Q2 2024 Hovnanian Enterprises Inc Earnings Call
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Operator: Good morning, and thank you for joining us today for Hovnanian Enterprises' fiscal 2024 second quarter earnings conference call. An archive of the webcast will be available after the completion of the call and will 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 second quarter results and then open the line for questions. The company will also be webcasting a slide presentation along with opening comments from management.
Good morning, and thank you for joining us today for her many in enterprises fiscal 2024 second quarter earnings Conference call an archive of the webcast will be available to take them.
Speaker Change: <unk> the call and run for 12 months.
Speaker Change: 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 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.
Operator: The slides are available on the investors page of the company's website at www.khoff.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.
Speaker Change: On the investors page of the company's website at Www Dot chaos dotcom, those listeners who would like to follow along should now log onto the website I would like to turn the cold over to Jeff O'keefe, Vice President Investor Relations. Jeff. Please go ahead.
Jeff O'keefe: Thank you, Carmen, and thank you all for participating in this morning's call to review the results for our second 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 statement.
Jeff O'keefe: Thank you Carmen and thank you all for participating in this morning's call to review the results for our second quarter.
Speaker Change: 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.
Speaker Change: 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.
Jeff O'keefe: 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 cannot give any 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, and are subject to risks, uncertainties, and assumptions that are difficult to predict or quantify.
Speaker Change: 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.
Speaker Change: 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 materially differ.
Jeff O'keefe: Therefore, actual results could differ materially and adversely from those forward-looking statements. Such risks and uncertainties and other factors are described in detail in the sections entitled Risk Factors and Management Discussion and Analysis, particularly the portion of MD&A entitled Safe Harbor Statement and our annual report on Form 10-K for the fiscal year ended October 31, 2023, 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 OConnor, CFO and Treasurer; and David Michterson, Vice President, Corporate Controller. I'll now turn the call over to Ara.
Speaker Change: Could differ materially and adversely from those forward looking statements as a result of a variety of factors such risks and 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.
Speaker Change: Over 31, 2023, 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.
Speaker Change: Joining me today on the call are Ara Hovnanian, Chairman, President and CEO, Brad O'connor, CFO, and Treasurer, and David <unk>, Vice President Corporate controller, I will now turn the call over to Ara.
Ara K. Hovnanian: Thanks Jeff. I'm going to review our second quarter results, and I'll also comment on the current housing environment. Brad will follow me with more details, and, of course, we'll follow up with Q&A. But I will begin by saying what I just said at the John Burns Housing Conference in California last week. I feel like we're in a Goldilocks environment. The market is not too hot, and it's not too cold. A hot market would challenge construction costs; it would create challenges with labor shortages and material shortages, and would certainly make it even more difficult to purchase land. The challenges of a cold market are obvious.
Ara K. Hovnanian: Thanks, Jeff I'm going to review, our second quarter results and I'll also comment on the current housing environment, Brad will follow me with more details and of course, we will follow up with Q&A.
Ara K. Hovnanian: Let me begin by saying what I, just said Ed John Burns housing comp trends in California last week I feel like we're in a goldilocks environment. The market is not too hot and it's not too cold.
Brad G. OConnor: Hot market with challenge construction costs.
Brad G. OConnor: Create challenges with labor shortages and material shortages and would certainly make it even more difficult to purchase land with.
Brad G. OConnor: The challenges of a cold market are obvious, but the current environment feels balanced and more sustainable with higher rates, keeping the resale supply limited and demand in check yet sufficient to have a good supply demand balance.
Ara K. Hovnanian: But the current environment feels balanced and more sustainable, with higher rates keeping the resale supply limited and demand in check, yet sufficient to have a good supply-demand balance. We are assuming a higher for longer scenario for our strategy. If mortgage rates go up meaningfully, our budgets may be aggressive. If mortgage rates come down meaningfully, our budgets might be too conservative.
Brad G. OConnor: We are assuming a higher four scenario.
Brad G. OConnor: For longer scenario for our strategies.
Speaker Change: Mortgage rates go up meaningfully our budgets may be aggressive if mortgage rates coming down meaningfully our budgets might be too conservative.
Ara K. Hovnanian: I've got to add a comment that it feels like a lot of attention this morning went to existing home sales and listings. Existing home sales are low because there's no inventory of existing home sales, and there was a lot of attention with listings going up, but they're up from record lows, and people are losing sight of that and getting caught up in the headlines. Existing home listings are 1.2 million. That's up from the record lows, but normal is 2 million. The market is very jittery and overreacting, in my view, to skewed headlines right now. Let me start with slide 5.
Speaker Change: I've got to add a comment that it feels like a lot of attention. This morning went to existing home sales and listings existing home sales are low because there is no inventory of existing home sales and there was a lot of attention with listings going up.
Speaker Change: But they are up from record lows and people are losing sight of that and getting caught up in the headlines.
Speaker Change: Existing home listings are one 2 million listings that's.
Up from the record lows, but normal is 2 million listings. The market is very jittery and overreacting in my view towards skewed headlines right now.
Ara K. Hovnanian: We show our second quarter of guidance compared to our actual results. Starting on the top of the slide, revenues were 708 million dollars, which was within the range of guidance we gave. Our adjusted gross margin was 22.6% for the quarter, which was at the upper end of the range that we gave. We're pleased to deliver such a strong gross margin, given that mortgage rates climbed through the end of our second quarter.
Speaker Change: Let me start on slide five we show our second quarter guidance compared to our actual results starting on the top of the slide revenues were $708 million, which was within the range of guidance we gave.
Our adjusted gross margin was 22, 6% for the quarter, which was at the upper end of the range that we gave.
Speaker Change: We're pleased to deliver such a strong gross margin given that mortgage rates climb through the end of our second quarter.
Ara K. Hovnanian: I'll add that we've been very focused on construction. Among many of our current initiatives, we have a multi-year effort to minimize and unify our SKUs across the country. This gives us the ability to truly hone in on costs by limiting the items that we negotiate with our suppliers and trades and buy in larger quantities. I'm proud to say that was one of my son's suggestions.
Speaker Change: And that we've been very focused on construction costs. Among many of our current initiatives, we have a multi year effort to minimize and unify our skus across the country.
This gives us the ability to truly hone in on costs by limiting the items that we negotiate with our suppliers and trades and buy in larger quantities.
Speaker Change: Proud to say that was one of my sons suggestions.
Ara K. Hovnanian: Like the Goldilocks scenario, we are big enough to have clout with our suppliers, but small and nimble enough to rally all of our divisions around a smaller number of SKUs across the country and unify them. Believe me, that's not an easy task. Our average base construction costs per square foot in the second quarter of 24 were down 6% year over year. The cost savings helped offset the cost of mortgage rate buydown.
Speaker Change: The Goldilocks scenario, we are big enough to have cloud with our suppliers, but small and nimble enough to rally all of our divisions around a smaller number of skus across the country and unifying them believe me that's not an easy task our app.
Speaker Change: Average base construction cost per square foot in the second quarter of 24 were down 6% year over year.
Cost savings helped offset the cost of mortgage rate buy downs, we think theres a huge opportunity for much further cost reduction going forward and that we just scratched the surface.
Ara K. Hovnanian: We think there's a huge opportunity for much further cost reductions going forward and that we've just scratched the surface. Our shift to more QMIs is certainly helping construction costs as well. And finally, our turbocharged focus on delivery growth and community count growth for the future will absolutely help with the additional volume. Our SG&A ratio was 11.2%, which was near the low end of the range that we gave.
