Q3 2024 Hovnanian Enterprises Inc Earnings Call

August 22, 2024

Actual results could differ materially and adversely from those forward-looking statements as a result of a variety of factors. Such risks, uncertainties, and other factors are described in detail in the section entitled, Risk Factors and Management's Discussion and Analysis, particularly the portion of MD&A entitled Safe Harbor Statement 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.

Actual results could differ materially and adversely from those forward-looking statements as a result of a variety of factors. Such risks and certainties in other factors are described in detail in the section entitled Risk Factors and Management's Discussion and Analysis, particularly the portion of MDMA entitled Safe Harbor Statement, and our annual report on form 10K for the fiscal year ended October 31st, 2023, and subsequent filings with the Securities and Exchange Commission.

As forward looking statements as a result of a variety of factors such risks uncertainties and other factors are described in detail in the section entitled risk factors and management's discussion and analysis, particularly the portion of MD&A entitled Safe Harbor statement in our annual report on Form 10-K for the fiscal year ended October 31, 2023, and subsequent filings with the.

I'll add one other comment on the tax benefit. While the deferred tax asset will be decreasing because we're earning so much, we are active in the energy tax benefits from the energy efficient homes we build.

Securities and Exchange Commission.

Except as otherwise required by apical security laws, we undertake no obligation to publish the update or advise any forward-looking statements, whether as a result of new information, future events, change circumstances, or any other reason.

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.

Sept as otherwise required by applicable security laws, we undertake no obligation to publicly update or.

Any forward looking statements, whether as a result of new information future events changed circumstances or any other reason.

Joining me today are Ara Hovnanian, Chairman, President, and CEO, Brad OConnor, CFO, and Treasurer, and David Miterson, Vice President, Corporate Controller.

David: Joining me today are Ara Hovnanian, Chairman, President, and CEO, Brad OConnor, CFO and, Treasurer, and David Mitreson, Vice President, Corporate Controller.

David: And that is something I think we're increasingly focused on.

David: Joining me today 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.

David: So we will have some advantages going forward even after the NOI deferred tax benefit goes away.

David: I'll now turn the call over to Ara.

David: As a reminder, if you'd like to ask a question at this time, please press star 1 1 on your touchtone telephone.

David: I'll now turn the call over to Ara.

Ara Hovnanian: Thanks, Jeff.

Ara Hovnanian: I'm showing no further questions in queue at this time.

Ara Hovnanian: Thanks, Jeff.

Ara Hovnanian: Thanks, Jeff I'm going to review, our third quarter results and I'll also comment on the current housing environment, Brad Our CFO will follow me with more details and of course, we'll open it open up for question and answers afterwards.

Ara Hovnanian: I'm going to review our third-quarter results, and I'll also comment on the current housing, environment.

Ara Hovnanian: I'd like to turn the call back to Ara Hovnanian for closing remarks.

Ara Hovnanian: I'm going to review our third quarter results, and also comment on the current housing environment.

Ara Hovnanian: Thank you very much.

Ara Hovnanian: Brad, our CFO, will follow me with more details and, of course, will open up for questions, and answers afterwards.

Ara Hovnanian: We enjoyed the questions.

Ara Hovnanian: Brad, or CFO, will follow me with more details, and of course, will open up for a question and answers afterwards.

Speaker Change: We're excited about the future and we look forward to reporting a fabulous fourth quarter as well.

Speaker Change: Let me begin on slide five.

Speaker Change: Thank you.

Speaker Change: Let me begin on slide five here, we show our third quarter guidance compared to our actual results starting on the top of the slide revenues were $723 million, which was right at the midpoint of our guidance.

Speaker Change: Here we show our third quarter of guidance compared to our actual results. Starting on the top of the slide, revenues were $723 million, which was right at the midpoint of our guidance. Our adjusted gross margin was 22.1% for the quarter, which was also within the guidance we gave. Our SGNA ratio was 12.4%.

Speaker Change: Here we show our third-quarter guidance compared to our actual results. Starting on the top of the slide, revenues were $723 million, which was right at the, midpoint of our guidance. Our adjusted gross margin was 22.1% for the quarter, which was also within the guidance, we gave.

Speaker Change: This concludes our conference call for today.

Speaker Change: Thank you all for participating and have a nice day.

Brad: All parties may now disconnect.

Brad: Our adjusted gross margin was 22, 1% for the quarter, which was also within the guidance. We gave our SG&A ratio was 12, 4%. This was just above the high end of the guidance. We gave if you ignore the $2 $2 million impact from the incremental <unk>.

Brad: Our SG&A ratio was 12.4%. This was just above the high end of the guidance we gave. If you ignore the $2.2 million impact from the incremental phantom stock expense, which, is solely due to stock price increases, our SG&A would have been 12.1%, which is slightly above the top end of the range we gave. One of the reasons our SG&A is running a little high is that we're gearing up for significant, community count growth, and we have to make new hires well in advance of those communities. In addition, there are other expenses related to preparing for community count growth.

Brad: This was just above the high end of a guidance we gave.

Brad: Another contributor to higher-than-usual SG&A is an increase in our advertising spend.

Brad: If you ignore the $2.2 million impact from the incremental phantom stock expense, which is solely due to stock price increases, our SGNA would have been 12.1%, which is slightly above the top end of the range we gave. One of the reasons our SGNA is running a little high is that we're gearing up for a significant community count growth, and we have to make new hires well in advance of those communities. In addition, there are other expenses related to preparing for community count growth.

Phantom stock expense, which is solely due to stock price increases our SG&A would have been 12, 1%, which is slightly above the top end of the range we gave.

Brad: Another contributor to higher than usual SGNA is an increase in our advertising spend.

One of the reasons, our SG&A is running a little high is that we are gearing up for a significant community count growth and we have to make new hires well in advance of those communities. In addition, there are other expenses related to preparing for community count growth.

Brad: Another contributor to higher than usual SG&A is an increase in our advertising spend.

Brad: Adjusted EBIT was $131 million for the quarter, which is significantly above the high end of the range that we gave blindly our adjusted pre tax income was $100 million, which is also significantly better than the high end of the range that we gave.

Brad: Our adjusted EBITDA was $131 million for the quarter, which is significantly above the, high end of the range that we gave. Finally, our adjusted pre-tax income was $100 million, which is also significantly better, than the high end of the range that we gave. We're obviously pleased that our profitability exceeded our guidance for the quarter.

Brad: We're obviously pleased that our profitability exceeded our guidance for the quarter.

Brad: Slide six, here we show our results compared to last year's third quarter.

Brad: Slide six here, we show our results compared to last year's third quarter, starting in the upper left hand quadrant of the slide you can see that due to an increase in deliveries.

Brad: Starting in the upper left-hand quadrant of the slide, you can see that due to an increase, in deliveries, a higher average sales price, and the land sale in Phoenix, our total revenues increased 11% to $723 million.

Brad: Higher average sales price and the land sale in Phoenix, our total revenues increased 11% to $723 million.

Brad: In the upper right hand portion of the slide you can see that our gross margin decreased year over year to 22, 1% on a sequential basis. We also decreased slightly from 22, 6% to 22, 1% in the second quarter of 2004.

Brad: In the upper right-hand portion of the slide, you can see that our gross margin decreased, year-over-year to 22.1%. On a sequential basis, we also decreased slightly from 22.6% to 22.1% in the second quarter, of 24.

Brad: Our results for the quarter were within the range of guidance that we gave.

Brad: We recognized in advance that there was a risk of seeing a year-over-year decrease in, gross margin given the previous movements in mortgage rates, and more specifically, the cost to buy down those rates.

Brad: We recognized an advanced that there was a risk of seeing a year over year decrease in gross margin given the previous movements in mortgage rates and more specifically the cost to buy down those rates. The good news is that with the more recent declines in mortgage rates the cost to offer mortgage rate buy downs in the future.

Brad: The good news is that with the more recent declines in mortgage rates, the cost to offer, mortgage rate buy-downs in the future may decrease for us in the future.

Brad: <unk> may decrease for us in the future.

Brad: Adjusted EBITDA was $131 million for the quarter, which is significantly above the high end of the range that we gave.

Brad: Moving to the bottom left hand portion of the slide you can see that our adjusted EBIT.

Brad: Moving to the bottom left-hand portion of the slide, you can see that our adjusted EBITDA, increased 20% to $131 million in this year's third quarter.

Increased 20% to $131 million in this year's third quarter finally in the bottom right hand portion of the slide adjusted pretax profit increased 34% to $100 million.

Brad: Finally, our adjusted pre-tax income was $100 million, which is also significantly better than the high end of the range that we gave. We're obviously pleased that our profitability exceeded our guidance for the quarter.

Brad: Slide 6, we here we show our results compared to last year's third quarter. Starting in the upper left hand quadrant of the slide, you can see that due to an increase in deliveries, a higher average sales price, and the land sale and Phoenix, our total revenues increased 11% to $723 million.

Speaker Change: Finally, in the bottom right-hand portion of the slide, adjusted pre-tax profit increased 34% to $100 million.

Speaker Change: I know new orders have been a focus of many analysts that follow homebuilders, so I'm going to discuss contracts in much greater detail at this time.

Speaker Change: In the upper right hand portion of the slide, you can see that our growth margin decreased year of year to 22.1%. On a sequential basis, we also decreased slightly from 22.6% to 22.1% in the second quarter of 24.

Speaker Change: I know new orders have been a focus of many analysts that follow homebuilders, so I'm going to discuss contracts in much greater detail this time.

Speaker Change: Turning to slide seven.

Speaker Change: If you start at the top of the table you can see that our year to date contract increased 8% for the first nine months of the year.

Speaker Change: Our results for the quarter were within the range of guidance that we gave.

Speaker Change: Turning to slide 7, if you start at the top of the table, you can see that our year-to-date contracts increased 8% for the first nine months of the year.

Speaker Change: However, as we break it down by quarter, you can see that it's been choppy.

Speaker Change: However, as we break it down by quarter, you can see that it's been choppy. Contracts increased significantly in the first quarter when we were up 43%. In the second quarter, contracts were up 9%, and in the third quarter, contracts declined 13%. However, during the last five weeks, which we show at the bottom of this table, trends have improved substantially, and our total contracts increased 23% over the same five weeks a year ago.

Speaker Change: Contract increased significantly in the first quarter, when we were up 43% in the second quarter contracts were up 9% and in the third quarter contracts declined 13%. However, during the last five weeks, which we show at the bottom of this table trends have improved substantially.

<unk> and our total contract increased 23% over the same five weeks a year ago.

Speaker Change: Even though contracts have been choppy, we feel very good about demand overall, and I'll describe in a little more detail contracts in the upcoming moments.

Speaker Change: Even though contracts have been choppy, we feel very good about demand overall and I'll describe.

Speaker Change: A little more detail contracts.

Upcoming moments, if you turn to slide eight you can see contracts per community for the third quarter decreased year over year to $9. Five there are a couple of things on this slide I want to point out first of all nine five contracts per community that we achieved this year is close to our third quarter.

Speaker Change: If you turn to slide 8, you can see contracts per community for the third quarter decreased year-over-year to 9.5.

Speaker Change: There are a couple of things on this slide I want to point out.

Speaker Change: First of all, 9.5 contracts per community that we achieved this year is close to our third-quarter average of 9.9 contracts per community historically.

Speaker Change: <unk> average of nine nine contracts per community historically.

Speaker Change: Secondly, last year's 14.2 contracts per community was the second-best third quarter of contracts per community over the past 20 years.

Speaker Change: Secondly, last year's $14 two contracts per community was the second best third quarter of contracts per community over the past 20 years. You can also see on the slide in the third quarter of 'twenty with the Covid surge our contracts per community were at 19 and.

Speaker Change: You can also see on the slide in the third quarter of 20 with the COVID surge, our contracts per community were at 19, an unbelievably high level.

Speaker Change: Really high level with last year's $14 two is still a very tough comparison.

Speaker Change: But last year's 14.2 is still a very tough comparison.

Speaker Change: The third point I want to make is that the timing of the increase in our community count in the quarter hurts the calculation of contracts per community. That's because half of the community count increase occurred in July, the last month of our quarter. So you don't get the benefit of a full month of contract from those new communities, much less the benefit during the full quarter.

Speaker Change: The third point I want to make is that the timing of the increase in our community count in the quarter hurts the calculation of contracts per community.

Speaker Change: That's because half of the community count increase occurred in July the last month of our quarter. So you don't get the benefit of a full month of contract from those new communities much less the benefit during the full quarter.

Speaker Change: Finally, some of our outperformance in last year's third quarter was due to a high level of billed for rent contracts. The 23 third quarter was the quarter that had the most billed for rent contracts since we began selling to this type of buyer. 259 billed for rent contracts, all of them happened to be in the southeast segment during the quarter.

Speaker Change: Finally, some of our outperformance in last year's third quarter was due to a high level of build for rent contract. The 23 third quarter was a quarter that had the most build for rent contracts. Since we began selling to this type of buyer 259 built for rent contracts all of them happen to be.

Speaker Change: In the South East segment during the quarter.

Speaker Change: Anecdotally, there seemed to be some hesitancy from homebuyers during the third quarter causing, some of the choppiness in sales that I referred to, similar to what other homebuilders have been reporting. It's difficult to pinpoint the cause of the choppiness, but economic, mortgage rate, and, geopolitical uncertainty were likely partially responsible.

Speaker Change: Anecdotally there seem to be some hesitancy from homebuyers during the third quarter, causing some of the choppiness in sales that I referred to similar to what other homebuilders have been reporting.

Speaker Change: We recognized in advance that there was a risk of seeing a year over a year decrease in growth margin given the previous movements and mortgage rates and more specifically the cost to buy down those rates.

Speaker Change: It's difficult to pinpoint the cause of the choppiness, but economic mortgage rate and geopolitical uncertainty, we're likely partially responsible.

Speaker Change: Furthermore, we had extended disruption from Hurricane Burl across our Texas operations, in particular, which is one of our single largest states by deliveries. Both our Houston and Dallas offices and many of our associates were without power for the, better part of a week during the critical last month of the quarter. This hurt sales and deliveries.

Speaker Change: Furthermore, we had extended disruption from hurricane barrel across our Texas operations in particular, which is one of our single largest states by deliveries, both our Houston and Dallas offices, and many of our associates were without power for the better part of a week during the <unk>.

Speaker Change: As you'll see in a moment, sales have jumped back in a very strong manner in recent weeks.

Speaker Change: If you turn to slide nine, we show interest rate trends.

Speaker Change: Critical last month of the quarter this hurt sales and deliveries.

Speaker Change: As you'll see in a moment sales have jumped back in a very strong manner in recent weeks.

Speaker Change: The good news is that with the more recent declines and mortgage rates, the cost to offer mortgage rate buy downs in the future may decrease for us in the future.

Speaker Change: The gray line on this slide shows what happened to interest rates last year between July of, 22 and August of 23. During this period, whenever rates declined, after a little delayed reaction, we eventually, saw a pickup in sales.

Speaker Change: If you turn to slide nine we show interest rate trends. The grey line on this slide shows what happened to interest rates last year between July of 'twenty. Two in August of 'twenty three during this period whenever rates declined after a little delayed reaction. We eventually saw a pickup in <unk>.

Speaker Change: The blue line shows what happened with mortgage rates during this past year between July of, 23 and August of 24.

Speaker Change: For most of the time shown, they coincidentally followed a very similar pattern of monthly, increases and decreases, just at slightly higher rates this year.

Speaker Change: Sales the Blue line shows what happened with mortgage rates. During this past year between July of 'twenty three in August of 'twenty four for most of the time shown they coincidentally followed a very similar pattern of monthly increases and decreases just at slightly higher rates.

Speaker Change: This year.

Speaker Change: Over the past few weeks, we've seen mortgage rates reduce to lower levels.

Speaker Change: Over the past few weeks, we've seen mortgage rates reduced to lower levels. Whenever mortgage rates come down, there are more potential buyers, obviously, that, can qualify for mortgages. For the first time in a while, mortgage rates are actually lower now than they were last, year.

Speaker Change: Whenever mortgage rates come down there are more potential buyers, obviously that can qualify for mortgages.

Speaker Change: We've already seen the benefits of the lower rates.

Speaker Change: If you turn to slide 10, we show that over the past five weeks, contracts have increased, 23% compared to the same weeks a year ago.

Speaker Change: For the first time in a while mortgage rates are actually lower now than they were last year, we've already seen the benefits of the lower rates. If you turn to slide 10, we show that over the past five weeks contracts have increased 23% compared to the same.

Speaker Change: This improved trend suggests that homebuyers have already reacted positively to the recent, decreasing mortgage rate environment.

Speaker Change: Weeks a year ago.

Speaker Change: This improved trend suggests that homebuyers have already reacted positively to the recent decreasing mortgage rate environment.

Speaker Change: In addition, web traffic continues to be very strong. As a matter of fact, the last four weeks were better than the same weeks going all the way, back to 2019, with the exception of the COVID surge in August of 2020.

Speaker Change: In addition, web traffic continues to be very strong as a matter of fact, the last four weeks, we're better than the same weeks going all the way back to 2019 with the exception of the Covid surge in August of 2020.

Speaker Change: In the last week, however, we actually matched the robust website visit levels that we hit, in that peak time in August 2020. That leading indicator makes me particularly optimistic about future demand.

Speaker Change: In the last week, however, we actually match the robust website visit levels that we hit in that peak time in August 2020.

That leading indicator it makes me, particularly optimistic about future demand.

Speaker Change: On slide 11, we give even more granularity and show the trend of monthly contracts per, community compared to the same months a year ago. Here you can see the impact of Build for Rent on contracts in the month of June this, year compared to last year.

Speaker Change: On slide 11, we give even more granularity and shows the trend of monthly contracts per community compared to the same months a year ago. Here you can see the impact of build for rent on contracts in the month of June this year compared to last year.

Speaker Change: Moving to the bottom left-hand portion of the slide, you can see that our adjusted EBITDA increased 20% to $131 million in this year's third quarter.

Speaker Change: Even though sales were lower in this year's third quarter, we believe that many of the, fundamentals that led to our prior outperformance remain intact, such as the low supply of existing homes for sale, a slightly weakening but still good jobs market, the overall health of the economy, and positive demographic trends.

Speaker Change: Even though sales were lower in this year's third quarter, we believe that many of the fundamentals that led to our prior outperformance remain intact, such as the low supply of existing homes for sale are slightly weakening, but still good jobs market. The overall health of the economy and positive.

Speaker Change: Again, we have seen the sales trend change to very positive comparisons over the last, five weeks.

Speaker Change: Demographic trends.

Speaker Change: Finally, in the bottom right-hand portion of the slide, adjusted pre-tax profit increased 34% to $100 million.

Speaker Change: Again, we have seen the sales trend to change to a very positive comparisons over the last five weeks.

Speaker Change: Turning to slide 12, we show our contracts per community as of the 12 months ended on, June 30th of 24, and that way we can compare our results to our peers that report contracts per community on our calendar quarter ends.

Speaker Change: I know new orders have been a focus of many analysts that follow home builders, so I'm going to discuss contracts in much greater detail this time.

Speaker Change: Turning to slide 12, we show our contracts per community as of the 12 months ended June 30th of 24 and that way, we can compare our results to our peers that report contracts per community.

Speaker Change: At 42 contracts per community, our trailing 12-month sales pace per community is the fourth, highest among the public homebuilders that reported for this time period.

Speaker Change: On our calendar quarter ends.

Speaker Change: Turning to slide 7, if you start at the top of the table, you can see that our year-to-date contracts increased 8% for the first nine months of the year.

Speaker Change: On slide 13, you can see that our year-over-year growth in contracts per community for that, same period was also the fourth highest among our peers.

At 42 contracts per community, our trailing 12 month sales pace per community is the fourth highest among the public homebuilders that reported for this time period.

Speaker Change: On slide 13, you can see that our year over year growth in contracts per community for that same period was also the fourth highest among our peers.

Speaker Change: What we're trying to illustrate on these last two slides is even though sales in this most recent quarter were choppy, we're still selling an above average number of homes compared to our peers.

Speaker Change: What we're trying to illustrate on these last two slides is even though sales in this most, recent quarter were choppy, we're still selling an above-average number of homes compared to our peers.

Speaker Change: On the top of slide 14.

Speaker Change: On the top of slide 14, you can see that for a sizable percentage of our deliveries, home, buyers continued to utilize mortgage rate buydowns.

Speaker Change: You can see that for a sizeable percentage of our deliveries homebuyers continue to utilize mortgage rate buy downs.

Speaker Change: The percentage of customers that used buydowns this year was 71% in the third quarter compared, to 73% in the second quarter and 79% in the first quarter.

The percentage of customers that used by downs. This year was 71% in the third quarter compared to 73% in the second quarter and 79% in the first quarter.

Speaker Change: The bottom of the slide gives more granularity.

Speaker Change: The bottom of the slide gives you more granularity we show monthly trends over the same period.

Speaker Change: We show monthly trends over the same period. Since the beginning of the year, the buydown usage in our deliveries has averaged 74%, which, seems to indicate home buyers have been consistently relying on mortgage rate buydowns to combat affordability at the current mortgage rate levels.

Speaker Change: Given the relatively high mortgage rate environment, we assume buydowns will remain at similar, levels going forward.

