. We also closed out of four unconsolidated JV communities during the fourth quarter. We expect our community count to grow further in fiscal ‘24. However, we are not going to try to project the number given how existing communities can sell out ahead of schedule and new community openings can be delayed for a variety of reasons. But we…

Thanks, Brad. Here we are reporting our year-end results, and in many regards, it feels an awful lot like it did exactly a year ago. The most recent sales pace is down from where it was earlier in the year, but we're reporting a strong fourth quarter in year-end. This year, I feel like we're in a better position than we were last year. Instead of scurrying to build up a supply of QMIs for the spring selling season, our construction teams have ramped up our starts, and we already have a healthy level of QMIs in our communities throughout the country for the spring selling season. Additionally, our mortgage company, along with our sales and marketing teams, have various below-market-rate mortgages that we're currently offering to our buyers. Our gross margins are high enough to absorb costs of these mortgage-rate buy-downs. This is partially due to the year-over-year reductions in lumber costs. We're about to enter a seasonally slow time of the year for our home sales. There's a lot that we've learned over the last year, and our balance sheet is stronger than it was a year ago. We're going to be ready to hit the ground running come the spring selling season, rather than playing catch-up like we did last year. Rates seem to be trending down earlier than last year, which will be helpful for buyer psychology. We're hopeful that this preparation will lead to some strong results for the upcoming spring selling season. Turning to slide 35, I understand that some have been skeptical about our ability to produce superior results. We hope that our continued results create a few more believers that recognize the risk-return opportunity. Our fourth quarter pre-tax profit was almost 40% higher than last year. Our contracts were up 56% compared to last year, and up 43% compared to November of ‘23. We had an 80% increase in year-over-year book value per share. We've reduced net debt by $844 million since the beginning of ‘20. The high end of our first quarter ‘24 adjusted pre-tax guidance, results in more than 100% increase from our first quarter ‘23 results. And our excess liquidity at the end of the year was one of the highest we have had in more than 14 years, and positions us for strong growth and continued balance sheet improvements. We hope that our continued strong results turn some skeptics into believers. That concludes our formal comments, and we'll be happy to open it up for Q&A.

Thank you. The company will now answer questions. So that everyone has an opportunity to ask questions, participants will be limited to two questions and a follow-up, after which you will have to get back into the queue to ask another question. [Operator Instructions]. Please stand by while we compile our Q&A roster. Our first question is going to come from the line of Alan Ratner with Zelman. Your line is open. Please go ahead.

Hey guys. Good morning. Congrats on the great quarter and year and all the progress on the operations and balance sheet. Very impressive. So I think that you went through a lot there in terms of the balance sheet and the cash flow. And I guess as you think about the go forward and kind of putting aside what the market's going to do, clearly the last decade or so you've been trying to balance those two objectives, kind of maintaining a certain volume pace while paying down debt. But if I look at your top line or your closings, you've generally held pretty steady over the last decade or so in that 4,000 to 5,000 closings per year range. Do you think the company's positioned now at a point where you can more aggressively target volume growth and market share gains or should we kind of expect over the next several years more of kind of the balance between those two objectives?

That's a good question, Alan. And we have certainly been focused on taking our excess cash flow and reducing leverage, and we've accomplished a lot with that. The last few years of making about $1 billion pre-tax has certainly helped us a lot, especially since we're not paying cash taxes right now. So we feel like we've really made substantial progress in debt reduction. We've made substantial progress in equity increases. So we're definitely going to get more aggressive in top line growth in the coming years, significantly more aggressive. And I think you're going to see that in the results. We found a formula. We don't talk a lot about our actual home strategy, but we think we've got one that's working quite well. And I think our EBIT to ROI results year-after-year beating our peers shows that, and now we want to take that same result and add to it some top line growth, and we think that's even going to turbo charge the results that we've been producing.

Great. Well, we look forward to seeing that. And then second, I guess, just more on kind of the current market conditions. I heard a little bit of a conflicting message in terms of what's going on in the pricing side. You kind of gave that very helpful chart in terms of the percentage of communities that you're raising prices in. The press release, you kind of alluded to, it was hard to tell whether you're actually increasing incentives or whether you're more just kind of viewing that as a lever that you could pull if rates were to remain volatile and go back up again. So how have incentives been trending over the last, call it six to eight weeks? And, what are you doing specifically on the rate buy-down side in terms of fueling additional sales?

Yeah. And I think the way to think about the incentives is community-by-community where we need to make adjustments. So we talk about the price increases that happen in some of the – in 54% of the communities, and that's basically net of incentives. But there are communities where we've had to increase incentives or whether that's through mortgage rate buy-downs or other forms of concessions. In the remarks, we told you that the deliveries for this fiscal year, about 62% of those that had mortgages used some form of rate buy-down. And I know that for the month of October's contracts, it was about 70%. So it will vary with what's going on with rates. That doesn't surprise me in October when rates jumped up that we saw more use of rate buy-downs. As rates come back down, maybe that will taper off. So we have to think and consider all of those things as we do our projections, and there's also a change in the mix of communities that deliver in the first quarter versus the fourth. So all of those things together can cause the slight decline in margin that we're expecting for the first quarter compared to the fourth. That being said, we are selling more QMIs and delivering them in the quarter. So there's still some sales to go that we have to project what the margins will be as opposed to having it in backlog, so.

That's really helpful Brad.

The additional color I'll add is we tend to see more incentives on the West Coast than the East Coast, and the East Coast is certainly an important part of our business. The other thing is we see a little more incentive in the entry-level buyer and the entry level product, who is very dependent on qualifying. So the mortgage rate buy-downs really help, but those mean more incentives. We also have a significant part of our business which is active adult. There we use far fewer incentives. Most of our active adult buyers get a no mortgage or a very small mortgage, and they are not worried about giving up a 3% mortgage, because they probably paid up – paid off their old 3% mortgage. So we're seeing a lot less incentive there compared to the first time. And we've got a sizable chunk in the middle on our move-up homes. So overall we're feeling pretty good about the trend in incentives.

Got it. If I could just squeeze in one follow-up then on that margin point. And Brad, thank you for all the moving pieces there. I know you're not guiding beyond 1Q, but is it fair to assume you did roughly a 23% gross margin this year as a whole? That's kind of roughly where your 1Q guide is. Is it safe to assume that that's kind of where you see the business for the foreseeable future, plus or minus, absent any significant changes in marketing conditions or are there any significant mix factors that we should be aware of?

Alan, I'd say there's no significant mix factors. We are trying to introduce a few more active adults, but it's not meaningful enough to make a huge difference. I mean, frankly, the market has moved around a lot and the rates have moved around a lot. So we're extremely hesitant to provide more guidance than we're providing. I think a quarter out is fairly reasonable. Margins are going to be very dependent on what we have to do with incentives, what happens with lumber costs, and a variety of other factors. But on the whole, I don't know what we can tell you. Fourth quarter, our sales are up dramatically compared to last year, and we're giving you a first quarter, which is almost double last year. So you can reach whatever conclusions you want. Our crystal ball is not so clear to give longer guidance than a quarter.

Understood. I appreciate that guys. Thanks a lot.

Thank you.

Thank you. [Operator Instructions]. I'm showing no further questions, and I'd like to turn the conference back over to Ara Hovnanian for any further remarks.

Great. Well, thanks so much. We're pleased with a good quarter. We think we've got some more good news in quarters to come and look forward to sharing those with you. Thank you.

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