Speaker Change: Our shift to more <unk> is certainly helping construction cost as well and finally, our turbocharge focus on delivery growth and community count growth for the future, we will absolutely health would be additional volume.
Speaker Change: Our SG&A ratio was 11, 2%. This was near the low end of the range that we gave.
Ara K. Hovnanian: We anticipate growing the top line, and we plan to leverage our current infrastructure without much in the way of additional headcount, and we hope to make a lot of progress in lowering this ratio. As you'll see in a moment, from our lots controlled and our record land spend over the past several quarters, when their balance sheet improved, we're very focused on growth and scale. Adjusted EBITDA was $102 million for the quarter, which is significantly above the high end of the range that we gave.
Speaker Change: We anticipate growing the topline and we plan to leverage our current infrastructure without much in the way of additional head count and we hope to make a lot of progress in lowering this ratio.
Speaker Change: As youll see in a moment from our lots controlled and a record land spend over the past several quarters, where their balance sheet improve we're very focused on growth and scale.
Speaker Change: Adjusted EBITDA was $102 million for the quarter, which is significantly above the high end of the range that we gave.
Ara K. Hovnanian: Finally, our adjusted pre-tax income was $70 million, which is significantly better than the high end of the range that we gave. Given the rising mortgage rate environment, we're pleased that our profitability was higher than guidance. It's always challenging to give guidance in a market with fluctuating mortgage rates. We try to get ranges that we can meet or beat.
Speaker Change: Finally, our adjusted pre tax income was $70 million, which is significantly better than the high end of the range that we gave.
Speaker Change: Given the rising mortgage rate environment were pleased that our profitability was higher than guidance.
Speaker Change: It's always challenging to give guidance in a market with fluctuating mortgage rates.
Speaker Change: Try to get ranges that we can meet or beat.
Ara K. Hovnanian: On slide six, we show how our results compared to last year's second quarter. Starting in the upper left-hand quadrant of the slide, you can see that our total revenue is relatively flat at just over $700 million. In the upper right-hand portion of the slide, you can see that our gross margin increased 170 basis points year-over-year to 22.6%. On a sequential basis, we also increased from 21.8% in the first quarter of
Speaker Change: On slide six we show how our results compared to last year's second quarter, starting in the upper left hand quadrant of the slide you can see that our total revenues were relatively flat at just over $700 million.
Speaker Change: In the upper right hand portion of the slide you can see that our gross margin increased 170 basis points year over year.
Speaker Change: To 22, 6% on a sequential basis. We also increased from 21, 8% in last year's excuse me in the first quarter of 'twenty four.
Ara K. Hovnanian: Moving to the bottom left-hand portion of the slide, you can see that our adjusted EBITDA increased 18% to $102 million in this year's second quarter. Finally, in the bottom right-hand portion of the slide, adjusted pre-tax profit increased 51% to $70 million. Turn to slide 7.
Speaker Change: Moving to the bottom left hand portion of the slide you can see that our adjusted EBITDA increased 18% to $102 million in this year's second quarter.
Speaker Change: Finally in the bottom right hand portion of the slide adjusted pretax profit increased 51% to $70 million.
Ara K. Hovnanian: On this slide, you can see contracts per community for the second quarter increased 7% year-over-year to 13.9. This is not an easy comparison because last year's second quarter was also quite strong. When you compare this to the historical averages, the 24th second quarter compares very well. We show average contracts per community from 97 to 24 in dark blue, and it was 11.4, so we're 22% better than our historical averages over that entire period. If you only look at the period between 97 and 02, it's a time that we often use because it was neither a bust nor a boom. The average was 13.5.
Speaker Change: If you turn to slide seven on this side you can see contracts per community for the second quarter increased 7% year over year to $13 nine.
Speaker Change: This is not an easy comparison, because last year's second quarter was also quite strong.
When you compare this to the historical averages.
Speaker Change: The 24 second quarter compares very well.
Speaker Change: We show average contracts per community from 97% to 24 in dark Blue and it was 11, four so were 22% better than our historical averages over that entire period. If you only look at the period between 97 and two it is.
Speaker Change: Time that we often use because it was neither a bust nor a boom that average was $13 five we show that our off to the left in green.
Speaker Change: We're better than average as well.
Ara K. Hovnanian: We show that far off to the left, in green, we were better than that average as well. If you turn to slide U8, we show the interest rates trend. The gray line on this slide shows what happened to interest rates last year between July and May. During this period, whenever rates declined, we eventually saw a pickup in sales after a little delayed reaction. The blue line shows what happened with mortgage rates between July 23 and this May. It is interesting that they followed a very similar pattern, just at slightly higher rates.
Speaker Change: If you turn to slide eight we show interest rate trends.
Speaker Change: The grey line on this slide shows what happened to interest rates last year between July and May during this period whenever rates declined. We eventually saw a pickup in sales after a little delayed reaction.
Speaker Change: The Blue line shows what happened with mortgage rates between July of 2003 and this may.
Speaker Change: Interesting that they followed a very similar pattern just at slightly higher rates. The good news is that rates are drifting down a little bit over the last several weeks, which typically gives an uptick in demand a little later.
Ara K. Hovnanian: The good news is that rates have been drifting down a little bit over the last several weeks, which typically gives an uptick in demand a little later. In general, what we've observed over the past few years is when there's an increase in rates or instability in international events or inflation numbers being volatile or about to be released by the Fed, homebuyers typically step to the sidelines for a short period to see how things settle down. As their expectations and outlook adjust, they will eventually reenter the market.
Speaker Change: In general what we've observed over the past few years is when there is an increase in rates or instability in international events or inflation numbers being volatile or about to be released by the fed homebuyers typically step to the sidelines for.
Speaker Change: Short period to see how things settle down as their expectations and the outlook adjust they eventually re enter the market.
Ara K. Hovnanian: On slide 9, we give more granularity and show the trend of monthly contracts per community compared to the same month a year ago. What jumps out at you on this slide is that the spring selling season has been strong for each of these two years. Underpinning this strength has been a low supply of existing homes for sale, a strong jobs market, and the overall health of the economy. When you layer in positive demographic trends, you get a very favorable environment for new homes here.
On slide nine we give more granularity and show the trend of monthly contracts per community compared to the same month a year ago.
Speaker Change: What jumped out at you on this slide as the spring selling season has been strong for each of these two years underpinning the strength has been a low supply of existing homes for sale, a strong jobs market and the overall health of the economy.
Speaker Change: When you layer in positive demographic trends, you get a very favorable environment for new home sales.
Ara K. Hovnanian: While bills for rent can create some fluctuations month to month, core consumer sales have been steady and solid compared to last year. Contracts post-immunity in April were strong, though not quite as strong as they were in March of 24 or April of 23, but both of these months had an advantage of five Sundays compared to this year's April, which only had four Sundays, and that certainly makes a difference.
Speaker Change: While build for rent can create some fluctuations in month to month core consumer sales have been steady and solid compared to last year.
Speaker Change: Contracts per community in April were strong, though not quite as strong as they were in March of 24 April of 'twenty three but both of these months had an advantage of five days compared to this year's April which only had four Sundays and that certainly makes a difference.