Speaker Change: Since the beginning of the year the buy down usage on our deliveries has averaged 74%, which seems to indicate homebuyers have been consistently relying on mortgage rate buy downs to combat affordability at the current mortgage rate levels.

Speaker Change: We are budgeting the cost of buydowns to remain constant. However, the cost of buydowns may decrease with the decline in mortgage rates that we've, seen recently.

Speaker Change: Given the relatively high mortgage rate environment, we assume by downs will remain at similar levels going forward. We are budgeting the cost of buy downs to remain constant. However, the cost of buy downs may decrease with the decline in mortgage rates that we've seen recently.

Speaker Change: In order to meet home buyers' desires to use mortgage rate buydowns, elevated levels of, quick move-in homes, or QMIs as we call them, remain part of our new operating philosophy in the last few years. On slide 15, we show that we had eight QMIs per community at the end of the third quarter.

Speaker Change: In order to meet homebuyers desires to use mortgage rate buy downs elevated levels of quick move in homes or <unk> as we call them remain part of our new operating philosophy in the last few years on slide 15.

Speaker Change: It remains at a high level, but we're very comfortable with that level. Furthermore, due to the increase in community count in the quarter, it's not surprising, to see that our finished QMIs increased to 192 finished homes on a per-community basis that puts us at 1.5 finished QMIs per community. That's up slightly from 1.3 finished QMIs per community at the end of the second quarter, but it's lower than 1.9 finished QMIs at the end of our first quarter.

Speaker Change: We show that we had eight <unk> per community at the end of the third quarter.

Speaker Change: One five finished cure mice per community.

Speaker Change: It's up slightly from $1 three finished <unk> per community at the end of the second quarter, but it's lower than one nine finished <unk> at the end of our first quarter.

Speaker Change: Our goal with QMIs is obviously to sell them before completion. In the third quarter of 24, QMI sales were about 67% of our total sales, a slight increase from 65% in the second quarter of 24.

Speaker Change: Our goal with <unk> is obviously to sell them before completion.

Speaker Change: Historically, that percentage was about 40%, so obviously demand for these homes is still high.

In the third quarter of 24, <unk> sales were about 67% of our total sales a slight increase from 65% in the second quarter of 2004.

Speaker Change: Historically that percentage was about 40%. So obviously demand for these homes is still high we.

Speaker Change: We'll continue to manage our QMIs at a community level. We track our start schedule per community with our current sales pace per community to make sure we don't get too far ahead of ourselves.

Speaker Change: We will continue to manage our <unk> at a community level, we track our start schedule per community with our current sales pace per community to make sure we don't get too far ahead of ourselves.

Speaker Change: If you move to slide 16, you can see that even with the choppiness in the third quarter of sales, we're still able to raise net prices in 33% of our communities.

Speaker Change: Even though contracts have been choppy, we feel very good about demand overall, and I'll describe in a little more detail contracts in the upcoming moments.

Speaker Change: If you move to slide 16, you can see that even with the choppiness in the third quarter sales were still able to raise net prices and 33% of our communities. Despite the choppiness. The current level of demand should support the growth that we hope to achieve over the next several years.

Speaker Change: Despite the choppiness, the current level of demand should support the growth that we hope to achieve over the next several years.

Speaker Change: If you turn to slide 8, you can see contracts per community for the third quarter decreased year over year to 9.5.

Speaker Change: I'll now turn it over to Brad OConnor, our Chief Financial Officer.

Speaker Change: I'll now turn it over to Brad O'connor, our Chief Financial Officer.

Speaker Change: There are a couple of things on the slide I want to point out.

Brad O'connor: Thank you, Ara.

Brad O'connor: Thank you Sarah.

Brad O'connor: Before I get to the next slide, I want to comment on the other income line on our income statement.

Brad O'connor: Before I get to the next slide I want to comment on the other income line on our income statement.

Brad O'connor: During the third quarter of 24, we assumed control of one of our unconsolidated joint ventures after our partner received their final cash distribution. But before the communities were finished, under GAAP, we were required to consolidate the joint venture at fair value, and based on the exceptionally strong performance of these communities, we recorded a $46 million gain in the other income and expense line upon consolidation. Even after this stepped-up value, we now have a high-performing, wholly-owned community that is projected to achieve an IRR in excess of 20% and provide significant profits for the next few years.

Brad O'connor: During the third quarter of 'twenty four we assumed control of one of our unconsolidated joint ventures. After our partner received their final cash distribution.

Speaker Change: Similarly, in the third quarter of 23, we recorded a $19 million gain in the other income and expense line upon consolidation of a different joint venture. This could happen again in future reporting periods when final cash distributions to the partners are made on existing and future new joint ventures.

Speaker Change: Before the communities. We're finished under GAAP, we are required to consolidate the joint venture at fair value based on the exceptionally strong performance of these community of these screenings, we recorded a $46 million gain.

Speaker Change: Other income and expense line upon consolidation.

Speaker Change: Even after this stepped up value. We now have a high performing wholly owned community that is projected to achieve an IRR in excess of 20% and provide significant profits for the next few years.

Speaker Change: Similarly in the third quarter of 2003, we recorded a $19 million gain in the other income and expense line upon consolidation of a different joint venture.

This could happen again in future reporting periods when final cash distributions to the partners are made on existing and future new joint ventures.

Speaker Change: Now getting back to the slides, on slide 17, you can see that we ended the quarter with a total of 146 open-for-sale communities, a 20% increase from last year. 126 of those communities were wholly-owned. During the third quarter, we opened 22 new wholly-owned communities, sold out of 10 wholly-owned communities, transitioned six communities from a joint venture to wholly-owned, and contributed one community to a joint venture.

Speaker Change: First of all, 9.5 contracts per community that we achieved this year is close to our third quarter average of 9.9 contracts per community historically.

Speaker Change: Now getting back to the slides on slide 17, you can see that we ended the quarter with a total of 146 open for sale communities.

Speaker Change: 20% increase from last year of 100 126 of those communities were wholly owned.

Speaker Change: We also opened four new unconsolidated joint venture communities, and closed two unconsolidated joint venture communities during a quarter.

Speaker Change: Secondly, last year's 14.2 contracts per community was the second best third quarter of contracts per community over the past 20 years.

Speaker Change: During the third quarter, we opened 22, new wholly owned communities sold out of 10 wholly owned communities transitioned <unk> from a joint venture to a wholly owned and contributed one community to a joint venture.

Speaker Change: The total community count of 146 was also up 11% or 14 communities sequentially from the end of the second quarter of fiscal 24.

Speaker Change: As Eric mentioned, half of those 14 community openings took place in the month of July.

Speaker Change: You can also see on the slide in the third quarter of 20 with the COVID surge, our contracts per community were at 19 in unbelievably high level, but last year's 14.2 is still a very tough comparison.

Speaker Change: We also opened four new unconsolidated joint venture communities at a close to like consolidated joint venture during the quarter.

Speaker Change: Total community Count of 146 was also up 11% or 14 communities sequentially from the end of the second quarter of fiscal 'twenty four.

Speaker Change: The third point I want to make is that the timing of the increase in our community count in the quarter hurts the calculation of contracts per community. That's because half of the community count increase occurred in July the last month of our quarter, so you don't get the benefit of a full month of contract from those new communities, much less the benefit during the full quarter.

Speaker Change: As Aaron mentioned half of those 14 Cambria openings took place in the month of July the financial benefits of these new communities will begin in subsequent quarters.

Speaker Change: The financial benefits of these new communities will begin in subsequent quarters. Even with the robust growth in community count this quarter, we still experienced delays in opening new communities, primarily due to utility hookups throughout the country.

Speaker Change: Finally, some of our outperformance in last year's third quarter was due to a high level of build for rent contracts. The 23 third quarter was the quarter that had the most built for rent contracts since we began selling to this type of buyer. 259 built for rent contracts, all of them happened to be in the South East segment during the quarter.

Speaker Change: Carter.

Aaron: We expect community count to continue to grow further in the fourth quarter and in fiscal 25, predicting community count to be challenging given a variety of factors.

Aaron: Even with the robust growth in community count this quarter, we still experienced delays in opening new communities, primarily due to utility hookups throughout the country. We expect community count to continue to grow further in the fourth quarter and in fiscal 'twenty five predicting community count can be challenging given a variety of factors.

Aaron: And it totally, there seemed to be some hesitancy from home buyers during the third quarter, causing some of the choppiness and sales that I referred to, similar to what other home builders have been reporting. It's difficult to pinpoint the cause of the choppiness, but economic, mortgage rate, and geopolitical uncertainty were likely partially responsible. Furthermore, we had extended disruption from Hurricane Burl across our Texas operations in particular, which is one of our single largest states by deliveries. Both our Houston and Dallas offices and many of our associates were without power for the better part of a week during the critical last month of the quarter. This hurt sales and deliveries.

Aaron: As you'll see in a moment, sales have jumped back in a very strong manner in recent weeks.

Aaron: The leading indicator for further community count growth is shown on slide 18. We ended the quarter with 39,516 controlled lots, which equates to a 7.7-year supply. Our lot count increased 7% sequentially and 34% year-over-year. If you include lots from our unconsolidated joint ventures, we now control 42,580 lots. We added 4,800 lots in 57 communities during the third quarter.

Aaron: A leading indicator for further community count growth as shown on slide 18, we ended the quarter with 39516 controlled lots, which equates to a seven seven year supply of control bonds.

Aaron: If you turn to slide nine, we show interest rate trends.

Aaron: Count increased 7% sequentially and 34% year over year.

Speaker Change: You include loss from our unconsolidated joint ventures, we now control 42580 lots.

Speaker Change: We added 4800 lots and 57 communities during the third quarter. Our land teams are actively engaging with land sellers and negotiating for new land parcels that meet our underwriting standards.

Speaker Change: Our land teams are actively engaging with land sellers and negotiating for new land, parcels that meet our underwriting standards. Our land and land development spend increased 28% year-over-year to $216 million in the, third quarter of fiscal 24. This brings the latest four-quarter average to $224 million a quarter. That's four quarters in a row with higher than typical levels of land and land development, spend.

Speaker Change: Our land and land development spend increased 28% year over year to $216 million in the third quarter of fiscal 'twenty. Four this brings our late.

Speaker Change: Last the latest four quarter average to $224 million a quarter last four quarters in a row with higher than typical levels of Atlanta and land development spend.

Speaker Change: Our corporate land Committee counter 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. 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 or <unk>.

Speaker Change: 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. We are using current home prices, including the current level of mortgage rate buy-downs, current construction costs, and current sales pace to underwrite to a 20% plus internal rate of return.

Speaker Change: Our underwriting standards automatically self-adjust to any changes in market conditions.

Alrighty standards automatically self adjust to any changes in market conditions. We are finding many opportunities in our markets and are very focused on growing our top and bottom lines for the long term.

Speaker Change: We are finding many opportunities in our markets and are very focused on growing our top and, bottom lines for the long term. The growth in lots controlled precedes growth in community count, which precedes growth, in deliveries. On slide 19, we show the percentage of our lots controlled via option increased from, 46% in the third quarter of fiscal 2015 to 82% in the third quarter of fiscal 24. This is the highest percentage of option lots we have ever had.

Speaker Change: The growth in lost control of the perceived growth in community count, which proceeds growth in deliveries.

Speaker Change: On slide 19, we show the percentage of our lots controlled via option increased from 46% in the third quarter of fiscal 2015.

Speaker Change: 82% in the third quarter of fiscal 'twenty. Four this is the highest percentage of option lots we have ever had.

Speaker Change: This increase is intentional and has been a consistent focus of our land-like high inventory, turnover land strategy.

Rate increases and intentional and has been a consistent focus of our land light high inventory turnover land strategy. We are pleased with the progress we have made.

Speaker Change: We are pleased with the progress we have made.

Speaker Change: Turning now to slide 20, you see that we continue to have one of the higher percentages of our, land controlled via option compared to our peers, and we are significantly above median.

Speaker Change: Turning now to slide 20, you 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 median.

Speaker Change: On slide 21, compared to our peers, we are tied for the second highest inventory turnover, rate. High inventory turns are a key component of our overall strategy.

Speaker Change: On slide 21, compared to our peers. We are tied for the second 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 turns on inventory in future periods.

Speaker Change: We believe we have opportunities to continue to increase our use of land options and to, further improve our terms on inventory in future periods.

Speaker Change: Another way to improve our inventory turns is by shortening our construction cycle times. We have made good progress in reducing our cycle times from 190 days at the peak during, COVID to 160 days in the last half of 23. Our cycle times remained around 160 days for the first two quarters of 24, but during the, third quarter of 24, we were able to shorten the average cycle time by another 10 days to about 150 days.

Speaker Change: Another way to improve our inventory turns as by shortening our construction cycle times.

Made good progress in reducing our cycle times for 190 days at the peak during Covid to 160 days in the last half of 'twenty three.

Speaker Change: Times remained around 160 days for this first two quarters of 'twenty four.

Speaker Change: It's already in the third quarter 'twenty four we were able to shorten the average cycle time by another 10 days to about 150 days, we still have some work ahead of us to get back to pre pandemic cycle times are about four months or 120 days, but we are making substantial progress returning to our normal cycle times should significantly boost our ROI and Roe.

Speaker Change: We still have some work ahead of us to get back to pre-pandemic cycle times of about, four months or 120 days, but we are making substantial progress. Shortening to our normal cycle times should significantly boost our ROI and ROE.

Speaker Change: Turning to slide 22.

Speaker Change: Turning to slide 22, even after spending $216 million in land and land development, $32, million on debt reduction, and $11 million to repurchase stock, we still ended the third quarter with $250 million of liquidity, just above the high end of our targeted liquidity range.

Speaker Change: Even after spending $216 million, Atlanta, Atlanta development $32 million on debt reduction and $11 million to repurchase stock. We still ended the third quarter with $250 million of liquidity just above the high end of our targeted liquidity range. We are much closer to our goal of being fully invested which reduces the interest burden of any excess.

Speaker Change: We are much closer to our goal of being fully invested, which reduces the interest burden, Turning now to slide 23, this slide shows our maturity ladder as of July 31st, 2024. This is reflective of the exchange we did at the beginning of the third quarter, which lowered the face value of our debt by $75 million, reduced our annual cash interest by $4.6 million, and our annual interest expense by approximately $8.5 million.

Speaker Change: Cash and puts all of our capital to work.

Speaker Change: Turning now to slide 23. This slide shows our maturity ladder as of July 31, 2024. This is reflective of the exchange we did at the beginning of the third quarter, which lowered the face value of our debt by $75 million reduced our annual cash interest by $4 6 million and our annual interest expense by approximately $8 $5 million.

Speaker Change: This was the most recent example of the steps we have taken to improve our maturity ladder over the past several years.

Speaker Change: That's one of the most recent example of the steps we have taken to improve our maturity ladder over the past several years, we are still committed to further strengthening our balance sheet.

Speaker Change: We are still committed to further strengthening our balance sheet. Turning to slide 24, we show the progress we have made to date to grow our equity and reduce our debt. Starting on the upper left-hand part of the slide, we show the growth in equity over the past few years, as well as the year-end projected equity, assuming the midpoint of our guidance.

Speaker Change: Turning to slide 24.

Speaker Change: We show the progress we have made to date to grow our equity and reduce our debt starting on the upper left hand part of the slide we show the growth in equity over the past few years as well as the year end projected equity assuming the midpoint of our guidance and on the upper 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.

Speaker Change: And on the upper right-hand portion, you can see the progress we have made in reducing our debt, including the redemptions we made in fiscal 23 and 24 and the most recent debt reductions in the exchange. We reduced our debt by $669 million since the beginning of fiscal 20.

Speaker Change: And the most recent debt reductions in the exchange.

Speaker Change: Reduced our debt by $669 million since the beginning of fiscal 'twenty.

Speaker Change: On the bottom of the slide, you can see that our net debt to net cap at the end of the third quarter was 55.9%, which is a significant improvement from our 146.1% at the beginning of fiscal 20. Using the midpoint of our guidance and assuming we have cash at the same level we finished last year, we expect to end the year with net debt to net cap of 42%.

Speaker Change: On the bottom of the slide you can see that our net debt to net cap at the end of the third quarter was 55, 9%, which is a significant improvement from our 146, 1% at the beginning of fiscal 'twenty.

Speaker Change: Using the midpoint of our guidance and assuming we have cash at the same level. We finished last year, we expect to end the year with net debt to net cap of 42%. We still have more work to do to achieve our goal of a mid 30% level. We are comfortable that we have a path to achieve our targets there.

Speaker Change: We still have more work to do to achieve our goal of a mid-30% level.

Speaker Change: We've made considerable progress which is evidenced by the credit rating upgrades, we received from both S&P global and Moody's during our third quarter of 2000 and for our balance sheet has improved significantly over the last five years and we expect to continue to make noteworthy progress moving forward.

Speaker Change: We are comfortable that we have a path to achieve our target soon.

Speaker Change: Given our remaining $258 million of deferred tax assets, we will not have to pay federal income taxes on approximately $900 million of future.

Speaker Change: Future pre tax earnings.

Speaker Change: 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.

Speaker Change: We have made considerable progress, which is evident by the credit rating upgrades we received from both S&P Global and Moody's during our third quarter of 24. Our balance sheet has improved significantly over the last five years, and we expect to continue to make noteworthy progress moving forward. Given our remaining $258 million of deferred tax assets, we will not have to pay federal income taxes on approximately $900 million 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.

Speaker Change: The gray line on this slide shows what happened to interest rates last year between July of 22 and August of 23.

Speaker Change: Our financial guidance for the full year of 24 assumes no adverse changes in current market conditions, including no further deterioration or in our supply chain or material increases in mortgage rates inflation, our cancellation rates.

Speaker Change: Our guidance assumes continued extended construction cycle times, averaging five months compared to a 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 down similar to recent months further and excludes any impact.

Speaker Change: Our financial guidance 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 rates.

Speaker Change: During this period, whenever rates decline, after a little delayed reaction, we eventually saw a pickup in sales.

Speaker Change: The blue line shows what happened with mortgage rates during this past year between July of 23 and August of 24.

Speaker Change: For most of the time, Schum, they coincidentally followed a very similar pattern of monthly increases and decreases just at slightly higher rates this year.

Speaker Change: SG&A expense from our Phantom stock expense related solely to the stock price movement from the $209 89 stock price at the end of the third quarter of fiscal 'twenty four.

Speaker Change: Over the past few weeks, we've seen mortgage rates reduced to lower levels. Whenever mortgage rates come down, there are more potential buyers, obviously, that can qualify for mortgages. For the first time in a while, mortgage rates are actually lower now than they were last year.

Speaker Change: Our guidance assumes continued extended construction cycle times averaging five months compared to our pre-COVID cycle time for construction of approximately four months.

Slide 25 shows our increased guidance for all of fiscal 'twenty four we increased our expectations for total revenues for the full year EBIT to be between $2 9 billion and 3.05 billion. We tightened the range slightly for expected adjusted gross margin to be in the range of 21, 5% to 22, 5%.

Speaker Change: We've already seen the benefits of the lower rates.

Speaker Change: If you turn to slide ten, we show that over the past five weeks, contracts have increased 23 percent compared to the same weeks a year ago. This improved trend suggests that home buyers have already reacted positively to the recent decreasing mortgage rate environment.

Speaker Change: And when you kept the range for SG&A as a percent of total revenue to be between 11 and 12%.

Speaker Change: It also assumes that we continue to be more reliant on QMI sales, which makes forecasting gross margins more difficult.

Speaker Change: In addition, web traffic continues to be very strong.

Speaker Change: We are providing guidance on income from joint ventures for the first time.

Speaker Change: As a matter of fact, the last four weeks were better than the same weeks going all the way back to 2019 with the exception of the COVID surge in August of 2020.

Speaker Change: Our guidance assumes continued use of mortgage rate buydowns similar to recent months.

Speaker Change: For the year, we expect income from joint ventures to be between $55 million at $65 million, we increased guidance for adjusted EBITDA adjusted pre tax income EPS and book value per share our guidance for adjusted EBITDA increased to a range between $420 million and $445 million.

Speaker Change: In the last week, however, we actually matched the robust web site visit levels that we hit in that peak time in August 2020.

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 $209.89 stock price at the end of the third quarter of fiscal 24.

Speaker Change: That leading indicator makes me particularly optimistic about future demand.

Speaker Change: Slide 25 shows our increased guidance for all of fiscal 24. We increased our expectations for total revenues for the full year to be between $2.9 billion and $3.05 billion.

Speaker Change: We tightened the range slightly for expected adjusted gross margin to be in the range of 21.5% to 22.5%, and we kept the range for SG&A as a percent of total revenue to be between 11% and 12%.

Speaker Change: We are providing guidance on income from joint ventures for the first time. For the year, we expect income from joint ventures, to be between $55 million and $65 million.

Speaker Change: And our expectations for adjusted pre tax income for the full year increased to be between $300 million and $325 million.

Speaker Change: We increased guidance for adjusted EBITDA, adjusted pre-tax income, EPS, and book value per share. Our guidance for adjusted EBITDA increased, to a range between $420 million and $445 million, and our expectations for adjusted pre-tax income for the full year increased to be between $300 million and $325 million.

Speaker Change: We now expect our diluted earnings per share for the full year to be in the range of $29 and $31 at the midpoint of our guidance, we anticipate our common book value per share to increase by about 50% at October 31, 2024 to approximately $109 per share compared to last year's value at year end of 70.