Ara K. Hovnanian: Turning to slide 10, we show our contracts per community as if the quarter ended on March 31 instead of March 24 so that we can compare our results to our peers that report contracts per community on a March quarter end. At 13.9 contracts per community, our sales pace per community is the fourth highest among. We recently introduced a new design concept in our home designs, which we refer to as LOOK. 50% of our new community openings this year feature our new looks and designs. Suffice it to say they're being well received with good margins. I want to give credit where credit is due. I'll mention the LOOKS design was also one of my son's strategic suggestions.
Speaker Change: Turning to slide 10, we show our contracts per community as if the quarter ended on March 31 of 24, so that we can compare our results to our peers that report contracts per community on a March quarter end at $13 nine contracts per community are safe.
Sales pace per community is the fourth highest among the public homebuilders that reported for this time period and well above the median.
We've recently introduced a new design concept in our home designs, we referred to as looks 50% of our new community openings. This year future feature our new looks designs.
Speaker Change: <unk> to say they are being well received with good margins.
Speaker Change: To give credit where credit is due all mentioned looks design results in one of my sons strategy suggestions.
Ara K. Hovnanian: On slide 12, you can see our year-over-year growth in contracts per community for that same period, and ours was the third highest among peers and again, well above the median. The last two slides illustrate that we're not only competitive, but we continue to get more than our fair share of contracts. Turning to slide 13, website visits and foot traffic at our communities remain extremely strong, which should lead to sustained healthy levels of demand going forward. Total website visits in April 24 were 936,000.
Speaker Change: On slide 12, you can see that our year over year growth in contracts per community for that same period and ours was the third highest among peers and again well above the median.
Speaker Change: The last two slides illustrate that we are not only competitive but we continue to get more than our fair share of contracts.
Speaker Change: Turning to slide 13 website visits and foot traffic at our communities remain extremely strong which should lead to sustained healthy levels of demand going forward total website visits in April of 24 were 936000.
Ara K. Hovnanian: This is one of the highest months we have had in over five years, even higher than any April, even including the COVID surge in demand. Potential homebuyers are definitely out in the market and looking. Given stretched affordability, we continue to utilize a high percentage of rate buydowns on homes that are closed. On slide 14, you can see that the percentage of customers that used buy-downs was 73% in the second quarter compared to 79% in the first quarter. On the bottom, to give more granularity, we show monthly trends over the same period.
Speaker Change: <unk> is one of the highest months we've had in over five years, even higher than any April even including the COVID-19 surge in demand potential homebuyers are definitely out in the market and looking.
Speaker Change: Given stretched affordability, we continue to utilize our high percentage of rate buy downs on homes that were closing.
Speaker Change: On the top of Slide 14, you can see that the percentage of customers that use buy downs was 73% in the second quarter compared to 79% in the first quarter on the bottom to give more granularity we show monthly trends over the same period.
Ara K. Hovnanian: For the last four months, the usage on our deliveries has been around 72 percent, which seems to indicate homebuyers have reached a comfort level with these higher levels of mortgage rates. We assume buydowns will remain at similar levels going forward, and the cost of buydowns will not be decreased. In order to meet strong demand for new homes, elevated levels of quick move-in homes, or QMIs, as we call them, remain part of our operating philosophy.
Speaker Change: For the last four months the usage of <unk> on our deliveries has been around 72%, which seems to indicate homebuyers have reached a comfort level with these higher levels of mortgage rates.
Speaker Change: We will we assume by downs will remain at similar levels going forward and the cost of buy downs will not be decreasing.
Speaker Change: In order to meet strong demand for new homes elevated levels of quick move in homes or <unk> as we call them remain part of our operating philosophy on slide 15, we show that we had seven two <unk> per community at the end of the second quarter.
Ara K. Hovnanian: On slide 15, we show that we had 7.2 QMIs per community at the end of the second quarter. Once again, our level of finished QMIs is low at 144 finished homes or 1.3 per community, and that's down sequentially from 219 finished QMIs at the end of the first quarter. We continue to hone our skills at selling QMIs before completion. In the second quarter of 24, QMI sales were about 65% of our sales, versus 40% historically.
Speaker Change: Once again, our level of <unk> are.
Speaker Change: <unk> finished <unk> are low at 144 finished homes or one three per community and that's down sequentially from 219 finished <unk> at the end of the first quarter.
Speaker Change: We continue to hone our skills at selling <unk> before completion.
Speaker Change: In the second quarter of 2004, <unk> sales were about 65% of our sales versus 40% historically.
Ara K. Hovnanian: It's obviously a very significant increase for us. We'll continue to manage our QMIs at the community level. We track our start schedule per community with our current sales pace per community. At the present time, we're very comfortable with our current level of 7.2 QMIs per community.
Obviously, a very significant increase for US we'll continue to manage our <unk> community level, we track our historic schedule per community with our current sales pace per community.
Speaker Change: At the present time, we're very comfortable with our current level of seven <unk> per community.
Ara K. Hovnanian: Customers have fewer existing homes to choose from, and as a result, homebuyers are turning more to new construction than they have in the past. Additionally, the ability to buy down mortgage rates gives home builders like ourselves an advantage over existing homes. And finally, our designs are significantly different than the homes that are typically listed as a resource.
Speaker Change: Customers have fewer existing homes to choose from and as a result.
Speaker Change: Homebuyers are returning more to new construction than they have in the past.
Speaker Change: Additionally, the ability to buy down mortgage rates is homebuilders like ourselves and advantage over existing homes and finally, our looks designs are significantly different than the homes that are typically listed as a resale.
Ara K. Hovnanian: If you move to slide 16, you can see that due to the strength of demand for our homes, we were still able to raise net prices in 59% of our communities during the second quarter of 24. Given the fact that rates have continued to rise throughout the second quarter, this is still a healthy percentage of communities where we are able to raise prices. All in all, the current level of demand should support the growth that we hope to achieve over the next several years. I'll now turn it over to Brad, our Chief Financial Officer.
Speaker Change: If you move to slide 16, you can see that due to the strength of demand for our homes, we were still able to raise net prices and 59% of our communities during the second quarter of 2004.
Speaker Change: Given the fact that rates have continued to rise throughout the second quarter. This is still a healthy percentage of communities, where we were able to raise prices.
Speaker Change: All in all the current level of demand should support the growth that we hope to achieve over the next several years.
Brad G. OConnor: Thank you, Ara. Now, beginning with slide 17, you can see that we ended the quarter with a total of 132 open for sale cases; ninety-nine of those communities were wholly owned. During the second quarter, we opened 11 new wholly owned communities, sold out of 17 wholly owned communities, and contributed three to a new unconsolidated joint venture. We also opened four new unconsolidated joint venture communities and closed one during the second quarter.
Speaker Change: Now I'll turn it over to Brad our Chief Financial Officer.
Brad G. OConnor: Thank you Ara now beginning with slide 17, you can see that we ended the quarter with a total of 132 open for sale communities 109 of those communities were wholly owned during the second quarter. We opened 11, new new wholly owned communities sold out of 17 wholly owned communities and contributed three.
Speaker Change: <unk> to a new on consolidated joint venture.
Brad G. OConnor: Total communities of 132 were up slightly compared to the second quarter last year when we had 128, but it was down sequentially from 135 communities at the end of the first quarter. This sequential shortfall in communities is a result of two prevailing trends. First, with continued growth in contracts, we sold through communities faster than we anticipated. The other factor continues to be delayed due to utility hookups throughout the country.
Speaker Change: We also opened four new unconsolidated joint venture communities and closed one during the second quarter total communities of 132 were up slightly compared to the second quarter of last year, when we had 128.
Speaker Change: However, it was down sequentially from 135 communities at the end of the first quarter. The sequential shortfall in communities as a result of two prevailing trends first with continued growth in contracts, we sold through faster than we anticipated.
Brad G. OConnor: We currently expect our total community count to increase by about 5-10% by the end of the third quarter of 2024 and then grow at least another 5% by the end of fiscal 24. We expect our community count to continue to grow in fiscal 25. Predicting community count growth can be challenging given a variety of factors. The reason we are expecting community count growth is shown on slide 8. We ended the second quarter with 36,841 controlled lots, which equates to a 7.3 year supply of controlled lots. Our lot count increased 10% sequentially and 29% year over year. We optioned 6,300 lots in 63 communities during the second quarter.
Speaker Change: Other factor continues to be delays due to utility hookups throughout the country.
Speaker Change: We currently expect our total community count to increase by about 5% to 10% by the end of the third quarter of 2004, and then grow another 5% by the end of fiscal 'twenty four.
Speaker Change: We expect community count.
Speaker Change: The key accounts continue to grow in fiscal 'twenty five predicting community count can be challenging given given a variety of factors. The reason, we're expecting community count growth as shown on slide 18, we ended the second quarter with 36841 controlled lots, which equates to a seven three year supply of control.
Speaker Change: Our lot count increased 10% sequentially and 29% year over year.
Brad G. OConnor: That is the most we have optioned in one quarter since we started tracking the data in the first quarter of 2016. Our land teams are actively engaging with land sellers and negotiating for new land parcels that meet these underwriting standards. As a matter of fact, our land and land development spend was $231 million in the second quarter of fiscal 24.
Speaker Change: <unk> 6300 lots in 63 communities during the second quarter that is the most we have option in one quarter. Since we started tracking the data in the first quarter of 2016.
Speaker Change: A lot count increase sorry, our land teams are actively engaging with land sellers and negotiating for new land parcels that meet these underwriting standards.
Brad G. OConnor: This is slightly higher than the first quarter spend of $230 million, making it the highest quarterly land spend since 2010 when we first reported the data. Keep in mind that land and land development spend was $220 million in the fourth quarter of 2023, so that is three quarters in a row with higher than historical levels of land and land development spend. Our corporate land committee calendar continues to be busy, which is an indication that our lot count should continue to increase over time, but not always in a straight line.
Speaker Change: As a matter of fact, our land and land development spend was $231 million in the second quarter of fiscal 'twenty. Four this is slightly higher than the first quarter spend of $230 million, making it the highest quarterly land spend since 2010, when we first reported the data.
Speaker Change: Keep in mind, Atlanta, Atlanta development spend was $220 million in the fourth quarter of 2003. So that is three quarters in a row with higher than historical levels on land and land development spend our corporate land Committee calendar continues to be busy which is an indication that our lot count should continue to increase over time, but not always in a straight line.
Brad G. OConnor: We are using current home prices, including the current level of mortgage rate buy-downs, current construction costs, and current sales base to underwrite to a 20% plus internal rate of return. Our underwriting standards automatically self-adjust to any changes in market conditions.
Speaker Change: We are using current home prices, including the current level of mortgage rate buy downs current construction cost and current sales pace to underwrite to a 20% plus internal rate of return our underwriting standards automatically self adjust to any changes in market conditions.
Brad G. OConnor: We are finding many opportunities in our markets and are very focused on growing our top and bottom lines for the long term. Growth and loss control precede growth in community count, which precedes growth in delivery. On slide 19, we show the percentage of our lots controlled via option increased from 45% in the second quarter of fiscal 2015 to 80% in the second quarter of fiscal 2024. This increase is intentional and has been a focus of our land life high inventory return land strategy.
Speaker Change: Finding many opportunities in our markets and are very focused on growing our top and bottom lines for the long term.
Speaker Change: The growth in lots controlled perceived growth in community count, which proceeds growth and deliveries.
Speaker Change: On slide 19, we show the percentage of our lots controlled via option increase were 45% in the second quarter of fiscal 2015% to 80% in the second quarter of fiscal 'twenty for this increase is intentional and has been a focus of our land light high inventory turn land strategy. We are pleased with the progress we have made.
Brad G. OConnor: We are pleased with the progress we have made. Turning now to slide 20, you see that we continue to have one of the higher percentages of land control via option compared to our peers, and we are significantly above median. On slide 21, compared to our peers, we continue to have the third highest inventory turnover rate.
Speaker Change: Turning now to slide 20, you can see that we continue to have one of the higher percentages of land controlled via option compared to our peers and we are significantly above media.
Brad G. OConnor: 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 to further improve our inventory turns and our returns on inventory in future periods. Another way to improve our inventory returns is by shortening our construction cycle time. We made good progress reducing our cycle times in the second half of fiscal 23 from 190 days to 160 days. Our cycle times in the first and second quarters of 24 were similar to the fourth quarter of 23, at around 160 days.
Speaker Change: On slide 21, compared to our peers. We continue to 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 to further improve our inventory turns and our return and our returns on inventory.
Speaker Change: <unk> in future periods.
Speaker Change: Another way to improve our inventory turns as by shortening our construction cycle times, we made good progress reducing our cycle times in the second half of fiscal 'twenty three from 190 days to 160 days.
Speaker Change: Our cycle times in the first and second quarter of 2004, where similar to the fourth quarter of 2003 at around 160 days. However.
Brad G. OConnor: However, it is a significant improvement from the 190 in the second quarter of 23, and we still have some work ahead of us to get back to pre-pandemic cycle times of about four months or 120 days. We are also focused on shrinking the time between lot takedown and construction start to further improve our inventory turnover. We still have more opportunities. Starting on slide 22.
Speaker Change: However, it is a significant improvement from the 190 in the second quarter of 2003.
We'll have some work ahead of us to get back to pre pandemic cycle times of about four months or 120 days.
Speaker Change: We are also focused on shrinking the time between lot takedown in construction start to further improve our inventory turnover, we still have more opportunity.
Brad G. OConnor: Even after spending $231 million on land-to-land development and $15 million to repurchase stock, we still ended the second quarter with $311 million of liquidity above the high end of our targeted liquidity range. Turning now to slide 23, the top of this slide shows our maturity ladder as of April 30, 2024. The bottom portion of the slide shows the debt reduction from the debt exchange we completed yesterday. We paid $31.5 million in cash plus accrued interest and issued 94 million of 10% senior secured one and three quarter lien term loans due in the first quarter of fiscal 28 to retire $169 million of debt.
Speaker Change: Turning to slide 22.
Even after spending $231 million on land and land development and $15 million to repurchase stock. We still ended the second quarter with $311 million of liquidity above the high end of our targeted liquidity range.
Brad G. OConnor: The exchange lowered the face value of our debt by $75 million and reduced our annual cash interest by 4.6 million and our annual interest expense by approximately 8.5 million. It is yet another example of the steps we have taken to improve our maturity ladder over the past several years.
Speaker Change: Turning now to slide 23.
Speaker Change: The top of this slide shows our maturity ladder as of April 32024, the bottom portion of the slide shows the debt reduction from the debt exchange, we completed yesterday.