Speaker Change: We now expect our diluted earnings per share, for the full year to be in the range of $29 and $31.

Speaker Change: At the midpoint of our guidance, we anticipate our common book value per share to increase by about 50% at October 31st, 2024 to approximately $109 per share, compared to last year's value at year-end of $73 per share.

Speaker Change: $3 per share.

Speaker Change: Analysts that only focus on price to book, missed the point regarding our industry-leading returns and rapid growth in book value.

Speaker Change: Analysts that only focus on a price to book Mr point regarding our industry, leading returns and rapid growth in book value.

Speaker Change: Turning to slide 26, we show that our return on equity, was 38.8%, which is the highest over the trailing 12 months compared to our peers.

Speaker Change: Turning to slide 26, we show that our return on equity was 38, 8%, which is the highest over the trailing 12 months compared to our peers and on slide 27, we show that compared to our peers that we have one of the highest consolidated EBIT returns on investment at 33, 7%.

Speaker Change: And on slide 27, we show that compared to our peers, we have one of the highest consolidated EBIT returns on investment at 33.7%. 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 midsize peers. Over the last several years, we have consistently had one of the highest EBIT ROIs among our peers.

Speaker Change: While our ROE 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 mid size peers over the last several years, we have consistently had one of the highest EBIT rois among our peers.

Speaker Change: Eventually, investors will recognize, our consistent superior returns on capital and significantly improve balance sheet.

Speaker Change: Eventually investors will recognize our consistent superior returns on capital and significantly improve our balance sheet.

Speaker Change: 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 EBIT, 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 still a compelling value. On slide 28, we show our price to book multiple, compared to our peers.

Speaker Change: 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.

Speaker Change: We believe on all our fundamental financial metrics or consider our stock is still a compelling value.

Speaker Change: On slide 28, we show our price to book multiple compared to our peers.

Speaker Change: We do compare more favorably on this metric, based on the midpoint of our guidance.

Speaker Change: We do compare more favorably or unfavorably on this metric based on the midpoint of our guidance. We expect in October with a book value of approximately $109 per share on slide 29, we show the trailing 12 months price to earnings ratio for us and our peer group based on our price earnings multiple of 648 times at Yesterdays stock price of $207 60.

Speaker Change: We expect in October with a book value, of approximately $109 per share.

Speaker Change: On slide 29, we show the trailing 12 months, price to earnings ratio for us in our peer group based on our price earnings multiple of 6.48 times at yesterday's stock price of $207.60. We are trading at a 36% discount, to the home building industry average PE ratio.

Speaker Change: We are trading at a 36% discount to the homebuilding industry average p/e ratio, we recognize that our stock may trade at a discount to the group because of a higher leverage but our leverage has been shrinking rapidly.

Speaker Change: We recognize that our stock may trade, at a discount to the group because of our higher leverage, but our leverage has been shrinking rapidly.

Speaker Change: On slide 30, we show that despite our extremely high ROE, there are still four peers that have a higher price to book ratio than us. This slide more visually demonstrates, how much we are undervalued relative to the other home builders when looking at the relationship between ROE and price to book. A very similar result exists, when looking at ROE to price to earnings.

Speaker Change: On slide 30, we show that despite our extremely high Roe.

Speaker Change: There are still four peers that have a higher price to book ratio than us. This slide mark visually demonstrates how much we are undervalued relative to the other homebuilders when looking at the relationship between ROE and price to book.

Speaker Change: A very similar result exists we're looking at ROE, It's a price to earnings.

Speaker Change: These last few slides further emphasize our point, that given our 38.8% 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 home builders.

Speaker Change: These last few slides further emphasize our point that given our 38, 8% return on equity are top quartile EBIT return on investment combined with a rapidly improving balance sheet. We believe our stock continues to be continues to be the most undervalued in the entire universe of public homebuilders I will now turn it back to Ara for some clothes.

Speaker Change: I will now turn it back to Eric for some closing remarks.

Speaker Change: Thanks, Brad.

Speaker Change: <unk> remarks.

Ara Hovnanian: Thanks, Brad I want to spend a few minutes talking about our joint ventures. During this call we consider joint ventures to be a core part of our operations.

Speaker Change: On slide 11, we give even more granularity and shows trend of monthly contracts per community compared to the same months a year ago.

Ara Hovnanian: I wanna spend a few minutes talking about our joint ventures, during this call.

Ara Hovnanian: Here, you can see the impact of build for rent on contracts in the month of June this year compared to last year.

Ara Hovnanian: We consider joint ventures, to be a core part of our operation. Income from our unconsolidated joint ventures has been an important part of our operations for a long time. On slide 31, we show income from unconsolidated joint ventures for the past six fiscal years. You can see on the far right-hand portion of the slide that income from joint ventures was already, $37 million for the first nine months of fiscal 24, and the midpoint of the guidance we gave is for it to reach $60 million for the full year.

Ara Hovnanian: Even though sales were lower in this year's third quarter, we believe that many of the fundamentals that led to our prior outperformance remain intact, such as the low supply of existing homes for sale, a slightly weakening but still good jobs market, the overall health of the economy and positive demographic trend.

Ara Hovnanian: Again, we have seen the sales trend change to a very positive comparisons over the last five weeks.

Speaker Change: Based on the current level of joint venture activity, we believe that our income from joint ventures should, continue to be a meaningful portion of our earnings for the next several years.

Speaker Change: Income from our unconsolidated joint ventures has been an important part of our operations for a long time on slide 31, we show income from unconsolidated joint ventures for the past six fiscal years, you can see on the far right hand portion of the slide that income from joint ventures.

Speaker Change: Keep in mind, these bars do not reflect the $19 million gain from consolidation during fiscal 23 or the, $46 million gain from consolidation in the third quarter of 24.

Speaker Change: These gains from consolidation could occur in the future joint ventures as they've been performing very well.

Speaker Change: Was already $37 million for the first nine months of fiscal 'twenty four and the midpoint of the guidance. We gave is for it to reach $60 million for the full year.

Speaker Change: Turning to slide 32, we give some reasons we engage in joint ventures.

Speaker Change: Just on the current level of joint venture activity, we believe that our income from joint ventures should.

Speaker Change: Continue to be a meaningful portion of our earnings for the next several years keep in mind. These bars do not reflect the $19 million gain from consolidation during fiscal 'twenty, three or the $46 million gain from consolidation in the third quarter of 24 these gains from consolidation could occur.

Speaker Change: Current and future joint ventures, as they are performing very well.

Speaker Change: Turning to slide 12, we show our contracts per community as of the 12 months ended in June 30th of 24, and that way we can compare our results to our peers that report contracts per community on our calendar quarter ends.

Speaker Change: Turning to slide 32, we give some reasons we engaged in joint ventures.

Speaker Change: First and foremost, we're extremely focused on a high return on investment. One of the key methods to achieve this high return on investment is our land light strategy. Land light has always been part of our strategy, but we've increased the focus over the last five years.

Speaker Change: At 42 contracts per community, our trailing 12 month sales pace per community is the fourth highest among the public home builders that reported for this time period.

Speaker Change: First and foremost we're extremely focused on our high return on investment one of the key methods to achieve this high return on investment is our land light strategy land light has always been part of our strategy, but we've increased the focus over the last five years.

Speaker Change: An alternate tool to achieve a high return on investment is the use of joint ventures.

An alternative tool to achieve a high return on investment is the use of joint ventures, they allow us to build larger communities with less capital typically 20% to 25% of the peak capital, particularly for larger longer life communities.

Speaker Change: They allow us to build larger communities with less capital, typically 20 to 25 percent of the peak capital, particularly for larger, longer life communities.

Speaker Change: If these joint ventures hit certain hurdle rates, we can, receive a disproportionate share of the upside performance. This improves both IRR and the net profit dollars we receive.

Speaker Change: If these joint ventures hit certain hurdle rates, we can receive a disproportionate share of the upside performance.

This improves both IRR and the net profit dollars we received.

Speaker Change: By limiting our capital to 20 to 25 percent, we can invest in multiple communities with the same amount of capital, diversifying risk, and leveraging our fixed costs.

Speaker Change: By limiting our capital to 20% to 25% we can invest in multiple communities with the same amount of capital diversifying risk and leveraging our fixed costs, we don't always achieve our IRR targets for our communities when done in a joint venture or joint venture partners typically share in that.

Speaker Change: We don't always achieve our IRR targets for our communities.

Speaker Change: When done in a joint venture, our joint venture partners typically share in the downside risk. Having said that, as you can see from our results, our joint ventures have been performing very well for our company and for our partners.

Speaker Change: Down side risk, having said that as you can see from our results our joint ventures.

Speaker Change: We're also paid a management fee for our joint ventures, which helps offset some of our overhead costs.

Speaker Change: <unk> very well for our company and for our partners.

Speaker Change: We're also paid a management fee for our joint ventures, which helps offset some of our overhead costs. We believe these benefits to utilizing joint ventures makes a lot of sense from several perspectives and we will continue to seek joint venture partners to work with for future communities.

Speaker Change: We believe these benefits to utilizing joint ventures makes a lot of sense from several perspectives, and we'll continue to seek joint venture partners to work with for future communities. On slide 33, we show some metrics for a recent community that we're considering contributing to a joint venture.

Speaker Change: On slide 33, we show some metrics for a recent community that we're considering contributing to a joint venture as a wholly owned transaction. The peak capital loan. This community would be $74 million, the IRR would be 31% and.

Speaker Change: As a wholly owned transaction, the peak capital on this community would be 74 million dollars, the IRR would be 31 percent and the community life profit would be 82 million dollars. As you can see, based on this underwriting, it's a very solid community, and it would make sense to go forward with this transaction on a wholly owned basis.

Speaker Change: Community life profit would be $82 million.

Speaker Change: As you can see the under based on this underwriting it's a very solid community and it would make sense to go forward with this transaction on a wholly owned basis.

Speaker Change: However, if we were to joint venture this community instead, our peak capital would only be $14 million. The IRR would improve to 47%, and we'd still get a community life profit of $33 million.

Speaker Change: However, if we were to joint venture this community instead, our peak capital would only be $14 million, the IRR would improve to 47% and we'd still get a community life profit of $33 million.

Speaker Change: The decrease in profit at first blush seems discouraging. However, if we add four other communities like this one, our peak capital for the entire joint venture for all five communities would be only $70 million, less than one wholly owned community in the example. Our community life profit for the joint venture would be $165 million, more than double that of just one wholly owned community. In addition, we get the benefit of diversifying our risk.

Speaker Change: The decrease in profit at first blush seems discouraging.

Speaker Change: However, if we add for other communities like this one are peak capital for the entire joint venture for all five communities would be only $70 million less than one wholly owned community and the example, our community life profit for the joint venture would be 165.

Speaker Change: $8 million.

Speaker Change: More than double that of just one wholly owned community. In addition, we get the benefit of diversifying our risk.

Speaker Change: I could make an academic argument that we should joint venture all of our communities.

Speaker Change: It could make an academic argument that we should joint venture all of our communities now frankly that wouldn't be feasible, but the point I'm trying to get across is that the returns from these these joint ventures are very compelling joint ventures will continue to be part of our overall strategy and deliveries for years too.

Speaker Change: Now, frankly, that wouldn't be feasible, but the point I'm trying to get across is that the returns from these joint ventures are very compelling.

Speaker Change: Joint ventures will continue to be part of our overall strategy and deliveries for years to come.

Speaker Change: The majority of our joint ventures are domestic here in the United States, like all of our operations.

Speaker Change: Come.

Speaker Change: The majority of our joint ventures, our domestic here in the United States like all of our operations. However, yesterday, we signed a memorandum of understanding with the Ministry of housing in Saudi Arabia. This will expand our activities in Saudi and expand our partnership increasing housing for a growing population.

Speaker Change: However, yesterday we signed a memorandum of understanding with the Ministry of Housing in Saudi Arabia. This will expand our activities in Saudi and expand our partnership, increasing housing for a growing population of young middle-class families.

Speaker Change: Young Middle class families.

Speaker Change: Overall, given our recent community count growth and continuing growth in our lot count, we find ourselves on the precipice of substantial growth, which will allow us to continue to deliver top-tier industry returns to our shareholders.

Speaker Change: On slide 13, you can see that our year-over-year growth in contracts per community for that same period was also the fourth highest among our peers.

Speaker Change: Overall, given our recent community count growth and continuing growth in our lot count we find ourselves on the precipice of substantial growth, which will allow us to continue to deliver top tier industry returns to our shareholders.

Speaker Change: That concludes our formal comments, and I'm happy to turn it over for Q&A now.

Speaker Change: That concludes our formal formal comments and I'm happy to turn it over for Q&A now.

Speaker Change: The company will now answer questions.

Speaker Change: So that everyone has an opportunity to ask questions, participants will be limited to three questions and a follow-up, after which they will have to get back into the queue to ask another question.

Speaker Change: So that everyone has an opportunity to ask questions participants will be limited to three questions and a follow up after which they will have to get back into the queue to ask another question.

Speaker Change: We will open the call to questions.

Speaker Change: If you'd like to ask a question, please press star 1-1 on your telephone and wait for your name to be announced.

Speaker Change: If you'd like to ask a question. Please press star one one on your telephone and wait for your name to be announced to withdraw your question. Please press star one again.

Speaker Change: To withdraw your question, please press star 1-1 again.

Speaker Change: Please stand by while we compile the Q&A roster.

Speaker Change: Please standby, while we compile the Q&A roster.

Speaker Change: Okay.

Speaker Change: Our first question will come from the line of Alan Ratner with Zellman & Associates.

Speaker Change: Our first question will come from the line of Alan Ratner with Zelman and associates.

Speaker Change: Hey, guys.

Speaker Change: Good morning.

Speaker Change: Hey, guys good morning.

Nice quarter and thanks for all the detail so far.

Alan Ratner: Nice quarter, and thanks for all the detail so far.

Alan Ratner: Yes, My first question maybe.

Speaker Change: Maybe this is more for Brad I'd love to just get a little more color or insight on the JV consolidation since it was such a big driver of the upside in the quarter and also it sounds like it might be something that.

Speaker Change: Repeats on that.

Speaker Change: And consistent basis going forward I, just want to make sure I understand kind of the moving pieces here. So.

Speaker Change: My first question, and maybe this is more for Brad, I'd love to just get a little more color or insight on the JV consolidation, since it was such a big driver of the upside in the quarter and also sounds like it might be something that at least repeats on an inconsistent basis going forward.

Speaker Change: I just want to make sure I understand kind of the moving pieces here.

Speaker Change: You book, the big gain this quarter and going forward I guess the sale of homes will be flowing through your your revenue and Cogs line and then gross margin.

Speaker Change: You booked a big gain this quarter, and going forward, I guess the sale of homes will be flowing through your revenue and COGS line and gross margin.

Speaker Change: The offset I guess when I look at your annual JV income running around $60 million pre tax.

Speaker Change: The offset, I guess, when I look at your annual JV income running around $60 million pre-tax, does that mean that that number should come down?

Speaker Change: That mean that that number should come down as like Youre not book and the gains from that project going forward and now they're shifting into your wholly owned business.

Speaker Change: It's like you're not booking the gains from that project going forward and now that's shifting into your wholly owned business?

Speaker Change: Not exactly.

Speaker Change: Not exactly I mean, youre thinking of it correctly, but the reality is we have other new JV that it also started which will provide JV income going forward with respect to that specific joint venture.

Speaker Change: I mean, you're thinking of it correctly, but the reality is we have other new JVs that have also started which will provide JV income going forward.

Speaker Change: So, with respect to that specific JV, the income that we had recorded over the last year or so for our returns, well, that will go away and now come through wholly owned just like you described.

Speaker Change: The income that we had recorded over the last year or so for.

Speaker Change: For our returns.

Speaker Change: And the one thing to add to that is it comes through at a higher land value because we had to record the step up on consolidation.

Speaker Change: That will go away and now come through wholly owned just like you described.

Speaker Change: One thing to add to that is it.

Speaker Change: It comes through at a higher land value because we had to record the step up on consolidation so that gain basically adds to the book value that we put on our books.

Speaker Change: So, that gain basically adds to the book value that we put on our books. And so, as we're recognizing those deliveries, they have a higher cost, higher land cost than they did when they were in the joint venture.

Speaker Change: So, just keep that in mind.

Speaker Change: And so as we're recognizing those deliveries they have a higher <unk>.

Speaker Change: Cost higher land cost than they did when they were in the joint venture.

Speaker Change: So just keep that in mind as I commented, though when you.

Speaker Change: As I commented, though, when you record the fair value, we do it calculating IRR that's still in the 20% range.

Record the fair value, we would do it.

Speaker Change: Calculating IRR that's still.

Speaker Change: In the 20% range. So its still provide good profits for us just not as high as what was being generated in the JV itself.

Speaker Change: So, it still will provide good profits for us, just not as high as what was being generated in the JV itself.

Speaker Change: But with that said, because of other JVs that are coming online, as Eero was kind of commenting, we expect JV income to continue in the future like what you've been seeing.

Speaker Change: But with that said because of other JV that are coming online as arrows kind of commenting we expect JV income to continue in the future like what you've been seeing the other comment I'll make is the reason you may see this.

Speaker Change: The other comment I'll make is the reason you may see this gain phenomenon happen going forward is some of our joint ventures, we structure as prep structures so that the partner gets paid out first.

Speaker Change: <unk> phenomenon happen going forward as some of our joint ventures restructure as <unk>.

Speaker Change: Perhaps structure, so that the partner gets paid out first and when that happens and the partners that hits their IRR hurdle and gets paid out that's when this occurs and it becomes a wholly owned community in the case, where it's a <unk> passu JV and the distributions occur over time to both parties and both parties are in the venture until the end and continue.

Speaker Change: And when that happens and the partner then hits their IRR hurdle and gets paid out, that's when this occurs and it becomes a wholly owned community.

Speaker Change: In the case where it's a PERI-PASU JV and the distributions occur over time to both parties, and both parties are in the venture until the end and continue to get paid out, you won't see this occur.

Speaker Change: They get paid out you won't see this occur.

Speaker Change: So, more recently, more of our JVs have been done as preferred structures.

Speaker Change: So more recently more of our JV have been done is as preferred structure. So thats why youre seeing this last year and this year and I think you might see it.

Speaker Change: So, that's why you're seeing this last year and this year.

Speaker Change: And I think you might see it going forward from some of the joint ventures we have in place.

Speaker Change: Going forward from some of the joint ventures, we have in place, but we still do some JV, that's parry passive and in those cases, you wouldn't see this happen. So I just want to give the extra clarification.

Speaker Change: But we still do some JVs as PERI-PASU.

Speaker Change: And in those cases, you wouldn't see this happen.

Speaker Change: So, I just want to give that extra clarification.

Speaker Change: Got it.

Speaker Change: Got it and I appreciate all that that added color and just one more on this topic. So you mentioned the step up in land cost obviously, our land basis, obviously just relative to your.

Speaker Change: And I appreciate all that added color.

Speaker Change: And just one more on this topic.

Speaker Change: So, you mentioned the step up in land costs, obviously, or land basis, obviously.

Speaker Change: The rest of your business I mean is this going to be dilutive to your margins going forward. Obviously, it's only one project or is it that was written up to a similar margin.

Speaker Change: Just relative to the rest of your business, I mean, is this going to be dilutive to your margins going forward?

Speaker Change: Obviously, it's only one project.

Speaker Change: Or is it kind of written up to a similar margin?

Speaker Change: It would be relatively similar margin to what our other projects or Africa, we used a similar underwriting an IRR that we do for our existing projects that just that community was actually performing at much higher margins in the JV itself. So now it'll be honest warming at what we're doing kind of wholly owned on a rate with all our other communities.

Speaker Change: It would be relatively similar margin to what our other projects are, because we used a similar underwriting IRR that we do for our existing projects.

Speaker Change: It's just that community was actually performing at much higher margins in the JV itself.

Speaker Change: So, now it'll be performing at what we're doing kind of wholly on a regular with all other communities.

Speaker Change: Gotcha.

Speaker Change: Gotcha Okay.

Speaker Change: Okay.

Speaker Change: Helpful. Thank you for the extra time there.

Speaker Change: That's helpful.

Speaker Change: Second question.

Speaker Change: The gross margin range tightened, but it still implies a pretty pretty wide range for fourth quarter and I know you mentioned the uncertainty around spec without being two thirds of your business today I guess just from a high level on your margins dipped a little bit sequentially youre off of that.

Speaker Change: Thank you for the extra time there.

Speaker Change: Second question, you know, the gross margin range you tightened, but it still implies a pretty wide range for fourth quarter.

Speaker Change: And I know you mentioned the uncertainty around spec, you know, with that being two-thirds of your business today.

Speaker Change: I guess just from a high level, you know, your margins dipped a little bit sequentially.

Speaker Change: The recent highs where do you see the margin profile of the business vis vis the third quarter result, and you just reported with all the moving pieces, you've got going on incentives seem pretty pretty steady, but elevated I would imagine land costs are going up you still have some pricing power and about a third of your communities is this 22% margin kind of like a decent.

Speaker Change: You know, you're off of the recent highs.

Speaker Change: Where do you see the margin profile of the business, you know, vis-a-vis the third quarter result you just reported with all the moving pieces you've got going on?