Speaker Change: Page $31 $5 million in cash plus accrued interest and issued $94 million of 10% senior secured one and three quarter lien term loan due in the first quarter of fiscal 2008 to retire $169 million of debt.
Speaker Change: The exchange lowered the face value of our debt by $75 million and reduced our annual cash interest by $4 6 million and our annual interest expense by approximately $8 5 million.
Brad G. OConnor: We remain committed to further strengthening our balance. Turning to slide 24, here we show the progress we've made to date to grow our equity and reduce our debt. Starting on the left-hand portion of the slide, we show the growth in equity over the past few years. And on the right-hand portion, you can see the progress we've made in reducing our debt, including the redemptions we made in fiscal 23 and 24 and the most recent debt reductions in exchange. We have reduced our debt by $741 million since the beginning of fiscal 20.
Speaker Change: It is yet another example of the steps we have taken to improve our maturity ladder over the past several years, we remain committed to further strengthening our balance sheet.
Speaker Change: Turning to slide 24, the ratio of the progress we've made to date to grow our equity and reduce our debt.
Speaker Change: <unk> on the left hand portion of the slide we show the growth in equity over the past few years and on the right hand portion you can see the progress we've made in reducing our debt, including the redemptions. We made in fiscal 'twenty three 'twenty four and the most recent debt reductions in exchange, we reduced our debt by $741 million since the beginning of fiscal <unk>.
Brad G. OConnor: With the exchange yesterday, our debt is now below $1 billion, a significant milestone considering the $2.5 billion of debt we had at the time. Our net debt-to-net cap at the end of the second quarter performing for the debt exchange was 55%, which is a significant improvement from 146% at the beginning of fiscal 20. But we still have more work to do to achieve our goal of a mid-30% level. But we have made significant progress and are well on our way to getting there.
Speaker Change: <unk>.
Speaker Change: With the exchange yesterday, our debt is now below $1 billion.
Speaker Change: A significant milestone and considering the $2 $5 billion of debt we had at the peak.
Speaker Change: Our net debt to net cap at the end of the second quarter pro forma for the debt exchange was 55%, which is a significant improvement from a 146% at the beginning of fiscal 'twenty, but we still have more work to do to achieve our goal of a mid 30% level.
Brad G. OConnor: Our balance sheet has improved significantly over the last five years, and we expect to continue to make significant progress moving forward. Given our remaining $280 million of deferred tax assets, we will not have to pay federal income taxes on approximately $1 billion of future pre-tax earnings. This benefit will continue to significantly enhance our cash flow in years to come and will accelerate our growth plans as well as our ability to pay down debt. I believe we have significantly more NOL remaining than most of our peers.
Speaker Change: We have made significant progress and are well on our way to getting there our balance sheet has improved significantly over the last five years and we expect to continue to make significant progress moving forward given our remaining $280 million of deferred tax assets, we will not have to pay federal income taxes on approximately 1 billion.
Speaker Change: Our future pre tax earnings this benefit will continue to significantly enhance our cash flow in years to come and we will accelerate our growth plans as well as our ability to pay down debt I believe we have significantly more NOL remaining than most of our peers.
Brad G. OConnor: Our financial guidance for the third quarter of fiscal 24 and for the full year of 24 assumes no adverse changes in current market conditions, including no further deterioration in our supply chain or material, increases in mortgage rates, inflation, or cancellation. Our guidance assumes continued extended construction cycle times averaging five to six months compared to our pre-COVID cycle time per construction of approximately four months. It also assumes that we continue to be more reliant on QMI sales, which makes forecasting gross margins more difficult.
Speaker Change: Our financial guidance for the third quarter of fiscal 'twenty, four and for the full year of 24, assuming no adverse changes in current market conditions.
Speaker Change: Including no further deterioration in our supply chain or material increases in mortgage rates inflation or cancellation rates.
Speaker Change: Our guidance assumes continued extended construction cycle times, averaging five to six months compared to our pre COVID-19 cycle time for construction of approximately four months. It also assumes that we continue to be more reliant on <unk> sales, which makes forecasting gross margins more difficult. Our guidance assumes continued use of mortgage rate buy downs or similar.
Brad G. OConnor: Our guidance assumes continued use of mortgage rate buy-downs similar to recent months. Further, it excludes any impact to SG&A expense from our phantom stock expense related solely to the stock price movement from the $147.83 stock price at the end of the second quarter of fiscal 20. Slide 25 shows our guidance for the third quarter of fiscal 24. We expect total revenues for the third quarter to be between $675 million and $775 million.
Speaker Change: Two recent months.
Speaker Change: Further it excludes any impact to SG&A expense from our Phantom stock expense related solely to the stock price movement from the $147 83 stock price at the end of the second quarter of fiscal 'twenty.
Brad G. OConnor: We also expect adjusted gross margin to be in the range of 21.5% to 23.5% and SG&A as a percent of total revenues to be between 11 and 12%. Our guidance for adjusted EBITDA is a range between $97 million and $107 million, and our adjusted pre-tax income for the third quarter of fiscal 24 is expected to be between $65 million and $75 million. Slide 26 shows our guidance for all of Fiscal 2024. We expect total revenues for the full year to be between $2.75 billion and $3 billion.
Speaker Change: Slide 25 shows our guidance for the third quarter of fiscal 'twenty. Four we expect total revenues for the third quarter to be between $675 million and $775 million. We also expect adjusted gross margin to be in the range of 21, 5% to 23, 5% and <unk>.
Speaker Change: <unk> as a percent of total revenues to be between 11 and 12%.
Speaker Change: Our guidance for adjusted EBITDA is a range between $97 million and $107 million and our adjusted pretax income for the third quarter of fiscal 'twenty four is expected to between EBIT between $65 million of $75 million.
Speaker Change: Slide 26 shows our guidance for all of fiscal 2024, we expect total revenues for the full year to be between $2 75 billion and $3 billion.
Brad G. OConnor: We also expect adjusted gross margin to be in the range of 21.5% to 23% and SG&A as a percent of total revenue to be between 11% and 12%. Our guidance for adjusted EBITDA is a range between $395 million and $430 million, and our adjusted pre-tax income for the full year is expected to be between $265 million and $300 million. Keep in mind that when comparing this guidance to the prior year's actuals, 2023 included $19.7 million of profit from a land sale and a $19.1 million gain on consolidation of a joint venture, neither of which are assumed to repeat in 2024.
Speaker Change: We also expect adjusted gross margin to be in the range of 21, 5% to 23% and SG&A SG&A as a percent of total revenue to be between 11 and 12% are.
Speaker Change: Our guidance for adjusted EBITDA is a range between $395 million and $430 million and our adjusted pre tax income for the full year is expected to be between $265 million and $300 million.
Speaker Change: Keep in mind that when comparing this guidance to the prior year Actuals 2023 included $19 $7 million of profit from a land sale and a $19 $1 million gain on consolidation of a joint venture neither of which are assumed to repeat in 2024, excluding those items adjusted pretax income at <unk>.
Brad G. OConnor: Excluding those items, adjusted pre-tax income of 2023 would have been $244 million, which means the midpoint of our guidance would be a 16% increase year over year. We expect our diluted earnings per share for the full year to be in the range of $25 and $29. At the midpoint of our guidance, we anticipate our common book value per share to increase by 45% at October 31, 2024, to approximately $106 per share, compared to last year's value at year end of $73 per share. Turning to slide 27.
Speaker Change: <unk> three would have been $244 million.
Speaker Change: Which means the midpoint of our guidance would be a 16% increase year over year.
Speaker Change: We expect our diluted earnings per share for the full year to be in the range of $25 $29 at the midpoint of our guidance, we anticipate our common book value per share to increase by 45% at October 31, 2024 to approximately $106 per share compared to last year's value added.
Brad G. OConnor: We show that our return on equity was 39.5%, which is the highest over the trailing 12 months compared to our peers. And on slide 28, we show, compared to our peers, that we have one of the highest consolidated EBIT returns on investment at 33.5%. While our ROE was helped by our leverage, our EBIT return on investment is a true measure of pure home building operating performance without regard to leverage and was the highest among our mid-sized peers. For the last several years, we have consistently had one of the highest EBIT ROIs among our peers. We have an operating model that we don't speak about specifically, but it's clearly delivering superior results.
Speaker Change: Year end of $73 per share.
Speaker Change: Turning to slide 27.
Speaker Change: We show that our return on equity was 39, 5%, which is the highest over the trailing 12 months compared to our peers and on slide 28 per share compared to our peers that we have one of the highest consolidated EBIT returns on investment at 33, 5%.
Speaker Change: While our Aro he was helped by our leverage our EBIT return on investment as a true measure of pure homebuilding operating performance without regard to leverage and was the highest among our midsized peers over the last several years, we have consistently had one of the highest EBIT rois among our peers.
Brad G. OConnor: Eventually, investors will recognize our consistent, superior returns on capital, reduced leverage, and significantly improved balance sheet. Given our rapidly growing book value, we think it would be appropriate to consider a variety of metrics, including EBIT return on investment, enterprise value to EBITDA, and our price to earnings multiple when establishing a fair value for our stock. We believe when all our fundamental financial metrics are considered, our stock is a compelling value. On slide 29, we show our price to both multiples compared to our peers. We do compare more favorably on this metric. Based on the midpoint of our guidance, we expect the end of October to have a bulk value of approximately $106 per share.
Speaker Change: We have an operating model that we don't speak about specifically, but it is clearly delivering superior results. Eventually events investors will recognize our consistent superior returns on capital reduced leverage and significantly improved balance sheet.
Speaker Change: Given our rapidly growing book value, we think it would be appropriate to consider a variety of metrics, including EBITDA return on investment enterprise value to EBITDA and our price to earnings multiple on establishing a fair value for our stock.
Speaker Change: I believe on all our fundamental financial metrics are considered our stock is a compelling value.
Speaker Change: On slide 29, we show our price to book multiple compared to our peers, we do compare more favorably on this metric based on the midpoint of our guidance. We expect the end of October with a book value of approximately $106 per share on.
Brad G. OConnor: On slide 30, we show the trailing 12-month price-to-earnings ratio for us and our peer group based on our price earnings multiple of 5.69 times at yesterday's closing stock price of $169.10. We are trading at a 42% discount to the home building industry average P.E. ratio.
Speaker Change: On slide 30, we show the trailing 12 month price to earnings ratio for Us and our peer group based on our price earnings multiple of 569 times at yesterday's closing stock price of $169 10.
Brad G. OConnor: We recognize that our stock may trade at a discount to the group because of our higher leverage. However, given our 39.5% return on equity, our top quartile EBIT 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 homebuilding. On slide 31, we compare some of our statistics to one of our peers that is often touted as a superior performer by analysts.
Speaker Change: We're trading at a 42% discount to the homebuilding industry average p/e ratio.
Speaker Change: We recognize that our stock may trade at a discount to the group because of our higher leverage however, given our 39, 5% return on equity are top quartile EBIT return on investment combined with a rapidly improving balance sheet. We believe our stock continues to be the most undervalued in the entire universe of public homebuilders.
On slide 31, we compare some of our statistics to one of our peers that is often touted as a superior performer by Analyst's Dream Finders has an excellent homebuilder and warrants high valuations as you can see on the top of the table. Many of our metrics are similar or option loss percentage and inventory turnover are very close to dream finders.
Brad G. OConnor: DreamFinders is an excellent home builder and warrants high valuations. As you can see on the top of the table, many of our metrics are similar. Our option loss percentage and inventory turnover are very close to DreamFinders. However, they do have a slightly lower net debt to equity, it is 44% compared to our 55%. Again, DreamFinders is an excellent home builder, but our ROE and either ROI, which ignores the benefits of leverage, compares very favorably.
Speaker Change: However, they do have a slightly lower net debt to cap it is 44% compared to our 55%.
Speaker Change: Again dream fires as an excellent homebuilder, but our ROE and either ROI, which ignores the benefit of leverage compares very favorably, hence our frustration in our evaluation, which can be seen in the last two rows on this slide RP is 44% lower than dream finders.
Brad G. OConnor: Hence our frustration with our evaluation, which can be seen in the last two rows on this slide. Our PE is 44% lower than DreamFinders, and our price-to-book multiple is 38% lower than that. Again, we think DreamFinders is an exceptional home builder. We are simply frustrated by our market multiples given our performance. We think our evaluations are a compelling opportunity, and our rapidly improving balance sheet makes it even more appealing. We remain focused on further strengthening our balance sheet, primarily through growth and equity, as we grow our top line through profitability. I will now turn it back to Ara for some brief closing remarks.
Speaker Change: And our price to book multiple of 38% lower than theirs again, we think dream finders has an exceptional homebuilder, we are simply frustrated by our market multiples given our performance.
We think our valuations are compelling opportunity in a rapidly improving balance sheet makes it even more appealing we remain focused on further strengthening our balance sheet, primarily through growth in equity as we grow our top line and profitability I will now turn it back to Ara for some brief closing remarks.
Ara K. Hovnanian: Thank you, Brad. I have to add that our stock price today is a scratch, a head scratcher. Our profits went up 50%, and we're one of the leaders in EBIT ROI, and we're trading at about 1.4 times our year-end book value, which ends in five months. But we'll continue to put our heads down and do what we do best and perform with exceptional returns and build beautiful homes for our customers. [inaudible] We are encouraged by the recent demand for homes, which is evident in our contracts and our traffic, both foot traffic at our communities and visits to our website.
Ara K. Hovnanian: Thank you Brad.
Ara K. Hovnanian: I have to add that.
Ara K. Hovnanian: Stock price today is a scratch our head scratcher are.
Speaker Change: Profits went up.
Speaker Change: The percent and.
Speaker Change: Well one of the leaders in EBIT ROI.
Speaker Change: We're trading at about one four times, our year end book value.
Speaker Change: Which end in five months.
Speaker Change: But.
Speaker Change: We'll continue to put our head down and do what we do best.
Speaker Change: Uh huh.
Speaker Change: Performed with exceptional returns and build beautiful homes for our customers.
Speaker Change: Okay.
Speaker Change: We are encouraged by the recent demand for homes, which is evident in our contracts and our traffic both foot traffic.
Ara K. Hovnanian: These two trends should definitely keep our contracts per community above the normal level. First, a substantial percentage of homes that we sell are in the active adult or active lifestyle category. In fiscal 23, it was 21% of our deliveries, and I could see that inching up over the future.
Speaker Change: At our communities and visits to our websites. These two trends you would definitely keep our contracts per community above normal levels.
First a substantial percentage of homes that we sell are in the active adult or active lifestyle category and.