Speaker Change: You know, incentives seem pretty steady, but elevated.

Speaker Change: I would imagine land costs are going up.

Speaker Change: You still have some price and power in about a third of your communities.

Speaker Change: Is this 22% margin kind of like a decent run rate going forward?

Speaker Change: Run rate going forward or are there.

Speaker Change: Or are there, you know, mixed considerations or cost considerations, that we should think about into the fourth quarter and into 25 that could directionally move that one way or the other?

Speaker Change: Mix considerations or cost considerations that we should think about into the fourth quarter and into 'twenty five that could directionally move that one way or the other.

Speaker Change: Speaking specifically about the fourth quarter, I think you're pretty much right on that 22, percent-ish range is where I would think we would be, but that's given the caveats we've talked about, which is similar mortgage rate buy-down costs, et cetera.

Speaker Change: On the top of slide 14, you can see that for a sizeable percentage of our deliveries, home buyers continue to utilize mortgage rate buy downs.

Speaker Change: Speaking specifically about the fourth quarter I think you are pretty much right on that 22% ish range is where I would think we would be but thats given the caveat that we've talked about which is similar mortgage rate buy down costs et cetera.

Speaker Change: From a construction cost perspective, I think we've been holding pretty stable. In fact, we've had some decreases in areas, including some benefits from lumber, which, has helped.

Speaker Change: From a construction cost perspective, I think we've been.

Speaker Change: Holding pretty stable in fact, we've had some some decreases in areas.

Speaker Change: Mortgage buy-down costs, as you pointed out, should, as we open new communities and get, deliveries from those new communities, will probably increase because there are newer deals.

Speaker Change: Benefits from lumber.

Speaker Change: <unk>, which has helped our land costs as you pointed out should as we opened new communities and your deliveries from that was anything it will probably increase from newer deals so that could put some pressure on margins in 2025 on the other hand, if mortgage rates go down as I think people might anticipate when the fed makes their their moves then the cost to buy.

Speaker Change: So that could put some pressure on margins in 2025. On the other hand, if mortgage rates go down, as I think people might anticipate when the, Fed makes their moves, then the cost of buy-downs and perhaps the amount of incentives we have to give will change as well to potentially offset that.

Speaker Change: The percentage of customers that used buy downs this year was 71% in the third quarter compared to 73% in the second quarter and 79% in the first quarter.

Speaker Change: Downs difference, perhaps the amount of incentives we have to get will change as well so to potentially offset that so we're not really given 25 guidance, but I can answer your <unk> fourth quarter 2004 question by saying that we feel.

Speaker Change: The bottom of the slide gives more granularity.

Speaker Change: So we're not really given 25 caveats, but I can answer your fourth quarter 24 question, by saying that we feel that the 22 percent range you're talking about is pretty reasonable.

Speaker Change: That's a 22% range youre talking about is pretty reasonable.

Speaker Change: Perfect.

Speaker Change: We show monthly trends over the same period. Since the beginning of the year, the buy down usage in our deliveries has averaged 74%, which seems to indicate home buyers have been consistently relying on mortgage rate buy downs to combat affordability at the current mortgage rate levels.

Speaker Change: Perfect and then if I could just squeak in one more here.

Speaker Change: And then if I could just squeak in one more here.

Speaker Change: Given the relatively high mortgage rate environment, we assume buy downs will remain at similar levels going forward.

Speaker Change: Eric.

Speaker Change: The comments on ROE are very much appreciated and understood.

Speaker Change: The comments on ROE.

Very much appreciated and understood you guys are the highest in the industry I think one of the things that admittedly, we struggled with a little bit and I think it's probably investors do as well given where your valuation is just the fact that you are elevated row. Today, obviously is somewhat driven by the book value having been depressed.

Speaker Change: You guys are the highest in the industry.

Speaker Change: We are budgeting the cost of buy downs to remain constant. However, the cost of buy downs may decrease with the decline in mortgage rates that we've seen recently.

Speaker Change: I think one of the things that, admittedly, we struggle with a little bit, and I think, it's probably investors do as well, given where your valuation is, is just the fact that your elevated ROE today, obviously, is somewhat driven by the book value having been depressed over the last few years, and it has compressed a year ago.

Speaker Change: You were at 50 percent two years ago, 80 percent.

Speaker Change: In order to meet home buyers' desires to use mortgage rate buy downs, elevated levels of quick moving homes or QMI's, as we call them, remain part of our new operating philosophy in the last few years. On slide 15, we show that we had 8 QMI's per community at the end of the third quarter.

Speaker Change: Over the last few years and it has compressed a year ago, you were at 50% two years ago, 80%.

Speaker Change: It remains at a high level, but we're very comfortable with that level. Furthermore, due to the increase in community count in the quarter, it's not surprising to see that our finished QMI's increased to 192 finished homes. On a per community basis, that puts us at 1.5 finished QMI's per community. That's up slightly from 1.3 finished QMI's per community at the end of the second quarter, but it's lower than 1.9 finished QMI's at the end of our first quarter.

Speaker Change: So I'm not asking you to forecast ROE, but I guess when you think about the business, over the next two, three years, the long-run industry average has been somewhere around, 15 percent.

Speaker Change: So I'm not asking you to forecast ROE, but I guess when you think about the business over the next two three years.

Speaker Change: And we've had several builders say they think they're targeting more of a 20 percent ROE, going forward on a sustainable basis.

Speaker Change: Long run in industry average has been somewhere around 15% and we've had several builders say they think theyre targeting more of a 20% ROE going forward on a sustainable basis is there a way to think about your business over the next three to five years from an ROE standpoint, once the book value has accreted and.

Speaker Change: Our goal with QMI's is obviously to sell them before completion.

Speaker Change: Is there a way to think about your business over the next three to five years from an, ROE standpoint, once the book value has accreted and once you're kind of at a normalized run rate of activity, the way you're thinking about the ROE of the business?

Speaker Change: Sure.

Speaker Change: In the third quarter of 24, QMI sales were about 67% of our total sales, a slight increase from 65% in the second quarter of 24.

Speaker Change: Once you are kind of at a normalized run rate of activity that the way youre thinking about the ROE of the business.

Speaker Change: Historically, that percentage was about 40%, so obviously demand for these homes is still high.

Speaker Change: Sure well.

Speaker Change: Well, thanks for the question, Alan.

Speaker Change: We'll continue to manage our QMI's at a community level. We track our start schedule per community with our current sales pace per community to make sure we don't get too far ahead of ourselves.

Speaker Change: Thanks for the question Alan I think is important too.

Speaker Change: I think it's important to also talk about EBIT ROI, because that has nothing to do with, our equity or our leverage.

Speaker Change: And also talk about EBIT Aro because that has nothing to do with our equity our leverage is pure homebuilding performance and I'm proud to say were the second highest.

Speaker Change: If you move to slide 16, you can see that even with the choppiness in the third quarter of sales, we are still able to raise net prices in 33% of our communities.

Speaker Change: It is pure homebuilding performance.

Speaker Change: And I'm proud to say we're the second highest performer on pure EBIT ROI. We outperform almost everybody, and we definitely outperform every single one of our mid-sized, peers.

Speaker Change: Pro forma on pure EBIT ROI, we outperformed almost everybody and we definitely outperformed every single one of our mid sized peers. So I'd say, we're proud of and it's not a onetime thing by the way we've been doing that for several years now.

Speaker Change: Despite the choppiness, the current level of demand should support the growth that we hope to achieve over the next several years.

Speaker Change: So I'd say we're proud – it's not a one-time thing, by the way.

Speaker Change: I'll now turn it over to Brad OConnor, our chief financial officer.

Speaker Change: Thank you, Ara.

Speaker Change: We've been doing that for several years now. So I'd say whatever you feel will be the ROE of our peers, once we get to a comparable, debt-to-cap leverage, given our outperformance on EBIT ROI, I'd say we should end up higher than everyone else on an ROE on a long-term basis. That's assuming we continue our performance as we've been outperforming over the last, few years.

Speaker Change: So I'd say whatever you feel will be the Aro E.

Speaker Change: All of our peers once we get to a comparable debt to cap leverage given our outperformance on EBIT Aro I I'd say, we should end up higher than everyone else owner in a row on a long term basis.

Speaker Change: Assuming we continue our performance as we've been outperforming over the last few years.

Speaker Change: I appreciate it.

Speaker Change: I appreciate it thank you for the thoughts.

Speaker Change: Thank you for the thoughts.

Speaker Change: Thanks Alan.

Speaker Change: Okay.

Speaker Change: Our next question will come from the line of Jordan Hymowitz with Philadelphia Financial management of San Francisco.

Speaker Change: Thanks, Alan.

Speaker Change: Thanks, guys couple of questions.

Speaker Change: Our next question will come from the line of Jordan Heimowitz with Philadelphia Financial Management of San Francisco.

Speaker Change: Moodys in their recent note.

Speaker Change: Said, they would let the upgrades that the capital got below 50%.

Speaker Change: Thanks, guys.

Speaker Change: Projection is 42% by the end of this year and unless something goes crazy it'll be in the Thirty's by next year. So I guess my question is when does the next discussion with them.

Speaker Change: A couple questions.

That play a role do you think the only negative as they upgrade to use somewhat recently, but the debt paydown has been so dramatic that couldn't happen again soon.

Speaker Change: Moody's, in their recent note, said they would look to upgrade you if debt to capital got below 50 percent. Your own projection is 42 percent by the end of this year. And unless something goes crazy, it'll be in the 30s by next year.

Speaker Change: Just to be clear Jordan that comment they made as a gross debt to cap basis, and a 42% as our net debt to net cap. So it takes the cash and the play so we will be getting close to the 50% to your point.

Speaker Change: So I guess my question is, when is the next discussion with them?

Speaker Change: When does that play a role?

Speaker Change: By year end, but I, just don't want you to be confused by the 42%.

Speaker Change #100: Do you think the only negative is they upgraded you somewhat recently, but the debt paid out has been so dramatic that could it happen again soon?

Speaker Change #100: And so I would be hopeful that certainly during next fiscal year, we're having another conversation about.

Another upgrade.

Speaker Change #101: Yeah, just to be clear, Jordan, that comment they made is a gross debt-to-cap basis, and the 42 percent is a net debt-to-net cap, so it takes the cash into play.

Speaker Change #101: What's the gross number sorry.

Sure.

Speaker Change #101: We're looking at we didn't.

Speaker Change #102: Fair. It ahead of time, so if we if we grab it in time.

Speaker Change #102: We'll add it will make a comment.

Speaker Change #102: Can we extend that that occurs.

Speaker Change #103: You put out a bunch of <unk>.

Speaker Change #103: Originally it was helping you mean, the age but ends up being in the 10 to 11 is.

Speaker Change #103: Is that a possibility next year you could cause some of that in our refinance at a lower level or their lockouts at that point.

Speaker Change #103: It's.

Speaker Change #103: I would say it cost prohibitive as possible by cost prohibitive.

Speaker Change #104: Next next year likely unless rates were dramatically lower that we can say more on the on the delta in interest, but it's certainly something we're going to be paying attention to Jordan, because we think we're getting really close to being able to if not able to do it right now transitioned from secured to unsecured which is something we want to do when we do a more global.

Speaker Change #104: Refinancing in the near future.

Speaker Change #104: And so it certainly will be we'll be paying attention to the cost.

Speaker Change #105: It's a rate trade off over the coming year on year, and a half I'll say I.

Speaker Change #105: So, you know, we'll be getting close to the 50 percent, to your point, by year end, but I just don't want you to be confused by the 42 percent.

Speaker Change #105: I did get a calculation on the gross debt to cap.

Speaker Change #106: Projection for year end around 56%. So we still won't be at 50 that will be on our way.

Speaker Change #106: And so I would be hopeful that certainly during next fiscal year we're having another conversation about another upgrade.

Speaker Change #106: Before I get to the next slide, I want to comment on the other income line on our income statement. During the third quarter of 24, we assume control of one of our unconsolidated joint ventures after our partner received their final cash distribution, but before the communities were finished, under gap, we were required to consolidate the joint venture at fair value and based on the exceptionally strong performance of these communities, we recorded a $46 million gain in the other income and expense line upon consolidation.

Speaker Change #106: What's the gross number, sorry, on the top of your head?

Speaker Change #106: Okay and final question is can you detail any income from the Saudi adventure. When do you think that will start to be an impactful number or any guidance on that in any way.

Speaker Change #106: We're looking.

Speaker Change #106: Even after the stepped up value, we now have a high-performing, wholly-owned community that is projected to achieve an IRR in excess of 20% and provides significant profits for the next few years. Similarly, in a third quarter of 23, we recorded a $19 million gain in the other income and expense line upon consolidation of a different joint venture.

Speaker Change #106: We didn't prepare it ahead of time, so if we grab it in time, we'll make the comment. Fine.

Speaker Change #106: This could happen again in future reporting periods when final cash distributions to the partners are made on existing and future new joint ventures.

Speaker Change #106: I would say it's still.

Speaker Change #107: A couple of years away Erik comment as well, but right now we're just starting.

Speaker Change #107: To the extent that that occurs, you know, you put out a bunch of debt that originally was hoping to be in the H but ends up being in the 10 to 11.

Speaker Change #108: Two or three new communities, we don't have any that are delivering at the moment. So I would say before there's any real meaningful profit, it's probably late fiscal 'twenty five 'twenty six.

Speaker Change #107: Now getting back to the slides on slide 17, you can see that we ended the quarter with a total of 146 open for sale communities, a 20% increase from last year. 126 of those communities were wholly-owned. During the third quarter, we opened 22 new wholly-owned communities sold out of 10 wholly-owned communities, transitioned six communities from a joint venture to the wholly-owned and contributed one community to a joint venture.

Speaker Change #107: We also opened four new unconsolid adjoint venture communities and closed two unconsolid adjoint venture communities during a quarter. The total community count of 146 was also up 11% or 14 communities sequentially from the end of the second quarter of fiscal 24. As Aaron mentioned, half of those 14 community openings took place in the month of July.

Speaker Change #107: Is there a possibility next year you could call some of that and refinance at a lower level, or are there lockouts at that point?

Speaker Change #107: Jordan.

Speaker Change #107: And.

Speaker Change #109: A couple of comments to your first question.

Speaker Change #110: It's, I would say, cost prohibitive.

Speaker Change #110: And that is that because we had higher leverage our cost of debt is higher than most of our peers, but our performance has been improving so dramatically and our leverage is improving dramatically that once the <unk>.

Speaker Change #110: It's possible, but cost prohibitive next year likely unless rates were dramatically lower that we could save more on the delta in interest.

Speaker Change #110: The financial benefits of these new communities will begin in subsequent quarters. Even with the robust growth and community count this quarter, we still experience delays in opening new communities, primarily due to utility lookups throughout the country.

Speaker Change #111: Hi, prepayment costs happen I think we all have a great opportunity to refinance in the future at substantially lower rates that should save us quite a bit of interest compared to what we had been paying our ROE has been outstanding even with the high interest, but I think it will get even better.

Speaker Change #111: But it's certainly something we're going to be paying attention to, Jordan, because we think we're getting really close to being able to, if not able to do it right now, transition from secured to unsecured, which is something we want to do when we do more global refinancing in the near future.

Speaker Change #111: And so it certainly will be paying attention to the cost-to-rate tradeoff over the coming year to year and a half, I'll say.

Speaker Change #111: I did get the calculation on the gross debt-to-cap projection for year-end at around 56 percent, so we still won't be at 50, but we'll be on our way.

Speaker Change #111: We expect community counts to continue to grow further on the fourth quarter and in fiscal 25, predicting community count to be challenging given a variety of factors.

Speaker Change #111: Okay.

Speaker Change #111: As we have an interest more similar to our peers on top of that the reason we have a big difference between gross debt to cap and net debt to cap is we don't have a large unsecured.

Speaker Change #111: The leading indicator for further community count growth is shown on slide 18. We ended the quarter with 39,516 controlled lots, which equates to a 7.7 year Control Boss.

Speaker Change #111: And final question is, can you detail any income from the Saudi venture?

Speaker Change #112: When do you think that will start to be an impactful number or any guidance on that in any way?

Speaker Change #112: Your line of credit like our peers I suspect that in the near future, we'll be able to achieve that once we refinance the bonds that will also save substantial dollars because right now we're operating with a big cash cushion that were paying interest on that will.

Speaker Change #112: I would say it's still a couple years away.

Speaker Change #112: Our lack count increased 7% sequentially and 34% year-over-year.

Speaker Change #112: I can have Eric comment as well, but right now we're just starting two or three new communities.

Speaker Change #112: If you include lots from our unconsolid joint ventures, we now control 42,580 lots.

Speaker Change #112: We don't have any that are delivering at the moment.

Speaker Change #112: Well away as we traditionally do it.

Speaker Change #113: Transition to regular financing more like our peers and should substantially enhance our performance.

Speaker Change #113: So I would say before there's any real meaningful profit, it's probably late fiscal 25, early 26.

Speaker Change #114: Jordan, I'll add a couple of comments to your first question, and that is that because we had higher leverage, our cost of debt is higher than most of our peers, but our performance has been improving so dramatically and our leverage is improving dramatically that once the high prepayment costs happen, I think we'll have a great opportunity to refinance in the future at substantially lower rates that should save us quite a bit of interest, compared to what we've been paying.

Speaker Change #114: But thats, probably a second half 'twenty five and sure it sounds like.

Speaker Change #115: Yeah, our early 'twenty six something like that yes, okay.

Speaker Change #116: Okay. Thank you guys.

Speaker Change #116: Thank you.

Speaker Change #116: Our ROE has been outstanding even with the high interest, but I think it'll get even better as we have an interest more similar to our peers.

Speaker Change #116: We added 4,800 lots in 57 communities during the third quarter. Our land teams are actively engaging with land sellers and negotiating for new land parcels that meet our underwriting standards. Our land and land development spend increased 28% year-over-year to 216 million in the third quarter of fiscal 24.

Speaker Change #116: Our next question will come from the line of Alex Barron with housing Research Center.

Speaker Change #116: On top of that, the reason we have a big difference between gross debt to cap and net debt to cap is we don't have a large, unsecured, revolving line of credit like our peers. I suspect that in the near future we'll be able to achieve that once we refinance the bond. That will also save substantial dollars because right now we're operating with a big cash cushion that we're paying interest on. That will go away as we transition to regular financing more like our peers, and should substantially enhance our performance.

Speaker Change #116: This brings the latest 4 quarter average to $224 million a quarter.

Yes, thanks gentlemen.

Speaker Change #116: The last 4 quarters in our row is higher than typical levels of land and land development spend.

Speaker Change #117: But that's probably a second half 25 issue, it sounds like.

Speaker Change #117: Our corporate land committee counter continues to be busy, which is an indication that our land is always in a straight line.

Speaker Change #117: Wanted to ask about the Phantom share impact is that something that has some termination date or its just ongoing quarter to quarter.

Speaker Change #117: Yeah, early 26, something like that.

Speaker Change #118: Yeah.

Speaker Change #118: That there are there's been additional grants there's another grant.

Speaker Change #118: Okay.

Speaker Change #118: December.

Speaker Change #119: This fiscal year with Phantom share so there'll be some impact.

Speaker Change #119: Thank you, guys.

Speaker Change #120: Thank you.

Speaker Change #120: Going forward and obviously each quarter, we are providing that in the appendix. Just so you can see what the impact is.

Speaker Change #121: Our next question will come from the line of Alex Barron with Housing Research Center.

Speaker Change #121: This quarter. It was the 2.2 dollars 2 million.

Speaker Change #121: Yeah, thanks, gentlemen.

Speaker Change #121: We're just trying to highlight that for everybody but.

Speaker Change #122: I wanted to ask about the phantom share impact.

Speaker Change #122: It can be very little if the stock price doesn't change. The good news is in this particular quarter that means the stock price went up significantly and that's why it was a $2 2 million.

Speaker Change #122: Is that something that has some termination date or it's just ongoing quarter to quarter?

Speaker Change #122: There's been additional grants.

Speaker Change #122: Impact but.

Speaker Change #122: There's another grant in December of this fiscal year with phantom share.

Speaker Change #122: It's something that we will have going forward.

Speaker Change #122: So there'll be some impact going forward.

Speaker Change #122: And I'll add.

Speaker Change #122: I had mentioned.

The quarter by quarter impact is in the appendix. It just hasnt been there and we will continue but it's just not a substantial number.

Speaker Change #122: And obviously each quarter we're providing that in the appendix just so you can see what the impact is.

Speaker Change #122: The other quick comment to make Alex as we've looked it at that.

Speaker Change #123: The impact from an earnings perspective under the scenarios, where the stock price, increasing even pretty dramatically and it's still actually better for the shareholders because of the dilution that would have occurred had you done shares would actually be more impactful than the earnings hit so it's something we pay attention to.

Speaker Change #123: Given some phantom shares so.

Speaker Change #123: Okay got it.

Speaker Change #123: And then.

Speaker Change #124: This quarter was the $2.2 million.

Speaker Change #124: It looked to me like the balance came down a little bit this quarter did you guys paid down some some debt.

Speaker Change #124: You know, we're just trying to highlight that for everybody.

Speaker Change #124: But it can be very little if the stock price doesn't change.

Speaker Change #124: Yes, we did.

Speaker Change #124: The good news is in this particular quarter that means the stock price went up significantly, and that's why it was a $2.2 million impact.