Speaker Change: Fiscal 'twenty three it was 21% of our deliveries and I could see that inching up over the future.
Ara K. Hovnanian: This is a category that many of our home building peers do not focus on, and we have made it one of our specialties. We've been building active adult lifestyle homes for decades. This buyer demographic is not as concerned about mortgage rates as many of these are cash buyers. In the first half of 24, 51% of our active adult buyers purchased with cash, and many of the others took a small mortgage and didn't really need a mortgage to qualify to purchase. By the way, they have no problem selling their existing home and giving up a mortgage because, in most cases, they've already paid off their mortgage.
Speaker Change: This is a category where.
Speaker Change: Many of our homebuilding peers do not focus on and we have made it one of our specialties. We've been building active adult lifestyle homes for decades. This buyer demographic is not as concerned about mortgage rates as many of these are cash buyers in the first half of 'twenty 450.
Speaker Change: 1% of our active adult buyers purchased all cash and many of the others took a small mortgage it didn't really need a mortgage to qualify to purchase.
Speaker Change: By the way they have no problem selling their existing home and giving up a mortgage because in most cases, they've already paid off their mortgage.
Ara K. Hovnanian: Second, our backlog conversion ratio has increased significantly over the past two years due to our focus on QMIs. Our second quarter backlog conversion rate was 37 percent in 22, it increased to 30 percent in 23, and then increased further to 68 percent in this year's second quarter. Increasing sales and an increased backlog conversion ratio add a layer of complexity for forecasting, but it does have a positive impact on our bottom line.
Speaker Change: Second our backlog conversion ratio has increased significantly over the past two years due to our focus on <unk>, our second quarter backlog conversion rate was 37% in 'twenty two it increased to 30% in 'twenty three and then increase further to <unk>.
Speaker Change: 68% in this year's second quarter.
Speaker Change: And increased sales.
Speaker Change: An increase backlog conversion ratio adds a layer of complexity for forecasting but it does have a positive impact on our bottom line.
Ara K. Hovnanian: I'll add that our strategy shift to building more QMI homes allows us to be more even and predictable in starts, which helps our pricing with our subcontractors. If we take a step back and look at the home sales market in totality, we find ourselves in a Goldilocks scenario, as I said at the beginning of our conference call today. While existing home supply has increased in some markets a little bit, it's still extraordinarily strong, even in the highest markets, and it's very restrictive in most of the markets that we build in.
Speaker Change: I'll add that our strategy shift to building more <unk> homes allows us to be more even and predictable and starts which helps our pricing with our subcontractors.
Speaker Change: If we take a step back and look at this home sales market in totality, we find ourselves in a goldilocks scenario as I said at the outlook.
Speaker Change: At the beginning of our conference call today.
Speaker Change: While existing home supply has increased in some markets a little bit it's still extraordinarily strong even in the highest markets and it's very restrict in most of the markets that we build in.
Ara K. Hovnanian: Mortgage rates are higher than they've been in a very long time, but home buyers realize that they're not likely to see mortgage rates with a 4% or even a 3% handle anytime soon, and of course, we can offer below-market-rate mortgages to our customers. The job market has cooled down a bit from its feverish pace, which should help inflation in the long run, but there are still jobs being created, and that's been helpful. The housing market seems not too hot and not too cold and feels very balanced and normal today.
Speaker Change: Mortgage rates are higher than they've been in a very long time, but homebuyers realize that theyre not likely to see mortgage rates with a 4% or even or 3% annual anytime soon and of course, we can offer below market rate mortgages to our customers.
Speaker Change: Job market has cooled down a bit from its favors feverish pace, which should help but inflation in the long run, but there are still jobs being created and that's been helpful.
Speaker Change: The housing market seems not too hot and not too cold and feels very balanced and normal today.
Ara K. Hovnanian: We believe that we can thrive in this market. We've grown our lot count substantially over the past year. And while land development delays have plagued the entire industry, our growth and community count will eventually follow.
Speaker Change: We believe that we can thrive in this market.
Speaker Change: Grown our lot count substantially over the past year, and while land development delays.
Ara K. Hovnanian: And this will lead to revenue growth, greater SG&A efficiency, and higher levels of profitability. We will continue to strive to deliver top-tier industry returns to our shareholders while delivering beautiful homes for our customers. I want to conclude by thanking each and every one of our associates for all of their efforts. The growth and stellar returns don't come about by happenstance but are the result of our entire team focusing on executing our business plans and strategies and having all of us pull in the same direction. That concludes our formal comments, and we're happy to turn it over to Q&A. Thank you.
Speaker Change: The entire industry are growth in community count will eventually follow and this will lead to revenue growth greater SG&A efficiency and higher levels of profitability.
Speaker Change: We will continue to strive to deliver top tier industry returns to our shareholders, while delivering beautiful homes for our customers.
Speaker Change: I want to conclude by thanking each and every one of our associates for all of their efforts the growth and stellar returns don't come about by Happenstance, but are the result of our entire team focusing on executing our business plans and strategies and having all of us pull in the same direction.
Operator: Thank you. We will now answer questions, and everyone that has an opportunity to ask questions, please limit your questions to three and a follow-up, after which please get back into the queue to ask further questions. To get in the queue, simply press star 1 1 on your telephone keypad and wait for your name to be announced, and to remove yourself, simply press star 1 1 again. One moment for our first question, please. All right, and this comes from the line between Natalie Kulaserkere and Zelman. Please go ahead.
Speaker Change: That concludes our formal comments and we are happy to turn it over for Q&A.
Speaker Change: So we will now answer questions and everyone that has an opportunity to ask questions. Please limit your questions to three and a follow up after week. Please get back into the queue to ask for your questions and to get in the queue simply press star one on your own.
Speaker Change: Telephone keypad and wait for your name to be announced and to remove yourselves simply press star one again.
Speaker Change: One moment for our first question please.
Natalie Kulaserkere: Hey, nice job during the quarter and thanks for taking my question. Could you maybe talk a little bit about how May is doing so far in terms of absorptions month-to-date compared to April?
Natalie <unk>: All right any comes from the line of Natalie <unk> with Zelman. Please go ahead.
Speaker Change: Hey, nice job during the quarter and thanks for taking my questions.
Ara K. Hovnanian: Sure, I'll take that. Well, first of all, obviously, we only have two full weeks of April so far, excuse me, in May so far. One of those was Mother's Day. So it's a little early, frankly, to give much color to May. But I'd say, in general, it's been choppy, as it often is choppy with changes in the environment. We just had mortgage rate reductions over the last three weeks. We've had a lot of focus on the Fed and inflation rates and what their outlook is.
Natalie <unk>: Could you maybe talk a little bit about how may is doing so far in terms of absorptions month to date compared to April.
Speaker Change: Sure I'll take that well first of all obviously, we only have two full weeks in April so far.
Speaker Change: In may so far one of those was mother's day.
Speaker Change: So it's a little early frankly to give much.
Speaker Change: Color on me.
Speaker Change: But I'd say in general it's been choppy as it often is choppy with.
Speaker Change: Changes in the environment, we just had mortgage rate reductions over the last three weeks, we've got a lot of focus on the fed and inflation rates and what they are.
Ara K. Hovnanian: So, you know, with two weeks, it's really hard to tell. But I can say this, that our website traffic was outstanding right through last week. If you compare it to the highest week since the COVID surge, it's not the highest week since the COVID surge, but it's a very high week, and I think we beat every week other than one week during the COVID surge with our website visits. So hopefully, that will translate, like it has done, to good sales in the future.