We talked about it in the <unk>.

Speaker Change #126: Our second quarter call, but the debt exchange that we did actually happened in may So it was a third quarter event.

Speaker Change #127: But it's something that we will have going forward.

Speaker Change #127: And I'll add, as Brad mentioned, the quarter-by-quarter impact is in the appendix.

Speaker Change #127: So thats what Youre seeing is the change in the that we did a debt restructuring back in may.

Speaker Change #127: It just hasn't been ‑‑ it's there and will continue, but it's just not a substantial number.

Speaker Change #127: The other quick comment to make, Alex, is we've looked at that, the impact from an earnings perspective, under scenarios with stock price increasing even pretty dramatically, and it's still actually better for the shareholders because the dilution that would have occurred had you done shares would actually be more impactful than the earnings hit.

Speaker Change #127: Hello, Okay got it.

Speaker Change #127: So it's something we've paid attention to when we've given some phantom shares.

Speaker Change #127: And then as it pertains to the deferred tax asset on your balance sheet.

Speaker Change #127: Okay, got it.

Speaker Change #127: That's been obviously coming down is you're using it.

Speaker Change #128: And then it looked to me like the debt balance came down a little bit this quarter.

Speaker Change #128: Have a anticipated number of years it will take before that goes away is that couple of years or three years of faster I mean, the way to think about that is I think we said with what $900 million of pre tax earnings thats protected by the deferred tax asset at this point.

Speaker Change #128: Did you guys pay down some debt?

Speaker Change #128: Yes.

Speaker Change #127: And so if.

Speaker Change #127: This year, we're projecting 300 ish million of pretax.

At that run rate if we stay at that run rate is three years, we would hope given the growth, we're anticipating and what we've been talking about our growth in Canadian County, our profit will go up so maybe its a little less than three years something in the two two to two and a half year timeframe.

Speaker Change #127: Okay.

Speaker Change #127: And.

Given how cheap your stock was on a PE basis have you guys.

Speaker Change #129: Buying back stock or is there something that you districts, because we did buy back shares in the quarter.

Speaker Change #129: We talked about it in our second quarter call, but the debt exchange that we did actually happened in May, so it was a third-quarter event. So that's what you're seeing is the change in the debt. We did a debt restructuring back in May.

Speaker Change #129: Okay, got it.

Speaker Change #129: We talked about it briefly we spent.

Speaker Change #130: $11 million $11 million at an average price of $139 during the quarter and we still have some availability under the board approval for buybacks. So when you know when we think it's opportune.

Speaker Change #131: To do it we'll certainly look at it.

Speaker Change #131: And then as it pertains to the deferred tax asset on your balance sheet, that's been obviously coming down as you're using it.

Speaker Change #131: Okay guys best of luck. Thank you.

Speaker Change #131: Great.

Speaker Change #131: I'll add one other comment on.

Speaker Change #131: The tax benefit while the.

Speaker Change #131: Do you guys have an anticipated number of years it will take before that goes away?

Speaker Change #131: Deferred tax asset.

Speaker Change #131: We will be decreasing because we're earning so much.

Speaker Change #132: We are active in the energy tax benefits from the energy efficient homes, we build.

Speaker Change #132: Is it a couple years or three years or faster than that?

Speaker Change #132: And that is something I think we're increasingly focused on so we will have some advantages going forward even after the.

Speaker Change #132: I mean, the way to think about that is I think we said it was, what, $900 million of free tax earnings that's protected by the deferred tax asset at this point. And so this year we're projecting $300-ish million of free tax.

Speaker Change #132: So at that run rate, if we stay at that run rate, it's three years.

Speaker Change #132: NOI deferred tax benefit goes away.

Speaker Change #132: We would hope, given the growth we're anticipating, and where we've been talking about our growth in community accounts, our profit will go up.

Speaker Change #133: So maybe it's a little less than three years, something in the two- to two-and-a-half-year time frame.

Speaker Change #133: As a reminder, if you'd like to ask a question at this time. Please press star one on your Touchtone telephone.

Speaker Change #133: Okay.

Speaker Change #134: I'm showing no further questions in queue at this time I'd like to turn the call back to Ara Hovnanian for closing remarks.

Speaker Change #135: Thank you very much we enjoyed the questions.

Ara Hovnanian: We're excited about the future and we look forward to reporting our fabulous fourth quarter as well.

Speaker Change #135: <unk>.

Speaker Change #136: This concludes our conference call for today. Thank you all for participating and have a nice day all parties may now disconnect.

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Speaker Change #135: And, you know, given how cheap your stock is on a PE basis, have you guys considered buying back stock?

Speaker Change #135: Okay.

Speaker Change #135: Yeah.

Speaker Change #135: Okay.

Speaker Change #137: Good morning, and thank you for joining us today for Hovnanian Enterprises fiscal 2024 third quarter earnings Conference call.

Speaker Change #137: Or is there something that restricts you from doing that?

Speaker Change #137: An archive of the webcast will be available after the completion of the call and run for 12 months.

Speaker Change #137: We did buy back shares in the quarter.

Speaker Change #138: This conference is being recorded for rebroadcast and all participants are currently in a listen only mode.

Speaker Change #139: Management will make some opening remarks about the third quarter results and then open the line for questions.

Speaker Change #139: The company will also be webcasting, a slide presentation, along with the opening comments from management.

Speaker Change #139: The slides are available on the investors page at the company's website at Www Dot K HOV Dot com.

Speaker Change #139: Those listeners who would like to follow along should now log onto the website.

Speaker Change #139: I'd like to turn the call over to Jeff O'keefe, Vice President Investor Relations, Jeff. Please go ahead.

Speaker Change #139: We talked about it briefly. We spent $11 million at an average price of $139 during the quarter, and we still have some availability under the board approval for buyback. So when we think it's opportune to do it, we'll certainly look at it.

Jeff O'keefe: Thank you Liz and thank you all for participating in this morning's call to review the results for our third quarter.

Jeff O'keefe: I'll add one other comment on the tax benefit.

Speaker Change #141: 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 1095, 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.

Speaker Change #141: While the deferred tax asset will be decreasing because we're earning so much, we are active, in the energy tax benefits from the energy efficient homes we build, and that is something, I think we're increasingly focused on. So we will have some advantages going forward, even after the NOI deferred tax benefit goes, away.

Speaker Change #141: As a reminder, if you'd like to ask a question at this time, please press star 1 1 on your, touchtone telephone.

Speaker Change #141: I'm showing no further questions in queue at this time.

Speaker Change #141: As 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.

Speaker Change #141: Although we believe that our plans intentions and expectations reflected in or suggested by such forward looking statements are reasonable we can give no assurance that such plans intentions or expectations will be achieved by their nature forward looking statements speak only as of the date. They are made are not guarantees of future performance or results and are subject to risks uncertainties and assumptions that are difficult to.

Speaker Change #141: <unk> quantified therefore actual results could differ materially and adversely from those forward looking statements as a result of a variety of factors such risks uncertainties and other factors are described in detail in the section entitled risk factors and management's discussion and analysis, particularly the portion of MD&A entitled Safe Harbor statement in our annual report on Form 10-K for the first.

Speaker Change #141: Full 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.

Speaker Change #141: I'd like to turn the call back to Ara Hovnanian for closing remarks.

Speaker Change #141: We are using current home prices, including the current level of mortgage rate buy downs, current construction costs, and current sales pace, to underwrite to a 20% plus internal rate of return.

Speaker Change #141: Joining me today are Ara Hovnanian, Chairman, President and CEO, Brad O'connor, CFO, and Treasurer, and David Microsoft Vice President Corporate controller, I will now turn the call over to Ara.

Speaker Change #141: Thank you very much.

Speaker Change #141: We enjoyed the questions.

Ara Hovnanian: We're excited about the future, and we look forward to reporting a fabulous fourth quarter, as well.

Ara Hovnanian: Thank you.

Ara Hovnanian: Our underwriting standards automatically self-adjusts to any changes in market conditions.

Ara Hovnanian: This concludes our conference call for today.

Ara Hovnanian: We are finding many opportunities in our markets and are very focused on growing our top and bottom lines for the long term.

Brad O'connor: Thank you all for participating, and have a nice day.

Brad O'connor: We begin on slide five here, we show our third quarter guidance compared to our actual results starting on the top of the slide revenues were $723 million, which was right at the midpoint of our guidance. Our adjusted gross margin was 22, 1%.

Brad O'connor: All parties may now disconnect.

Brad O'connor: [music] Music Good morning, and thank you for joining us today for Hovnanian Enterprise's Fiscal, 2024 Third Quarter Earnings Conference Call.

Brad O'connor: An archive of the webcast will be available after the completion of the call and run for 12 months. This conference is being recorded for rebroadcast and all participants are currently in a listen-only mode.

Brad O'connor: Management will make some opening remarks about the third quarter results and then open the line for questions. The company will also be webcasting a slide presentation along with the opening comments, from management. The slides are available on the investor's page of the company's website at www.khov.com.

Brad O'connor: For the quarter, which was also within the guidance we gave.

Brad O'connor: Our SG&A ratio was 12, 4%. This was just above the high end of the guidance we gave.

Speaker Change #142: Ignore the $2 $2 million impact from the incremental Phantom stock expense, which is solely due to stock price increases our SG&A would have been 12, 1%, which is slightly above the top end of the range. We gave one of the reasons. Our SG&A is running a little high is that we are.

Brad O'connor: The growth in loss control proceeds growth in community count, which proceeds growth in deliveries.

Speaker Change #142: Gearing up for a significant community count growth and we have to make new hires well in advance of those communities. In addition, there are other expenses related to preparing for community count growth.

Another contributor to higher than usual SG&A is an increase in our advertising spend.

Speaker Change #142: Adjusted EBITDA was $131 million for the quarter, which is significantly above the high end of the range that we gave.

Speaker Change #142: Finally, our adjusted pretax income was $100 million, which is also significantly better than the high end of the range that we gave we're obviously pleased that our profitability exceeded our guidance for the quarter.

Brad O'connor: On flight 19, we show the percentage of our loss control via option increased from 46% in the third quarter of fiscal 2015 to 82% in the third quarter of fiscal 24. This is the highest percentage of option loss we have ever had.

Speaker Change #142: Slide six.

Speaker Change #142: Here, we show our results compared to last year's third quarter, starting in the upper left hand quadrant of the slide you can see that due to an increase in deliveries a higher average sales price and the land sale in Phoenix, Our total revenues increased 11% to 700.

Brad O'connor: This increase is intentional and has been a consistent focus of our land-like high inventory turnover land strategy.

Speaker Change #142: $23 million.

Brad O'connor: We are pleased with the progress we have made.

Speaker Change #142: In the upper right hand portion of the slide you can see that our gross margin decreased year over year to 22, 1% on a sequential basis. We also decreased slightly from 22, 6% to 22, 1% in the second quarter of 2000 and for our results for the quarter with.

Speaker Change #142: Those listeners who would like to follow along should now log onto the website.

Speaker Change #143: Within the range of guidance that we gave we recognized in advance that there was a risk of seeing a year over year decrease in gross margin given the previous movements in mortgage rates and more specifically the cost to buy down those rates. The good news is that with the more recent declines in mortgage rates.

Speaker Change #143: Cost to offer mortgage rate buy downs in the future may decrease for us in the future.

Speaker Change #143: Moving to the bottom left hand portion of the slide you can see that our adjusted EBIT increased.

Speaker Change #143: <unk> increased 20% to $131 million in this year's third quarter finally in the bottom right hand portion of the slide adjusted pretax profit increased 34% to $100 million.

Speaker Change #142: 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.

Speaker Change #143: I would like to turn the call over to Jeff O'Keefe, Vice President, Investor Relations.

Speaker Change #143: I know new orders have been a focus of many analysts that follow homebuilders, so im going to discuss contracts in much greater detail at this time.

Speaker Change #143: Jeff, please go ahead.

Speaker Change #143: On slide 21, compared to our peers, we are tied for the second highest inventory turnover rate. High inventory turns are a key component of our overall strategy.

Speaker Change #143: Turning to slide seven.

Speaker Change #143: If you start at the top of the table you can see that our year to date contract increased 8% for the first nine months of the year.

Speaker Change #143: Thank you, Liz, and thank you all for participating in this morning's call, to review the results for our third quarter.

Speaker Change #143: We believe we have opportunities to continue to increase our use of land options and to further improve our terms on inventory and future periods. Another way to improve our inventory terms is by shortening our construction cycle times. We made good progress in reducing our cycle times for 190 days at the peak during COVID to 160 days in the last half of 23. Our cycle times remained around 160 days for the first two quarters of 24, but during the third quarter of 24 we were able to shorten the average cycle time by another 10 days to about 150 days.

Speaker Change #143: However, as we break it down by quarter, you can see that it's been choppy.

Speaker Change #143: 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.

Speaker Change #143: We still have some work ahead of us to get back to pre-pandemic cycle times in about four months or 120 days, but we are making substantial progress. Returning to our normal cycle time should significantly boost our ROI and ROE.

Speaker Change #143: Contract increased significantly in the first quarter, when we were up 43% in the second quarter contracts were up 9% and in the third quarter contracts declined 13%. However, during the last five weeks, which we show at the bottom of this table trends have improved substantially.

Speaker Change #143: 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.

Speaker Change #143: Turning to slide 22, even after spending $216 million on land and land development, $32 million on debt reduction and $11 million to repurchase stock, we still ended the third quarter with $250 million of liquidity just above the high end of our target and liquidity range.

Speaker Change #143: 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.

Speaker Change #143: We are much closer to our goal of being fully invested, which reduces the interest burden of any excess cash and puts all of our capital to work.

Speaker Change #143: Annually and our total contract increased 23% over the same five weeks a year ago.

Speaker Change #143: Although we believe that our plans, intentions, and expectations reflected in or suggested by such forward-looking statements are reasonable, we can give no assurance that such plans, intentions, or expectations will be achieved. By their nature, forward-looking statements speak only as of the date they are made, are not guarantees of future performance 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.

Speaker Change #143: Mark.

Speaker Change #143: Even though contracts had been choppy, we feel very good about demand overall and I'll describe.

Speaker Change #143: A little more detail contracts.

Upcoming moments, if you turn to slide eight you can see contracts per community for the third quarter decreased year over year to nine five there are a couple of things on this slide I want to point out first of all nine five contracts per community that we achieved this year is close to our third quarter.

Speaker Change #144: <unk> average of $9 nine contracts per community historically.

Speaker Change #144: Secondly, last year's $14 two contracts per community was the second best third quarter of contracts per community over the past 20 years. You can also see on the slide in the third quarter of 'twenty with the Covid surge our contracts per community were at 19 and unbelievable.

High level with last year's $14 two is still a very tough comparison.

Speaker Change #144: The third point I want to make is that the timing of the increase in our community count in the quarter hurts the calculation of contracts per community.

Speaker Change #145: That's because half of the community count increase occurred in July the last month of our quarter. So you don't get the benefit of a full month of contract from those new communities much less the benefit during the full quarter.

Speaker Change #145: Finally, some of our outperformance in last year's third quarter was due to a high level of build for rent contract. The 23 third quarter was the quarter that had the most bill Brent contracts. Since we began selling to this type of buyer 259, Bill Brent contracts all of them happen to be.

Speaker Change #145: The southeast segment during the quarter.

Speaker Change #146: Anecdotally there seemed to be some hesitancy from homebuyers during the third quarter, causing some of the choppiness in sales that I referred to similar to what other homebuilders have been reporting it's difficult to pinpoint the cause of the choppiness, but economic mortgage rates and geopolitical uncertainty.

Speaker Change #146: Such risks, uncertainties, and other factors are described in detail in the section entitled Risk Factors in Management, 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, 2023, and subsequent filings with the Securities and Exchange Commission.

Speaker Change #147: We're likely partially responsible.

Speaker Change #147: Furthermore, we had extended disruption from hurricane barrel across our Texas operations in particular, which is one of our single largest states by deliveries, both our Houston and Dallas offices, and many of our associates were without power for the better part of a week during the <unk>.

Speaker Change #147: Critical last month of the quarter this hurt sales and deliveries.

Speaker Change #148: As youll see in a moment sales have jumped back in a very strong manner in recent weeks.

Speaker Change #146: Turning now to slide 23, this slide shows our maturity ladder as of July 31, 2024. This is reflective of the exchange we did at the beginning of the third quarter, which lowered the phase value of our debt by $75 million, reduced our annual cash interest by $4.6 million, and our annual interest expense by approximately $8.5 million.

If you turn to slide nine we show interest rate trends.

Speaker Change #146: This was the most recent example of the steps we had taken to improve our maturity ladder over the past several years.

Speaker Change #148: Gray line on this slide shows what happened to interest rates last year between July of 'twenty. Two in August of 'twenty three during this period whenever rates declined after a little delayed reaction. We eventually saw a pickup in sales the blue line shows what happened with mortgage rates during this past year.

Speaker Change #148: 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 #148: Or between July of 2003 in August of 'twenty four for most of the time shown they coincidentally followed a very similar pattern of monthly increases and decreases just at slightly higher rates this year.

Speaker Change #148: Over the past few weeks, we have seen mortgage rates reduced to lower levels.

Speaker Change #149: Whenever mortgage rates come down there are more potential buyers, obviously that can qualify for mortgages.

Speaker Change #150: For the first time in a while mortgage rates are actually lower now than they were last year, we've already seen the benefits of lower rates. If you turn to slide 10, we show that over the past five weeks contracts have increased 23% compared to the same.

Speaker Change #150: Joining me today are Ara Hovnanian, Chairman, President and CEO, Brad OConnor, CFO and Treasurer, and David Mitreson, Vice President, Corporate Controller.

Speaker Change #150: I'll now turn the call over to Ara.

Weeks a year ago.

Speaker Change #150: Thanks, Jeff.

Speaker Change #150: This improved trend suggests that homebuyers have already reacted positively to the recent decreasing mortgage rate environment.

Speaker Change #150: I'm going to review our third quarter results, and I'll also comment on the current housing, environment.

Speaker Change #150: In addition, web traffic continues to be very strong as a matter of fact, the last four weeks, we're better than the same weeks going all the way back to 2019 with the exception of the Covid surge in August of 2020 in the last week. However, we actually match the robust.

Website visit levels that we hit in that peak time in August 2020.

Speaker Change #150: That leading indicator it makes me, particularly optimistic about future demand.

Speaker Change #151: Brad, our CFO, will follow me with more details, and of course, we'll open up for questions, and answers afterwards.

Speaker Change #151: On slide 11, we give even more granularity and shows the trend of monthly contracts per community compared to the same months a year ago. Here you can see the impact of build for rent on contracts in the month of June this year compared to last year.

Speaker Change #151: Let me begin on slide five.

Speaker Change #151: Here we show our third quarter guidance compared to our actual results. Starting on the top of the slide, revenues were $723 million, which was right at the, midpoint of our guidance. Our adjusted gross margin was 22.1% for the quarter, which was also within the guidance, we gave.

Speaker Change #151: Our SG&A ratio was 12.4%. This was just above the high end of the guidance we gave. If you ignore the $2.2 million impact from the incremental phantom stock expense, which, is solely due to stock price increases, our SG&A would have been 12.1%, which is slightly above the top end of the range we gave. One of the reasons our SG&A is running a little high is that we're gearing up for significant, community count growth, and we have to make new hires well in advance of those communities. In addition, there are other expenses related to preparing for community count growth.

Speaker Change #151: We are still committed to further strengthening our balance sheet.

Speaker Change #152: Another contributor to higher than usual SG&A is an increase in our advertising spend.

Speaker Change #152: Even though sales were lower in this year's third quarter, we believe that many of the fundamentals that led to our prior outperformance remain intact, such as the low supply of existing homes for sale are slightly weakening, but still good jobs market. The overall health of the economy and positive.

Speaker Change #152: Adjusted EBITDA was $131 million for the quarter, which is significantly above the high end, of the range that we gave. Finally, our adjusted pre-tax income was $100 million, which is also significantly better, than the high end of the range that we gave. We're obviously pleased that our profitability exceeded our guidance for the quarter.

Speaker Change #152: Slide six, here we show our results compared to last year's third quarter.

Speaker Change #152: Starting in the upper left-hand quadrant of the slide, you can see that due to an increase, in deliveries, a higher average sales price, and the land sale in Phoenix, our total revenues increased 11% to $723 million.

Speaker Change #152: Demographic trends again, we've seen the sales trend to change to a very positive comparisons over the last five weeks.

Speaker Change #152: Starting to slide 24, we show the progress we've made to date to grow our equity and reduce our debt. Starting on the upper left hand part of the slide, we show the growth and equity over the past few years, as well as the year-end projected equity, assuming the midpoint of our guidance.

Speaker Change #152: In the upper right-hand portion of the slide, you can see that our gross margin decreased, year-over-year to 22.1%. On a sequential basis, we also decreased slightly from 22.6% to 22.1% in the second, quarter of 24.

Speaker Change #152: Our results for the quarter were within the range of guidance that we gave.

Speaker Change #152: And on the upper right hand portion, you can see the progress we've made in reducing our debt, including the reductions we made in fiscal 23 and 24, and the most recent debt reductions in the exchange. We reduced our debt by $669 million since the beginning of fiscal 20.

Speaker Change #152: We recognized in advance that there was a risk of seeing a year-over-year decrease in, gross margin given the previous movements in mortgage rates, and more specifically, the cost to buy down those rates.

Speaker Change #152: Turning to slide 12, we show our contracts per community as of the 12 months ended June 30th of 24 and that way, we can compare our results to our peers that report contracts per community.

On our calendar quarter ends at.

Speaker Change #152: At 42 contracts per community, our trailing 12 month sales pace per community is the fourth highest among the public homebuilders that reported for this time period.

Speaker Change #152: On slide 13, you can see that our year over year growth in contracts per community for that same period was also the fourth highest among our peers.

Speaker Change #152: What we're trying to illustrate on these last two slides is even though sales in this most recent quarter were choppy, we're still selling an above average number of homes compared to our peers.

Speaker Change #152: On the top of slide 14.

Speaker Change #152: You can see that for a sizeable percentage of our deliveries homebuyers continue to utilize mortgage rate buy downs.

Speaker Change #152: The good news is that with the more recent declines in mortgage rates, the cost to offer, mortgage rate buy-downs in the future may decrease for us in the future.

Speaker Change #152: Moving to the bottom left-hand portion of the slide, you can see that our adjusted EBITDA, increased 20% to $131 million in this year's third quarter.

Speaker Change #152: The percentage of customers that used by downs. This year was 71% in the third quarter compared to 73% in the second quarter and 79% in the first quarter.

Speaker Change #152: Finally, in the bottom right-hand portion of the slide, adjusted pre-tax profit increased, 34% to $100 million.

Speaker Change #152: The bottom of the slides give us more granularity we show monthly trends over the same period since the beginning of the year the buy down usage in our deliveries has averaged 74%, which seems to indicate homebuyers have been consistently relying on mortgage rate buy downs to come back.

Speaker Change #152: I know new orders have been a focus of many analysts that follow homebuilders, so I'm going to discuss contracts in much greater detail this time.

Speaker Change #152: Turning to slide 7, if you start at the top of the table, you can see that our year-to-date contracts increased 8% for the first nine months of the year.

Affordability at the current mortgage rate levels.

Speaker Change #153: Given the relatively high mortgage rate environment, we assumed by downs will remain at similar levels going forward. We are budgeting the cost to buy downs to remain constant however, the cost to buy downs may decrease with the decline in mortgage rates that we've seen recently.

Speaker Change #153: In order to meet homebuyers desires to use mortgage rate buy downs elevated levels of quick move in homes or <unk> as we call them remain part of our new operating philosophy in the last few years on slide 15.

Speaker Change #154: We show that we had eight <unk> per community at the end of the third quarter.

Speaker Change #154: It remains at a high level, but we're very comfortable with that level. Furthermore, due to the increase in community count in the quarter, it's not surprising to see that our finished <unk> increased to 192 finished homes on a per community basis that puts us at one.

Speaker Change #154: One five finished cure mice per community.

Speaker Change #154: It's up slightly from $1 three finished <unk> per community at the end of the second quarter, but it's lower than one nine finished Q <unk> at the end of our first quarter.

Our goal with <unk> is obviously to sell them before completion.

Speaker Change #155: In the third quarter of 2004, <unk> sales were about 67% of our total sales a slight increase from 65% in the second quarter of 2004.

Speaker Change #156: Historically that percentage was about 40%. So obviously demand for these homes is still high we.

Speaker Change #156: We will continue to manage our <unk> at a community level, we track our storage schedule per community with our current sales pace per community to make sure we don't get too far ahead of ourselves.

Speaker Change #152: On the bottom of this slide, you can see that our net debt to net cap at the end of the third quarter was 55.9%, which is a significant improvement from our 146.1% at the beginning of fiscal 20.

Speaker Change #156: However, as we break it down by quarter, you can see that it's been choppy. Contracts increased significantly in the first quarter when we were up 43%. In the second quarter, contracts were up 9%, and in the third quarter, contracts declined 13%. However, during the last five weeks, which we show at the bottom of this table, trends have improved substantially, and our total contracts increased 23% over the same five weeks a year ago.

Speaker Change #156: If you move to slide 16, you can see that even with the choppiness in the third quarter sales, we were still able to raise net prices in 33% of our communities. Despite the choppiness. The current level of demand should support the growth that we hope to achieve over the next several <unk>.

Speaker Change #156: Even though contracts have been choppy, we feel very good about demand overall, and I'll describe in a little more detail contracts in the upcoming moments.

Speaker Change #156: If you turn to slide 8, you can see contracts per community for the third quarter decreased year-over-year to 9.5.

Speaker Change #156: Using the expected end of the year with net debt to net cap of 42%.

Speaker Change #156: <unk>.

Speaker Change #156: Now I'll turn it over to Brad O'connor, our Chief Financial Officer.

Brad O'connor: There are a couple of things on this slide I want to point out.

Brad O'connor: We still have more work to do to achieve our goal of a mid 30% level.

Brad O'connor: Thank you Sarah.

Brad O'connor: First of all, 9.5 contracts per community that we achieved this year is close to our third quarter average of 9.9 contracts per community historically.

Brad O'connor: We are confident we have a path to achieve our target soon.

Brad O'connor: Before I get to the next slide I want to comment on the other income line on our income statement.

Brad O'connor: Secondly, last year's 14.2 contracts per community was the second-best third quarter of contracts per community over the past 20 years.

Brad O'connor: We've made considerable progress, which is evident by the credit rating upgrades we received from both S&P Global and Moody's during our third quarter of 24.

Brad O'connor: During the third quarter of 2004, we assumed control of one of our unconsolidated joint ventures. After our partner receive their final cash distributions, but before the communities. We're finished under GAAP. We are required to consolidate the joint venture at fair value and based on the exceptionally strong performance of these community of the screenings, we recorded a $46 million gain.

Brad O'connor: Our balance sheet has improved significantly over the last five years, and we expect to continue to make no worthy progress moving forward.

Brad O'connor: And the other income and expense line upon consolidation.

Brad O'connor: Given our remaining $258 million of the first tax assets, we will not have to pay federal income taxes on approximately $900 million of future pre-tax earnings. This benefit will continue to significantly enhance our cash loan years to come, and we'll accelerate our growth plans as well as our ability to pay down debt.

Brad O'connor: Even after this stepped up value. We now have a high performing wholly owned community that is projected to achieve an IRR in excess of 20% and provide significant profits for the next few years.

Brad O'connor: Our financial guidance for the full year of 24 assumes no adverse changes in current marketing additions, including no further deterioration in our supply chain, or material increases in mortgage rates, inflation or cancellation rates.

Brad O'connor: Similarly in the third quarter of 2003, we recorded a $19 million gain in the other income and expense line upon consolidation of a different joint venture.

Brad O'connor: This could happen again in future reporting periods when a final cash distributions to the partners are made on existing and future new joint ventures.

Brad O'connor: You can also see on the slide in the third quarter of 20 with the COVID surge, our contracts per community were at 19, an unbelievably high level.

Brad O'connor: Now getting back to the slides on slide 17, you can see that we ended the quarter with a total of 146 open for sale communities.

Brad O'connor: But last year's 14.2 is still a very tough comparison.

Brad O'connor: 20% increase from last year of 100 126 of those communities were wholly owned during the third quarter. We opened 22, new wholly owned communities sold out of 10 wholly owned communities transitioned <unk> from a joint venture to a wholly owned and contributed one community to a joint venture.

Brad O'connor: The third point I want to make is that the timing of the increase in our community count in the quarter hurts the calculation of contracts per community. That's because half of the community count increase occurred in July, the last month of our quarter. So you don't get the benefit of a full month of contract from those new communities, much less the benefit during the full quarter.

Brad O'connor: Finally, some of our outperformance in last year's third quarter was due to a high level of billed-for-rent contracts. The 23 third quarter was the quarter that had the most billed-for-rent contracts since we began selling to this type of buyer, 259 billed-for-rent contracts. All of them happened to be in the southeast segment during the quarter.

Brad O'connor: Anecdotally, there seemed to be some hesitancy from homebuyers during the third quarter, causing some of the choppiness in sales that I referred to, similar to what other homebuilders have been reporting. It's difficult to pinpoint the cause of the choppiness, but economic, mortgage rate, and geopolitical uncertainty were likely partially responsible.

Brad O'connor: Furthermore, we had extended disruption from Hurricane Burl across our Texas operations in particular, which was one of our single largest states by deliveries. Both our Houston and Dallas offices and many of our associates were without power for the better part of a week during the critical last month of the quarter. This hurt sales and deliveries.

Brad O'connor: We also opened four new on consolidated joint venture communities and closed two on a consolidated joint venture managed during a quarter.

Brad O'connor: As you'll see in a moment, sales have jumped back in a very strong manner in recent weeks.

Brad O'connor: The total community Count of 146 was also up 11% or 14 communities sequentially from the end of the second quarter of fiscal 2004.

Speaker Change #157: If you turn to slide 9, we show interest rate trends.

Speaker Change #157: The gray line on this slide shows what happened to interest rates last year between July of, 22 and August of 23. During this period, whenever rates declined, after a little delayed reaction, we eventually, saw a pickup in sales.

Speaker Change #157: As Ara mentioned half of those 14 community openings took place in the month of July the financial benefits of these new communities will begin in subsequent quarters.

Speaker Change #157: The blue line shows what happened with mortgage rates during this past year between July of, 23 and August of 24.

Ara Hovnanian: For most of the time shown, they coincidentally followed a very similar pattern of monthly, increases and decreases just at slightly higher rates this year.

Ara Hovnanian: Our guidance assumes continued extended construction cycle times averaging five months compared to our pre-COVID cycle time for construction in approximately four months.

Ara Hovnanian: Over the past few weeks, we've seen mortgage rates reduce to lower levels. Whenever mortgage rates come down, there are more potential buyers obviously that, can qualify for mortgages. For the first time in a while, mortgage rates are actually lower now than they were last, year.

Ara Hovnanian: Even with the robust growth in community count this quarter, we still experienced delays in opening new communities, primarily due to utility hookups throughout the country. We expect community count to continue to grow further in the fourth quarter and in fiscal 'twenty five predicting community count can be challenging given a variety of factors.

Ara Hovnanian: It also assumes that we continue to be more reliant on QMI sales, which makes forecasting gross margins more difficult.

Ara Hovnanian: We've already seen the benefits of the lower rates.

Ara Hovnanian: If you turn to slide 10, we show that over the past five weeks, contracts have increased, 23% compared to the same weeks a year ago.

Ara Hovnanian: This improved trend suggests that homebuyers have already reacted positively to the recent, decreasing mortgage rate environment.

Ara Hovnanian: In addition, web traffic continues to be very strong. As a matter of fact, the last four weeks were better than the same weeks going all the way, back to 2019 with the exception of the COVID surge in August of 2020. In the last week, however, we actually matched the robust website visit levels that we hit, in that peak time in August 2020.

Ara Hovnanian: The leading indicator for further community count growth as shown on slide 18, we ended the quarter with 39516 controlled lots, which equates to a $7 seven year supply of control bonds.

Ara Hovnanian: That leading indicator makes me particularly optimistic about future demand. On slide 11, we give even more granularity and show the trend of monthly contracts per, community compared to the same months a year ago.

Ara Hovnanian: Here you can see the impact of Build for Rent on contracts in the month of June this year, compared to last year.

Speaker Change #158: Count increased 7% sequentially and 34% year over year. If you include loss from our unconsolidated joint ventures, we now control of 42580 lots.

Speaker Change #158: Added 4800 lots and 57 communities during the third quarter. Our land teams are actively engaging with land sellers and negotiating for new land parcels that meet our underwriting standards.

Our land and land development spend increased 28% year over year to $216 million in the third quarter of fiscal 2004. This brings the late the last the latest four quarter average to $224 million a quarter last four quarters in a row with higher than typical levels, Atlanta and land development spend.

Speaker Change #158: Our corporate land Committee counter 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. We are using current home prices, including the current level of mortgage rate buy downs current construction costs and current sales pace to underwrite to a 20% plus internal rate of return are.

Speaker Change #158: Even though sales were lower in this year's third quarter, we believe that many of the, fundamentals that led to our prior outperformance remain intact, such as the low supply of existing homes for sale, a slightly weakening but still good jobs market, the overall health of the economy, and positive demographic trends.

Speaker Change #158: Our guidance assumes continued use of mortgage rate 5 down similar to recent months.

Speaker Change #158: Underwriting standards automatically self adjust to any changes in market conditions. We are finding many opportunities in our markets and are very focused on growing our top and bottom lines for the long term.

Speaker Change #158: Again, we have seen the sales trend change to very positive comparisons over the last, five weeks.

Speaker Change #159: Turning to slide 12, we show our contracts per community as of the 12 months ended on, June 30th of 24, and that way we can compare our results to our peers that report contracts per community on our calendar quarter ends.

Speaker Change #158: Okay.

Speaker Change #159: The growth in lost control of proceeds growth and community count, which procedure growth in deliveries.

Speaker Change #160: At 42 contracts per community, our trailing 12-month sales pace per community is the fourth, highest among the public homebuilders that reported for this time period.

Speaker Change #160: On slide 19, we show the percentage of our lots controlled via option increased from 46% in the third quarter of fiscal 2015 to.

To 82% in the third quarter of fiscal 'twenty. Four this is the highest percentage of option lots, we have ever had discrete increases intentional and it has been a consistent focus of our land light high inventory turnover land strategy. We are pleased with the progress we have made.

Speaker Change #160: On slide 13, you can see that our year-over-year growth in contracts per community for that, same period was also the fourth highest among our peers.

Speaker Change #160: What we're trying to illustrate on these last two slides is even though sales in this most, recent quarter were choppy, we're still selling an above-average number of homes compared to our peers.

Speaker Change #160: On the top of slide 14, you can see that for a sizable percentage of our deliveries, home, buyers continued to utilize mortgage rate buydowns.

Speaker Change #160: The percentage of customers that used buydowns this year was 71% in the third quarter compared, to 73% in the second quarter and 79% in the first quarter.

Turning now to slide 20, you 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 median.

Speaker Change #160: The bottom of the slide gives more granularity.

Speaker Change #160: On slide 21, compared to our peers. We are tied for the second 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 turns on inventory in future periods.

Speaker Change #160: We show monthly trends over the same period. Since the beginning of the year, the buydown usage in our deliveries has averaged 74%, which seems to indicate home buyers have been consistently relying on mortgage rate buydowns to combat affordability at the current mortgage rate levels.

Speaker Change #160: Given the relatively high mortgage rate environment, we assume buydowns will remain at similar, levels going forward.

Speaker Change #160: Another way to improve our inventory turns as by shortening our construction cycle times.

Speaker Change #160: Made good progress in reducing our cycle times for 190 days at the peak during Covid to 160 days in the last half of 2003.

Speaker Change #160: <unk> remained around 160 days for those first two quarters of 'twenty four.

Speaker Change #160: During the third quarter 'twenty four we were able to shorten the average cycle time by another 10 days to about 150 days, we still have some work ahead of us to get back to pre pandemic cycle times are about four months or 120 days, but we are making substantial progress returning to our normal cycle times should significantly boost our ROI and Roe.

Speaker Change #160: Further, it excludes any impact to SG&A expense from our phantom stock expense related solely to the stock price movement from the $209.89 cents stock price at the end of the third quarter of fiscal 24.

Speaker Change #160: Turning to slide 22.

Speaker Change #161: Even after spending $216 million, Atlanta, Atlanta development $32 million on debt reduction and $11 million to repurchase stock. We still ended the third quarter with $250 million of liquidity just above the high end of our targeted liquidity range. We are much closer to our goal of being fully invested which reduces the interest burden of any excess.

Speaker Change #161: Cash and puts all of our capital to work.

Speaker Change #161: Turning now to slide 23. This slide shows our maturity ladder as of July 31, 2024. This is reflective of the exchange we did at the beginning of the third quarter, which lowered the face value of our debt by $75 million reduced our annual cash interest by $4 6 million and our annual interest expense by approximately $8 5 million.

Speaker Change #161: This was the most recent example of the steps we have taken to improve our maturity ladder over the past several years, we are still committed to further strengthening our balance sheet.

Speaker Change #161: Turning to slide 24.

Speaker Change #161: We show the progress we have made to date to grow our equity and reduce our debt starting on the upper left hand part of the slide we show the growth in equity over the past few years as well as the year end projected equity assuming the midpoint of our guidance and on the upper 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.

Speaker Change #161: And the most recent debt reductions in the exchange.

Speaker Change #161: Reduced our debt by $669 million since the beginning of fiscal 'twenty.

Speaker Change #161: On the bottom of the slide you can see that our net debt to net cap at the end of the third quarter was 55, 9%, which is a significant improvement from our 146, 1% at the beginning of fiscal 'twenty.

Speaker Change #161: Using the midpoint of our guidance and assuming we have cash at the same level. We finished last year, we expect to end the year with net debt to net cap of 42%. We still have more work to do to achieve our goal of a mid 30% level. We are comfortable that we have a path to achieve our targets there.

Speaker Change #161: We've made considerable progress which is evidenced by the credit rating upgrades, we received from both S&P global and Moody's during our third quarter of 2000 and for our balance sheet has improved significantly over the last five years and we expect to continue to make noteworthy progress moving forward.

Speaker Change #161: Given our remaining $258 million of deferred tax assets, we will not have to pay federal income taxes on approximately $900 million of future.

Speaker Change #161: Future pre tax earnings.

Speaker Change #161: 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.

Speaker Change #161: Our financial guidance for the full year of 24 assumes no adverse changes in current market conditions, including no further deterioration or in our supply chain or material increases in mortgage rates inflation, our cancellation rates.

Speaker Change #162: Our guidance assumes continued extended construction cycle times, averaging five months compared to our pre COVID-19 cycle time for construction of approximately four months. It also assumes that we continue to be more relying on <unk> sales, which makes forecasting gross margins more difficult. Our guidance assumes continued use of mortgage rate buy down similar to recent months further and excludes any impact.

Speaker Change #162: We are budgeting the cost of buydowns to remain constant, however, the cost of buydowns may, decrease with the decline in mortgage rates that we've seen recently.

Speaker Change #162: In order to meet home buyers' desires to use mortgage rate buydowns, elevated levels of, quick move-in homes, or QMIs as we call them, remain part of our new operating philosophy in the last few years. On slide 15, we show that we had eight QMIs per community at the end of the third quarter.

Speaker Change #162: SG&A expense from our Phantom stock expense related solely to the stock price movement from the $209 89 stock price at the end of the third quarter of fiscal 'twenty four.

Speaker Change #162: It remains at a high level, but we're very comfortable with that level.

Speaker Change #162: Slide 25 shows our increased guidance for all the fiscal 24. We increased our expectations for total revenues for the full year to be between $2.9 billion and $3.05 billion.

Speaker Change #162: Slide 25 shows our increased guidance for all of fiscal 'twenty four we increased our expectations for total revenues for the full year to be between $2 9 billion and 3.05 billion. We tightened the range slightly for expected adjusted gross margin to be in the range of 21, 5% to 22, 5%.

Speaker Change #162: We tightened the range slightly for expected adjusted gross margin to be in the range of 21.5% to 22.5% and we kept the range for SG&A as a percent of total revenue to be between 11 and 12%.

Speaker Change #162: And when you kept the range for SG&A as a percent of total revenue to be between 11 and 12%.

Speaker Change #162: We are providing guidance on income from joint ventures for the first time, for the year we expect income from Jordan Ventures to be between $55 million and $65 million.

We are providing guidance on income from joint ventures for the first time.

Speaker Change #162: For the year, we expect income from joint ventures to be between $55 million at $65 million, we increased guidance for adjusted EBITDA adjusted pre tax income EPS and book value per share our guidance for adjusted EBITDA increased to a range between $420 million and $445 million and our expectations for adjusted pre tax.

Speaker Change #162: We increase guidance for adjusted EBITDA, us just a pre-tax income, EPS and book value per share. Our guidance for adjusted EBITDA increased to a range between $420 million and $45 million, and our expectations for adjusted pre-tax income for the full year increased to be between $300 million and $325 million. We now expect our diluted earnings per share for the full year to be in the range of $29 and $31.

Net income for the full year increased to be between $300 million and $325 million.

Speaker Change #163: We now expect our diluted earnings per share for the full year to be in the range of $29 and $31 at the midpoint of our guidance, we anticipate our common book value per share to increase by about 50% at October 31, 2024 to approximately $109 per share compared to last year's value at year end of 70.

Speaker Change #162: At the midpoint of our guidance, we anticipate our common book value per share to increase by about 50 percent at October 31, 2024 to approximately $109 per share compared to last year's value at your end of $73 per share.

Speaker Change #162: $3 per share.

Speaker Change #162: Annals that only focus on price-to-book mis-to-point regarding our industry leading returns and rapid growth in book value.

Speaker Change #162: Analysts that only focus on a price to book Mr point regarding our industry, leading returns and rapid growth in book value.

Speaker Change #162: Turning to slide 26, we show that our return on equity was 38.8 percent, which is the highest over the trail in 12 months compared to our peers.

Speaker Change #162: Turning to slide 26, we show that our return on equity was 38, 8%, which is the highest over the trailing 12 months compared to our peers and on slide 27, we show that compared to our peers that we have one of the highest consolidated EBIT returns on investment at 33, 7%.