Speaker Change: Outlook is.
Speaker Change: So with.
Speaker Change: With two weeks, it's really hard to tell I can say this that our website traffic is outstanding right through last week. If you compare it is not the highest week since.
Speaker Change: The COVID-19 surge, but it's a very high we can I think we'd be every week other than one week during the COVID-19 surge with our website visit so hopefully that will translate like it has done to good sales in the future.
Natalie Kulaserkere: Got it. Thank you so much.
Ara K. Hovnanian: And one more question. So is there an overarching team in the 40% of communities that you did not raise prices in? For example, are they in a similar price point or similar markets? Like, is there any trend that you're seeing there that you can share with us?
Speaker Change: Got it thank you so much.
Speaker Change: One more question. So is there an overarching team on the 40% of communities that you did not present for example.
Natalie Kulaserkere: No, I'd say it's been fairly uniform in terms of price increases. It might have a little more challenge in our lowest price homes, the aspire homes, as we call them, where they're struggling more for qualification. And we tend to have more mortgage rate buy-downs, which affects net pricing. But other than that, I'd say it's been very uniform, both geographically and in terms of price point.
Speaker Change: I understand the price point or similar markets like is there any trend that youre seeing there that you can share with us.
Speaker Change: No I'd say it's been.
Speaker Change: Fairly uniform.
Speaker Change: In terms of price increases it might it might be a little more challenge in our lowest priced homes. The aspire homes as we call them, where they are struggling more qualification and we tend to have more and more.
Speaker Change: Mortgage rate buy downs, which affects net pricing, but other than that I'd say, it's been very uniform, both geographically and price point.
Ara K. Hovnanian: Got it. Thank you so much.
Operator: Thank you. And as a reminder, that is star 11 if you do have a question. One moment for our next question is from Alex Barron with the Housing Research Center. Please proceed.
Speaker Change: Got it thank you so much.
Speaker Change: Thank you and as a reminder, that is star one one <unk> you do have a question one moment for our next question is from Alex Barron with housing Research Center. Please proceed.
Alex Barron: Yes, thank you. And great job on the quarter, guys. I wanted to focus on the margin guidance and just the upper range and lower range. I mean, you're kind of halfway into the quarter. So what would drive a lower range, I guess, at this point.
Alex Barron: Yes. Thank you.
Speaker Change: Good job on the quarter guys.
Alex Barron: I wanted to focus on the margin guidance and just the upper range and lower range.
Alex Barron: I'm sorry, I missed the question. Alex, could you repeat it?
Speaker Change: Halfway into the quarter, so what would draw.
Speaker Change: Drive the lower range I guess at this point.
Brad G. OConnor: The question was, what drives, since we're one month into the quarter, why do we have such a wide range? And I'd say, given the volatility in mortgage rates, we reserve costs in our back pocket for closing and qualification challenges. And that makes it very difficult to know for sure until toward the end, especially as we're selling more and more QMIs. So we give ourselves a little wider spread than we did in our pre-QMI days. And we strive to give guidance that we can meet or beat consistently.
Speaker Change: Okay.
Speaker Change: Right.
Speaker Change: I'm sorry, I missed the question of Alex could you repeat it.
Alex Barron: The question was what draws since you're one month into the quarter.
Speaker Change: Why do we have such a wide range and I would say.
<unk> in.
Mortgage rates.
Speaker Change: We reserve.
Speaker Change: Yeah.
Speaker Change: Costs in our back pocket for closing and qualification challenges.
Speaker Change: And that makes it very difficult to know for sure until towards the end.
Speaker Change: Especially as we're selling more and more <unk>, so we give ourselves.
Speaker Change: A little wider spread than we did in our pre <unk> days.
Brad G. OConnor: Yeah, and I would just add, Alex, we saw that in the second quarter when we were at the high end of our range because of just the amount of ultimately how much mortgage rate buy-down and other concessions ended up getting used on the homes as they closed.
Speaker Change: And we strive to give guidance that we can meet or beat consistently.
Speaker Change: Yeah, and I would just add on.
Speaker Change: We saw we saw that in the second quarter actually we were at the high end of our range because of <unk>.
Speaker Change: The amount of of ultimately how much mortgage rate buy down in other concessions that are getting used on the homes as they close.
Brad G. OConnor: And as far as the shared buyback, it seems you guys haven't done that in a while, so can you just give us your thoughts on going forward, what you're thinking about shared buybacks in general?
Speaker Change: Got it.
Speaker Change: And as far as the share buyback with <unk> haven't done that in a while so can you just give us your thoughts on going forward, how youre thinking about share buybacks in general.
Brad G. OConnor: I mean, I would say that we felt like, um... After our earnings call, I think our stock price was around 169, 169-ish, I think, at the end of the first quarter. The stock price started to go down, and we felt like, you know, we feel very strongly about our growth and where our earnings are, and where our stock price should be headed. And when the stock was down in the 140 range, we felt like it was a good opportunistic time to take some shares out of the market.
Brad G. OConnor: We could do that again in the future. We'll continue to monitor that for opportunities. I think we have roughly $10 to $15 million remaining on an approval that we could do. So when it's opportunistic and stock prices drop to something we think makes sense, we might consider doing it.
Speaker Change: I will say that we felt like.
Speaker Change: Sure.
Speaker Change: After our earnings call I think our stock price was around 169 or $69 I think last at the end of the first quarter. The stock price started to go down.
Speaker Change: And we felt like we feel very strongly about our growth and where our earnings are.
Speaker Change: Our stock price should be headed and when the stock was down in the $1 40 range. We felt like it was a good opportunistic time to take some shares out of the market.
Speaker Change: We could do that again in the future we will continue to monitor that for opportunities.
Speaker Change: I think we have roughly.
Speaker Change: $10 million to $15 million remaining on an approval that we could do.
Alex Barron: Okay, well, best of luck for the rest of the year. Thanks, guys.
Speaker Change: So we're just looking at when it's opportunistic.
Speaker Change: Stock prices dropped to something we think makes sense, we might consider doing it.
Operator: And as I see no further questions in the queue, I will turn it back to Ara Hovnanian for his final comments. Thank you.
Speaker Change: Okay, well best of luck for the rest of the year. Thanks, guys. Thanks al.
Speaker Change: Thank you.
Ara K. Hovnanian: Thank you very much. As I've mentioned, we're very excited about our performance. We're very excited about our prospects. We are still scratching our heads about valuations, but we think that only spells opportunity, and we look forward to giving you more good news in the quarters to come.
Speaker Change: And as I see no further questions in the queue I will turn it back to Ara Hovnanian for his final comments.
Ara K. Hovnanian: Thank you very much.
Ara K. Hovnanian: As I've.
Ara K. Hovnanian: Mentioned.
Ara K. Hovnanian: We're very excited about our performance, we're very excited about our prospects.
Speaker Change: We are still scratching our heads about.
Speaker Change: Valuations, but we think that only spells opportunity.
Operator: Thank you. And this concludes our conference call for today. Thank you all for participating, and have a nice day. You may now disconnect.
Speaker Change: We look forward to.
Speaker Change: Giving you more good news in quarters to come.
Speaker Change: Thank you very much thank.
Speaker Change: Thank you and this concludes our conference call for today. Thank you all for participating and have a nice day you may now disconnect.
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