Speaker Change #162: And on slide 27, we show that compared to our peers, that we have one of the highest consolidated EBITDA returns on investment at 33.7 percent.

Speaker Change #162: While our ROE was held 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-size peers.

Speaker Change #162: While our Aro 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 mid size peers over the last several years, we have consistently had one of the highest EBIT Ros among our peers.

Speaker Change #162: Over the last several years, we have consistently had one of the highest EBITDA relies among our peers.

Speaker Change #162: Eventually, investors will recognize our consistent spare returns on capital and significantly improve balance sheet.

Eventually investors will recognize our consistent superior returns on capital and significantly improve our balance sheet.

Speaker Change #162: 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.

Speaker Change #162: 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.

Speaker Change #162: We believe when all of the fundamental financial metrics are considered, our stock is still a compelling value. On slide 28, we show our price to book multiple compared to our peers.

Speaker Change #162: We believe when all our fundamental financial metrics or consider our stock is still a compelling value.

Speaker Change #162: On slide 28, we show our price to book multiple compared to our peers.

Speaker Change #162: We do compare more favorably on this metric based on the mid-point of our guidance, we expect in October with the book value approximately $109 per share.

We do compare more favorable favorably on this metric based on the midpoint of our guidance. We expect in October with a book value of approximately $109 per share on slide 29, we show the trailing 12 months price to earnings ratio for us and our peer group based on our price earnings multiple of 648 times at Yesterdays stock price of $207 60.

Speaker Change #162: On slide 29, we show the trail in 12 months price to earnings ratio for us and our peer group based on our price earnings multiple of 6.48 times at yesterday's stock price of $207.60.

Speaker Change #162: We are trading at a 36% discount to the home billing industry average per ratio. We recognize that our stock may trade at a discount to the group because of our higher leverage, but our leverage has been shrinking rapidly.

Speaker Change #162: We are trading at a 36% discount to the homebuilding industry average p/e ratio, we recognize that our stock may trade at a discount to the group because of a higher leverage but our leverage has been shrinking rapidly.

Speaker Change #162: On slide 30, we show that despite our extremely high ROE, there are still four peers that have a higher price to book ratio than us.

Speaker Change #162: On slide 30, we show that despite our extremely high Roe.

Speaker Change #162: Still for peers that have a higher price to book ratio than us. This slide more visually demonstrates how much we are undervalued relative to the other homebuilders when looking at the relationship between ROE and price to book.

Speaker Change #162: This slide more visually demonstrates how much we are undervalued relative to the other home builders when looking at the relationship between ROE and price to book. A very similar result exists when looking at ROE to price to earnings.

Speaker Change #162: A very similar result exists when looking at ROE, It's a price to earnings.

Speaker Change #162: These last few slides further emphasize our point that given our 38.28% return on equity, our top courts, I'll either 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 home builders.

Speaker Change #162: These last few slides further emphasize our point that given our 38, 8% return on equity are top quartile EBIT return on investment combined with a rapidly improving balance sheet. We believe our stock continues to be continues to be the most undervalued in the entire universe of public homebuilders I will now turn it back to Ara for some clue.

Speaker Change #162: I will now turn it back to error for some closing remarks.

Ara Hovnanian: <unk> remarks.

Speaker Change #162: Thanks, Brad.

Speaker Change #162: I want to spend a few minutes talking about our joint ventures during this call.

Ara Hovnanian: Furthermore, due to the increase in community count in the quarter, it's not surprising, to see that our finished QMIs increased to 192 finished homes. On a per community basis, that puts us at 1.5 finished QMIs per community. That's up slightly from 1.3 finished QMIs per community at the end of the second quarter, but it's lower than 1.9 finished QMIs at the end of our first quarter. Our goal with QMIs is obviously to sell them before completion.

Thanks, Brad I wanted to spend a few minutes talking about our joint ventures. During this call we consider joint ventures to be a core part of our operations.

Ara Hovnanian: We consider joint ventures to be a core part of our operation.

Ara Hovnanian: In the third quarter of 24, QMI sales were about 67% of our total sales, a slight increase, from 65% in the second quarter of 24.

Ara Hovnanian: Historically, that percentage was about 40%, so obviously demand for these homes is still, high.

Ara Hovnanian: Thank you very much for your attention.

Ara Hovnanian: We'll continue to manage our QMIs at a community level. We track our start schedule per community with our current sales pace per community, to make sure we don't get too far ahead of ourselves.

Ara Hovnanian: Income from our unconsolidated joint ventures has been an important part of our operations for a long time on slide 31, we show income from unconsolidated joint ventures for the past six fiscal years, you can see on the far right hand portion of the slide that income from joint ventures.

Ara Hovnanian: If you move to slide 16, you can see that even with the choppiness in the third quarter, of sales, we're still able to raise net prices in 33% of our community.

Ara Hovnanian: Despite the choppiness, the current level of demand should support the growth that we hope to achieve over the next several years.

Ara Hovnanian: Income from our unconsolidated joint ventures has been an important part of our operations for a long time. On slide 31, we show income from unconsolidated joint ventures for the past six fiscal years.

Ara Hovnanian: It is for it to reach 60 million for the full year. Based on the current level of joint venture activity, we believe that our income from joint ventures should continue to be a meaningful portion of our earnings for the next several years.

Was already $37 million for the first nine months of fiscal 'twenty, four and the midpoint of the guidance that we gave is for it to reach 60 million for the full year.

Based on the current level of joint venture activity, we believe that our income from joint ventures should.

Ara Hovnanian: Continue to be a meaningful portion of our earnings for the next several years keep in mind. These borrowers do not reflect the $19 million gain from consolidation during fiscal 'twenty, three or the $46 million gain from consolidation in the third quarter of 24 these gains from consolidation could occur.

Ara Hovnanian: Keep in mind these bars do not reflect the $19 million gain from consolidation during fiscal 23 or the $46 million gain from consolidation in the third quarter of 24.

Ara Hovnanian: These gains from consolidation could occur in the future during ventures as they've been performing very well.

Ara Hovnanian: <unk> in the future joint ventures, as they are performing very well.

Ara Hovnanian: Turning to slide 32, we give some reasons we engage and join ventures.

Ara Hovnanian: I'll now turn it over to Brad OConnor, our Chief Financial Officer.

Ara Hovnanian: Turning to slide 32, we get.

Speaker Change #164: Give some reasons we engaged in joint ventures first and foremost we're extremely focused on our high return on investment one of the key methods to achieve this high return on investment is our land light strategy land light has always been part of our strategy, but we've increased the focus over the <unk>.

Ara Hovnanian: First and foremost, we're extremely focused on a high return on investment. One of the key methods to achieve this high return on investment is our land light strategy. Land light has always been part of our strategy, but we've increased the focus over the last five years.

Speaker Change #164: Thank you, Ara.

Speaker Change #164: Before I get to the next slide, I want to comment on the other income line on our income statement.

Speaker Change #164: During the third quarter of 24, we assumed control of one of our unconsolidated joint ventures after our partner received their final cash distribution. But before the communities were finished, under GAAP, we were required to consolidate the joint venture at fair value, and based on the exceptionally strong performance of these communities, we recorded a $46 million gain in the other income and expense line upon consolidation. Even after this stepped-up value, we now have a high-performing, wholly-owned community that is projected to achieve an IRR in excess of 20% and provide significant profits for the next few years.

Speaker Change #164: Last five years.

Speaker Change #164: An alternate tool to achieve a high return on investment is the use of joint ventures.

Speaker Change #164: An alternative tool to achieve a high return on investment is the use of joint ventures, they allow us to build larger communities with less capital typically 20% to 25% of the peak capital, particularly for larger longer life communities.

Speaker Change #164: Similarly, in the third quarter of 23, we recorded a $19 million gain in the other income and expense line upon consolidation of a different joint venture. This could happen again in future reporting periods when final cash distributions to the partners are made on existing and future new joint ventures.

Speaker Change #164: They allow us to build larger communities with less capital, typically 20 to 25% of the peak capital, particularly for larger, longer life communities.

Speaker Change #164: Now getting back to the slides, on slide 17, you can see that we ended the quarter with a total of 146 open-for-sale communities, a 20% increase from last year. 126 of those communities were wholly-owned. During the third quarter, we opened 22 new wholly-owned communities, sold out of 10 wholly-owned communities, transitioned six communities from a joint venture to wholly-owned, and contributed one community to a joint venture.

Speaker Change #164: We also opened four new unconsolidated joint venture communities and closed two unconsolidated joint venture communities during the quarter.

Speaker Change #164: If these joint ventures hit certain hurdle rates, we can receive a disproportionate share of the upside performance. This improves both IRR and the net profit dollars we receive.

Speaker Change #164: If these joint ventures hit certain hurdle rates, we can receive a disproportionate share of the upside performance.

Speaker Change #164: The total community count of 146 was also up 11% or 14 communities sequentially from the end of the second quarter of fiscal 24.

Speaker Change #164: This improves both IRR and the net profit dollars we received.

Speaker Change #164: As Eric mentioned, half of those 14 community openings took place in the month of July.

Speaker Change #164: The financial benefits of these new communities will begin in subsequent quarters. Even with the robust growth in community count this quarter, we still experienced delays in opening new communities, primarily due to utility lookups throughout the country.

Speaker Change #164: By limiting our capital to 20 to 25%, we can invest in multiple communities with the same amount of capital diversifying risk and leveraging our fixed costs.

Speaker Change #164: By limiting our capital to 20% to 25% we can invest in multiple communities with the same amount of capital diversifying risk and leveraging our fixed costs, we don't always achieve our IRR targets for our communities when done in a joint venture or joint venture partners typically share in that.

Speaker Change #164: We expect community count to continue to grow further in the fourth quarter and in fiscal 25, predicting community count to be challenging given a variety of factors.

Speaker Change #164: The leading indicator for further community count growth is shown on slide 18. We ended the quarter with 39,516 controlled lots, which equates to a 7.7-year supply of controlled lots. Our lot count increased 7% sequentially and 34% year-over-year. If you include lots from our unconsolidated joint ventures, we now control 42,580 lots. We added 4,800 lots in 57 communities during the third quarter.

Speaker Change #164: Our land teams are actively engaging with land sellers and negotiating for new land parcels that meet our underwriting standards. Our land and land development spend increased 28% year-over-year to $216 million in the third quarter of fiscal 24. This brings the latest four-quarter average to $224 million a quarter. That is four quarters in a row with higher than typical levels of land and land development spend.

Speaker Change #164: We don't always achieve our IRR targets for our communities.

Speaker Change #164: Our Corporate Land Committee calendar continues to be busy, which is an indication that our lot counts should continue to increase over time, but not always in a straight line. We are using current home prices, including the current level of mortgage rate buy-downs, current construction costs, and current sales pace, to underwrite to a 20% plus internal rate of return.

Speaker Change #164: When done in a joint venture, our joint venture partners typically share in the downside risk. Having said that, as you can see from our results, our joint ventures have been performing very well for our company and for our partners.

Speaker Change #164: Our underwriting standards automatically self-adjust to any changes in market conditions.

Speaker Change #164: We are finding many opportunities in our markets and are very focused on growing our top and bottom lines for the long term. The growth in lots controlled precedes growth in community count, which precedes growth in deliveries. On slide 19, we show the percentage of our lots controlled via option increased from 46% in the third quarter of fiscal 2015 to 82% in the third quarter of fiscal 24. This is the highest percentage of option lots we have ever had. This increase is intentional and has been a consistent focus of our land-like high inventory turnover land strategy.

Speaker Change #164: Downside risk, having said that as you can see from our results our joint ventures.

Speaker Change #164: We're also paid a management fee for our joint ventures, which helps offset some of our overhead costs.

Speaker Change #164: We are pleased with the progress we have made.

Speaker Change #164: <unk> very well for our company and for our partners.

Speaker Change #164: Turning now to slide 20, you 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 median.

Speaker Change #164: We're also paid a management fee for our joint ventures, which helps offset some of our overhead costs. We believe these benefits to utilizing joint ventures makes a lot of sense from several perspectives and we will continue to seek joint venture partners to work with for future communities.

Speaker Change #164: On slide 21, compared to our peers, we are tied for the second highest inventory turnover rate.

Speaker Change #164: High inventory returns 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 terms on inventory in future periods. Another way to improve our inventory returns is by shortening our construction cycle times. We made good progress in reducing our cycle times from 190 days at the peak during COVID to 160 days in the last half of 23.

Speaker Change #164: We believe these benefits to utilizing joint ventures makes a lot of sense from several perspectives and will continue to seek joint venture partners to work with for future communities. On slide 33, we show some metrics for a recent community that we're considering contributing to a joint venture.

Speaker Change #164: Our cycle times remained around 160 days for the first two quarters of 24, but during the third quarter of 24, we were able to shorten the average cycle time by another 10 days to about 150 days.

Speaker Change #164: We still have some work ahead of us to get back to pre-pandemic cycle times of about four months or 120 days, but we are making substantial progress. Returning to our normal cycle times should significantly boost our ROI and ROE.

Speaker Change #164: Turning to slide 22, even after spending $216 million in land and land development, $32 million on debt reduction, and $11 million to repurchase stock, we still ended the third quarter with $250 million of liquidity just above the high end of our targeted liquidity range.

Speaker Change #164: We are much closer to our goal of being fully invested, which reduces the interest burden of any excess cash and puts all of our capital to work.

Speaker Change #164: Turning now to slide 23, this slide shows our maturity ladder as of July 31, 2024. This is reflective of the exchange we did at the beginning of the third quarter, which lowered the face value of our debt by $75 million, reduced our annual cash interest by $4.6 million, and our annual interest expense by approximately $8.5 million.

Speaker Change #164: On slide 33, we show some metrics for a recent community that we're considering contributing to a joint venture as a wholly owned transaction. The peak capital loan. This community would be $74 million, the IRR would be 31% and.

Speaker Change #164: This was the most recent example of the steps we have taken to improve our maturity ladder over the past several years.

Speaker Change #164: We are still committed to further strengthening our balance sheet. Turning to slide 24, we show the progress we have made to date to grow our equity and reduce our debt. Starting on the upper left-hand part of the slide, we show the growth in equity over the past few years, as well as the year-end projected equity, assuming the midpoint of our guidance.

Speaker Change #164: As a wholly owned transaction, the peak capital on this community would be $74 million.

Speaker Change #164: And on the upper right-hand portion of the slide, we show the growth in equity over the past few years, as well as the year-end projected equity, assuming the midpoint of our guidance, 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 the exchange. We reduced our debt by $669 million since the beginning of fiscal 20.

Speaker Change #164: The IRR would be 31%, and the community life profit would be $82 million, as you can see, based on this underwriting, it's a very solid community and it would make sense to go forward with this transaction on a wholly owned basis.

Speaker Change #164: Community life profit would be $82 million.

Speaker Change #164: On the bottom of the slide, you can see that our net debt to net cap at the end of the third quarter was 55.9%, which is a significant improvement from our 146.1% at the beginning of fiscal 20. Using the midpoint of our guidance and assuming we have cash at the same level we finished last year, we expect to end the year with net debt to net cap of 42%.

Speaker Change #164: As you can see the under based on this underwriting is a very solid community and it would make sense to go forward with this transaction on a wholly owned basis.

Speaker Change #164: We still have more work to do to achieve our goal of a mid-30% level.

Speaker Change #164: We are comfortable that we have a path to achieve our target soon. We've made considerable progress, which is evident by the credit rating upgrades we received from both S&P Global and Moody's during our third quarter of 24. Our balance sheet has improved significantly over the last five years, and we expect to continue to make noteworthy progress moving forward. Given our remaining $258 million of deferred tax assets, we will not have to pay federal income taxes on approximately $900 million 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.

Speaker Change #164: Our financial guidance 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 rates.

Speaker Change #164: Our guidance assumes continued extended construction cycle times averaging five months compared to our pre-COVID cycle time for construction of approximately four months.

Speaker Change #164: However, if we were to join venture of this community instead, our peak capital would only be $14 million. The IRR would improve to 47%, and we'd still get a community life profit of $33 million.

However, if we were to joint venture this community instead, our peak capital would only be $14 million.

Speaker Change #164: It also assumes that we continue to be more reliant on QMI sales, which makes forecasting gross margins more difficult.

Speaker Change #164: Our guidance assumes continued use of mortgage rate buy-downs similar to recent months.

Speaker Change #164: Further, it excludes any impact to SG&A expense from our phantom stock expense, related solely to the stock price movement from the $209.89 stock price at the end of the third quarter of fiscal 24.

Speaker Change #164: Slide 25 shows our increased guidance for all of fiscal 24. We increased our expectations for total revenues for the full year to be between $2.9 billion and $3.05 billion.

Speaker Change #164: IRR would improve to 47% and we'd still get a community life profit of $33 million.

Speaker Change #164: The decrease in profit at first blush seems discouraging.

Speaker Change #165: The decrease in profit at first blush seems discouraging.

Speaker Change #164: However, if we add four other communities like this one, our peak capital for the entire joint venture for all five communities would be only $70 million less than one wholly owned community in the example. Our community life profit for the joint venture would be $165 million, more than double that of just one wholly owned community. In addition, we get the benefit of diversifying our risk.

Speaker Change #165: However, if we add for other communities like this one are peak capital for the entire joint venture for all five communities would be only $70 million less than one wholly owned community and the example, our community life profit for the joint venture would be 165.

Speaker Change #165: $5 million.

Speaker Change #165: More than double that of just one wholly owned community. In addition, we get the benefit of diversifying our risk.

Speaker Change #164: I could make an academic argument that we should join venture all of our communities. Now, frankly, that wouldn't be feasible, but the point I'm trying to get across is that the returns from these joint ventures are very compelling.

Speaker Change #166: It could make an academic argument that we should joint venture all of our communities now frankly that wouldn't be feasible, but the point I'm trying to get across is that the returns from these these joint ventures are very compelling joint ventures will continue to be part of our overall strategy and deliveries for years too.

Speaker Change #166: We tightened the range slightly for expected adjusted gross margin to be in the range of 21.5% to 22.5%, and we kept the range for SG&A as a percent of total revenue to be between 11% and 12%.

Speaker Change #166: Joint ventures will continue to be part of our overall strategy and deliveries for years to come.

Speaker Change #166: We are providing guidance on income from joint ventures for the first time. For the year, we expect income from joint ventures to be between $55 million and $65 million.

Speaker Change #166: We increased guidance for adjusted EBITDA, adjusted pre-tax income, EPS, and book value per share. Our guidance for adjusted EBITDA increased to a range between $420 million and $445 million, and our expectations for adjusted pre-tax income for the full year increased to be between $300 million and $325 million.

Speaker Change #166: We now expect our diluted earnings per share for the full year to be in the range of $29 and $31. At the midpoint of our guidance, we anticipate our common book value per share to increase by about 50% at October 31, 2024, to approximately $109 per share compared to last year's value at year end of $73.

Speaker Change #166: Analysts that only focus on price-to-book missed a point regarding our industry-leading returns and rapid growth in book value.

Speaker Change #166: The majority of our joint ventures are domestic here in the United States like all of our operations.

Speaker Change #166: Turning to slide 26, we show that our return on equity was 38.8%, which is the highest over the trailing 12 months compared to our peers.

Speaker Change #166: Come.

Speaker Change #166: And on slide 27, we show that compared to our peers, we have one of the highest consolidated EBIT returns on investment at 33.7%. While our ROE was held 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. Over the last several years, we have consistently had one of the highest EBIT ROIs among our peers.

The majority of our joint ventures, our domestic here in the United States like all of our operations. However, yesterday, we signed a memorandum of understanding with the Ministry of housing in Saudi Arabia. This will expand our activities in Saudi and expand our partnership increasing housing for a growing population.

Speaker Change #166: However, yesterday we signed a memorandum of understanding with the Ministry of Housing in Saudi Arabia. This will expand our activities in Saudi and expand our partnership, increasing housing for a growing population of young middle-class families.

Speaker Change #166: Young Middle class families.

Speaker Change #166: Overall, given our recent community count growth and continuing growth in our lockdown, we find ourselves on the precipice of substantial growth which will allow us to continue to deliver top-tier industry returns to our shareholders.

Speaker Change #166: Eventually, investors will recognize our consistent superior returns on capital and significantly improve balance sheet.

Speaker Change #166: Overall, given our recent community count growth and continuing growth in our lot count we find ourselves on the precipice of substantial growth, which will allow us to continue to deliver top tier industry returns to our shareholders.

Speaker Change #166: 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 EBIT, 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 still a compelling value. On slide 28, we show our price-to-book multiple compared to our peers.

Speaker Change #166: We do compare more favorably on this metric based on the midpoint of our guidance we expect in October with a book value of approximately $109 per share.

Speaker Change #166: On slide 29, we show the trailing 12 months price-to-earnings ratio for us and our peer group based on our price-to-earnings multiple of 6.48 times at yesterday's stock price of $207.60.

Speaker Change #166: That concludes our formal comments and I'm happy to turn it over for Q&A now.

Speaker Change #166: That concludes our formal formal comments.

Happy to turn it over for Q&A now.

Speaker Change #166: The company will now answer questions, so that everyone has an opportunity to ask questions, participants will be limited to three questions and a follow-up, after which they will have to get back into the queue to ask another question.

The company will now answer questions. So that everyone has an opportunity to ask questions participants will be limited to three questions and a follow up after which they will have to get back into the queue to ask another question.

Speaker Change #166: We will open the call to questions.

We will open the call to questions.

Speaker Change #166: If you'd like to ask a question, please press star 1-1 on your telephone and wait for your name to be announced.

Speaker Change #167: If you'd like to ask a question. Please press star one one on your telephone and wait for your name to be announced to withdraw your question. Please press star one again.

Speaker Change #166: To withdraw your question, please press star 1-1 again.

Speaker Change #166: Please stand by when we compile the Q&A roster.

Speaker Change #167: Please standby, while we compile the Q&A roster.

Speaker Change #166: Our first question will come from the line of Alan Ratner with Zellman and Associates.

Speaker Change #167: Okay.

Speaker Change #168: Our first question will come from the line of Alan Ratner with Zelman <unk> associates.

Speaker Change #166: Hey guys, good morning.

Alan Ratner: Hey, guys good morning.

Speaker Change #166: Nice quarter and thanks for all the detail so far.

Alan Ratner: Nice quarter and thanks for all the detail so far.

Speaker Change #166: My first question, maybe this is more for Brad, I'd love to just get a little more color or offset on the JB consolidation since it was such a big driver of the upside in the quarter and it also sounds like it might be something that at least repeats on a inconsistent basis going forward.

Alan Ratner: We are trading at a 36% discount to the home building industry average PE ratio. We recognize that our stock may trade at a discount to the group because of our higher leverage, but our leverage has been shrinking rapidly.

Alan Ratner: Yes, My first question.

Speaker Change #169: This is more for Brad I'd love to just get a little more color or insight on the JV consolidation since it was such a big driver of the upside in the quarter and also sounds like it might be something that at.

Speaker Change #169: On slide 30, we show that despite our extremely high ROE, there are still four peers that have a higher price-to-book ratio than us. This slide more visually demonstrates how much we are undervalued relative to the other home builders when looking at the relationship between ROE and price-to-book.

Speaker Change #169: A very similar result exists when looking at ROE to price-to-earnings.

Speaker Change #169: At least repeats on that.

Speaker Change #170: And consistent basis going forward.

Speaker Change #169: I just want to make sure I understand the moving piece is here.

Speaker Change #171: I want to make sure I understand kind of the moving pieces here so.

Speaker Change #172: These last few slides further emphasize our point that given our 38.8% 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 home builders.

Speaker Change #172: You book the big gain this quarter and don't forward, I guess the sale of homes will be flowing through your revenue and cogs line and vigorous margin.

Speaker Change #172: You book, the big gain this quarter and going forward I guess the sale of homes will be flowing through your your revenue and Cogs line and then gross margin.

Speaker Change #172: I will now turn it back to Eric for some closing remarks.

Speaker Change #172: Thanks, Brad.

Speaker Change #172: The offset, I guess, when I look at your annual JV income running around $60 million pre-tax, does that mean that that number should come down?

Speaker Change #173: I want to spend a few minutes talking about our joint ventures during this call.

Speaker Change #171: Yes.

Speaker Change #173: <unk> offset I guess when I look at your annual JV income running around $60 million pre tax does that mean that that number should come down as like Youre not book and the gains from that project going forward and now thats shifting into your wholly owned business.

Speaker Change #173: We consider joint ventures to be a core part of our operations. Income from our unconsolidated joint ventures has been an important part of our operations for a long time. On slide 31, we show income from unconsolidated joint ventures for the past six fiscal years. You can see on the far right-hand portion of the slide that income from joint ventures was already $37 million for the first nine months of fiscal 24, and the midpoint of the guidance we gave is for it to reach $60 million for the full year.

Speaker Change #173: It's like you're not booking the gains from that project going forward, and now that's shifting into your wholly owned business?

Speaker Change #174: Not exactly I mean, youre thinking of it correctly, but the reality is we have other new JV that it also started which will provide JV income going forward with respect to that specific joint venture. The income that we had recorded over the last year or so.

Speaker Change #173: Not exactly.

Speaker Change #174: Based on the current level of joint venture activity, we believe that our income from joint ventures should continue to be a meaningful portion of our earnings for the next several years.

Speaker Change #174: Keep in mind, these bars do not reflect the $19 million gain from consolidation during fiscal, 23 or the $46 million gain from consolidation in the third quarter of 24.

Speaker Change #174: These gains from consolidation could occur in future joint ventures as they've been performing very well.

Speaker Change #174: Turning to slide 32, we give some reasons we engage in joint ventures.

Speaker Change #174: First and foremost, we're extremely focused on a high return on investment. One of the key methods to achieve this high return on investment is our land light strategy. Land light has always been part of our strategy, but we've increased the focus over the last five years.

Speaker Change #174: An alternate tool to achieve a high return on investment is the use of joint ventures.

Speaker Change #174: For our returns.

Speaker Change #174: They allow us to build larger communities with less capital, typically 20% to 25% of the peak capital, particularly for larger, longer life communities.

Speaker Change #174: That will go away and now come through wholly owned just like you described.

Speaker Change #174: If these joint ventures hit certain hurdle rates, we can receive a disproportionate share of the upside performance. This improves both IRR and the net profit dollars we receive.

Speaker Change #174: By limiting our capital to 20% to 25%, we can invest in multiple communities with the same amount of capital, diversifying risk and leveraging our fixed costs.

Speaker Change #174: And the one thing to add to that is it.

Speaker Change #174: Comes through at a higher land value because we had to record the step up on consolidation so that gain basically adds to the book value that we put on our books.

So as we're recognizing those deliveries they have a higher cost higher land cost than they did when they were in the joint venture.

Speaker Change #174: We don't always achieve our IRR targets for our communities.

Speaker Change #174: So just keep that lineup as I commented, though.

Speaker Change #174: Good morning.

We recorded a fair value we would do it.

Speaker Change #175: Calculating IRR that's still.

Speaker Change #175: When done in a joint venture, our joint venture partners typically share in the downside risk. Having said that, as you can see from our results, our joint ventures have been performing very well for our company and for our partners.

In the 20% range. So its still provide good profits for us just not as high as what was being generated in the JV itself.

Speaker Change #175: We're also paid a management fee for our joint ventures, which helps offset some of our overhead, costs. We believe these benefits to utilizing joint ventures makes a lot of sense from several perspectives, and we'll continue to seek joint venture partners to work with for future communities. On slide 33, we show some metrics for a recent community that we're considering, contributing to a joint venture.

Speaker Change #175: I mean, you're thinking of it correctly, but the reality is we have other new JVs that have also started, which will provide JV income going forward, so with respect to that specific joint venture, the income that we had recorded over the last year or so for our returns.

But with that said because of other JV that are coming online as arrows kind of commenting we expect JV income to continue in the future like what you've been seeing the other comment I'll make is the reason you may see this.

Speaker Change #175: As a wholly owned transaction, the peak capital on this community would be $74 million.

Speaker Change #175: Well, that will go away, and now come through wholly owned, just like you described.

Speaker Change #176: <unk> phenomenon happen going forward as some of our joint ventures restructure as <unk>.

Speaker Change #177: Perhaps structure, so that the partner gets paid out first and when that happens and the partner is that hits their IRR hurdle and gets paid out that's when this occurs and it becomes a wholly owned community in the case, where it's a <unk> passu JV and the distributions occur over time to both parties and both parties are in the venture until the end and continue.

Speaker Change #177: The IRR would be 31%, and the community life profit would be $82 million.

Speaker Change #177: As you can see, based on this underwriting, it's a very solid community, and it would make sense to go forward with this transaction on a wholly owned basis.

Speaker Change #177: They get paid out you won't see this occur.

Speaker Change #177: However, if we were to joint venture this community instead, our peak capital would, only be $14 million. The IRR would improve to 47%, and we'd still get a community life profit of $33 million.

Speaker Change #177: So more recently more of our JV have been done is as preferred structure. So thats why youre seeing us last year and this year and I think you might see it.

Speaker Change #177: Going forward from some of the joint ventures, we have in place, but we still do some JV, that's parry passive and in those cases, you wouldn't see this happened so I just want to give the extra clarification.

Speaker Change #177: The decrease in profit at first blush seems discouraging. However, if we add four other communities like this one, our peak capital for the entire joint venture for all five communities would be only $70 million, less than one wholly owned community in the example. Our community life profit for the joint venture would be $165 million, more than double that of just one wholly owned community. In addition, we get the benefit of diversifying our risk.

Speaker Change #178: I could make an academic argument, that we should joint venture all of our communities. Now, frankly, that wouldn't be feasible, but the point I'm trying to get across is that the returns from these joint ventures are very compelling.

Speaker Change #178: Joint ventures will continue to be part of our overall strategy, and deliveries for years to come.

Speaker Change #178: Got it and I appreciate all that that added color and just one more on this topic. So you mentioned the step up in land cost obviously, our land basis, obviously just relative to your.

Speaker Change #178: The majority of our joint ventures, are domestic here in the United States, like all of our operations.

Speaker Change #178: However, yesterday we signed a memorandum of understanding, with the Ministry of Housing in Saudi Arabia. This will expand our activities in Saudi, and expand our partnership, increasing housing for a growing population of young middle-class families.

Speaker Change #178: Overall, given our recent community count growth, and continuing growth in our lot count, we find ourselves on the precipice of substantial growth, which will allow us to continue to deliver top-tier industry returns to our shareholders.

Speaker Change #178: That concludes our formal comments, and I'm happy to turn it over for Q&A now.

Speaker Change #178: And the one thing to add to that is it comes through at a higher land value, because we had to record the step up on consolidation, so that gain basically adds to the book value that we put on our books.

Speaker Change #178: The company will now answer questions.

Speaker Change #178: And so, as we're recognizing those deliveries, they have a higher cost, higher land cost, and they did when they were in the joint venture.

Speaker Change #179: The rest of your business I mean is this going to be dilutive to your margins going forward. Obviously, it's only one project or is it that was written up to a similar margin.

Speaker Change #179: So that everyone has an opportunity to ask questions, participants will be limited to three questions and a follow-up, after which they will have to get back into the queue to ask another question.

Speaker Change #179: So, just keep that in mind.

Speaker Change #180: We will open the call to questions.

Speaker Change #180: It would be relatively similar margin to what our other projects or Africa, we used a similar underwriting IRR that we do for our existing projects that just that community was actually performing at much higher margins in the JV itself. So now it'll be honest warming at what we're doing kind of wholly owned on a rate with all our other communities.

Speaker Change #180: If you'd like to ask a question, please press star 1-1 on your telephone and wait for your name to be announced.

Speaker Change #180: As I commented though, it's when you record the fair value, we do it calculating IRR that's still in the 20% range, so it still will provide good profits for us, just not as high as what was being generated in the JV itself.

Speaker Change #180: To withdraw your question, please press star 1-1 again.

Speaker Change #180: But with that said, because of other JVs that are coming online, as they're kind of commenting, we expect JV income to continue in the future, like what you've been seeing.

Speaker Change #181: Please stand by while we compile the Q&A roster.

Speaker Change #181: The other comment I'll make is the reason you may see this gain phenomenon happen going forward is some of our joint ventures, we structure as press structures, so that the partner gets paid out first.

Speaker Change #181: And when that happens, and the partner then hits their IRR or hurdle and gets paid out, that's when this occurs and it becomes a wholly owned community.

Speaker Change #181: Gotcha Okay.

Speaker Change #181: In the case where it's a Perry Passou, JV and the distributions occur over time to both parties and both parties are in the venture until the end and continue to get paid out.

Speaker Change #181: You won't see this occur.

Speaker Change #182: Helpful. Thank you for the extra time there.

Speaker Change #181: Our first question will come from the line of Alan Ratner, with Zellman & Associates.

Speaker Change #181: So, more recently, more of our JVs have been done as per first structures, so that's why you're seeing this last year and this year, and I think you might see it going forward from some of the joint ventures we have in place.

Speaker Change #183: Hey, guys, good morning.

Speaker Change #181: Second question.

Speaker Change #183: The gross margin range tightened, but it still implies a pretty pretty wide range for fourth quarter and I know you mentioned the uncertainty around spec without being two thirds of your business today I guess just from a high level on your margins dipped a little bit sequentially youre off of that.

Speaker Change #183: Nice quarter, and thanks for all the details so far.

Speaker Change #183: But we still do some JVs that's very passive, and in those cases you wouldn't see this happen, so I just want to give that extra clarification.

Speaker Change #183: You know, my first question, and maybe this is more for Brad, I'd love to just get a little more color or insight on the JV consolidation, since it was such a big driver of the upside in the quarter and also sounds like it might be something that, you know, at least repeats on an inconsistent basis going forward.

Speaker Change #183: Got it, and I appreciate all that added color.

Speaker Change #184: I just want to make sure I understand, kind of the moving pieces here.

Speaker Change #184: So, you know, you booked a big game this quarter, and going forward, I guess the sale of homes will be flowing through your revenue and COGS line and gross margin.

Speaker Change #184: And just one more on this topic.

Speaker Change #184: The recent highs where do you see the margin profile of the business vis vis the third quarter result, and you just reported with all the moving pieces, you've got going on incentives seem pretty pretty steady, but elevated I would imagine land costs are going up you still have some pricing power and about a third of your communities is this 22% margin kind of like a decent.

Speaker Change #184: The offset, I guess, when I look at your annual JV income, running around $60 million pre-tax, does that mean that that number should come down as like you're not booking the gains from that project going forward and now that's shifting into your wholly-owned business?

Speaker Change #184: Not exactly.

Speaker Change #184: So, you mentioned the step up in land cost, obviously, or land basis, obviously.

Speaker Change #184: I mean, you're thinking of it correctly, but the reality is we have other new JVs that have also started, which will provide JV income going forward.

Speaker Change #184: So with respect to that specific joint venture, the income that we had recorded over the last year or so for our returns, well, that will go away and now come through wholly-owned just like you described. And the one thing to add to that, is it comes through at a higher land value because we had to record the step-up on consolidation.

Speaker Change #184: Just relative to your, you know, the rest of your business, I mean, is this going to be dilutive tier margins going forward?

Speaker Change #185: So that gain basically adds to the book value, that we put on our book.

Speaker Change #185: Run rate going forward or are there.

Speaker Change #186: Mix considerations or cost considerations that we should think about into the fourth quarter and into 'twenty five that could directionally move that one way or the other.

Speaker Change #187: And so as we're recognizing those deliveries, they have a higher cost, higher land cost than they did when they were in the joint venture. So just keep that in mind.

Speaker Change #187: Obviously it's only one project, or is it kind of written up to a similar margin? It would be relatively similar margin to what our other projects are, because we used a similar underwriting error that we do for our existing projects, and just that community was actually performing a much higher margins in the JV itself.

Speaker Change #187: Speaking specifically about the fourth quarter I think you are pretty much right on that 22% ish range is where I would think we would be but thats given the caveat that we've talked about which is similar mortgage rate buy down costs et cetera.

Speaker Change #187: As I commented, though, when you record the fair value, we do it calculating IRR that's still in the 20% range.

Speaker Change #187: So it still will provide good profits for us, just not as high as what was being generated in the JV itself.

Speaker Change #187: So, now it'll be performing at what we're doing kind of wholly on our regular with all other communities.

From a construction cost perspective, I think we've been.

Speaker Change #187: Gotcha.

Speaker Change #187: But with that said, because of other JVs that are coming online, as Ara was kind of commenting, we expect JV income to continue in the future like what you've been seeing.

Speaker Change #187: Holding pretty stable and Doug we've had some some decreases in areas.

Doug: The other comment I'll make is the reason you may see this gain phenomenon happen going forward is some of our joint ventures we structure as prep structures so that the partner gets paid out first.

Doug: Benefits from lumber.

Speaker Change #189: <unk>, which has helped our land costs as you pointed out should as we opened new communities and your deliveries are they can handle probably increase from newer deals. So that could put some pressure on margins in 2025 on the other hand, if mortgage rates go down as I think people might anticipate when the fed makes their their moves then the cost to buy.

Speaker Change #189: And when that happens and the partner then hits their IRR hurdle and gets paid out, that's when this occurs and it becomes a wholly owned community.

Speaker Change #189: In the case where it's a PERI-PASU JV and the distributions occur over time to both parties and both parties are in the venture until the end and continue to get paid out, you won't see this occur.

Speaker Change #189: So more recently, more of our JVs have been done as preferred structures.

Speaker Change #189: So that's why you're seeing this last year and this year, and I think you might see it going forward from some of the joint ventures we have in place.

Speaker Change #190: Downs, perhaps the amount of incentives we have to get will change as well so to potentially offset that so we're not really given 25 guidance, but I can answer your <unk> fourth quarter 2004 question by saying that we feel.

Speaker Change #190: But we still do some JVs as PERI-PASU, and in those cases, you wouldn't see this happen.

Speaker Change #190: So I just want to give that extra clarification.

Speaker Change #191: Got it.

Speaker Change #191: That's a 22% range youre talking about is pretty reasonable.

Speaker Change #192: Perfect and then if I could just squeak in one more here.

Speaker Change #192: And I appreciate all that added color.

Speaker Change #191: Eric.

Eric: The comments on ROE.

Speaker Change #194: Very much appreciated and understood you guys are the highest in the industry I think one of the things that admittedly, we struggled with a little bit and I think it's probably investors do as well given where your valuation is just the fact that you are elevated row. Today, obviously is somewhat driven by the book value having been depressed.

Speaker Change #194: And just one more on this topic.

Speaker Change #194: So you mentioned the step up in land costs, obviously, or land basis, obviously.

Speaker Change #194: Just relative to the rest of your business, I mean, is this going to be dilutive to your margins going forward?

Speaker Change #194: Obviously, it's only one project, or is it kind of written up to a similar margin? It would be relatively similar margin to what our other projects are because we used a similar underwriting IRR that we do for our existing projects.

Speaker Change #194: It's just that community was actually performing at much higher margins in the JV itself.

Speaker Change #194: Over the last few years and it has compressed a year ago, you were at 50% two years ago, 80%.

Speaker Change #194: So now it'll be performing at what we're doing kind of wholly on a regular with all our other communities.

Speaker Change #195: So I'm not asking you to forecast ROE, but I guess when you think about the business over the next two to three years.

Speaker Change #195: Gotcha.

Speaker Change #196: Okay.

Speaker Change #196: Long run in industry average has been somewhere around 15% and we've had several builders say they think theyre targeting more of a 20% ROE going forward on a sustainable basis is there a way to think about your business over the next three to five years from an ROE standpoint, once the book value has accreted and.

Speaker Change #196: That's helpful.

Speaker Change #196: Thank you for the extra time there.

Speaker Change #196: Second question, the gross margin range you tightened, but it still implies a pretty wide range for fourth quarter.

Speaker Change #196: And I know you mentioned the uncertainty around spec with that being two-thirds of your business today.

Speaker Change #196: Once you are kind of at a normalized run rate of activity that the way youre thinking about the ROE of the business.

Speaker Change #197: I guess just from a high level, your margins dipped a little bit sequentially.

Speaker Change #197: You're off of the recent highs.

Speaker Change #197: Sure well.

Speaker Change #198: Thanks for the question now and I think it's important to.

Speaker Change #199: And also talk about EBIT Aro <unk>, because that has nothing to do with our equity our leverage is pure homebuilding performance and I'm proud to say were the second highest.

Speaker Change #199: Where do you see the margin profile of the business vis-a-vis the third quarter result you just reported with all the moving pieces you've got going on?

Speaker Change #199: Incentives seem pretty steady but elevated.

Speaker Change #199: Pro forma on pure EBIT ROI, we outperformed almost everybody and we definitely outperformed every single one of our mid sized peers. So I'd say, we're proud of and it's not a onetime thing by the way we've been doing that for several years now.

Speaker Change #199: I would imagine land costs are going up.

Speaker Change #199: You still have some price and power in about a third of your communities.

Speaker Change #199: Is this 22% margin kind of like a decent run rate going forward?

So I'd say whatever you feel will be the Aro E.

Speaker Change #199: Or are there mixed considerations or cost considerations that we should think about into the fourth quarter and into 25 that could directionally move that one way or the other?

Speaker Change #199: All of our peers once we get to a comparable debt to cap leverage given our outperformance on EBIT Aro I I'd say, we should end up higher than everyone else owner in a row on a long term basis.

Speaker Change #199: Speaking specifically about the fourth quarter, I think you're pretty much right on that 22%-ish range is where I would think we would be. But that's given the caveats we've talked about, which is similar mortgage rate buy-down costs, et cetera.

Speaker Change #199: From a construction cost perspective, I think we've been...

Assuming we continue our performance as we had been outperforming over the last few years.

Speaker Change #199: I'm holding pretty stable. In fact, we've had some decreases in errands, including some, benefits from lumber, which has helped.

Speaker Change #199: Our land cost, as you pointed out, should, as we open new communities and get deliveries from those new communities, will probably increase because they're newer deals. So that could put some pressure on margins in 2025.

Speaker Change #200: I appreciate it thank you for the thoughts.

Speaker Change #200: On the other hand, if mortgage rates go down, as I think people might anticipate when the, Fed makes their moves, then the cost of buy-downs and perhaps the amount of incentives we have to give will change as well, so to potentially offset that.

Speaker Change #201: So we're not really giving 25 guidance, but I can answer your 24th quarter question by saying that we feel that the 22% range you're talking about is pretty reasonable.

Thanks Alan.

Speaker Change #201: Our next question will come from the line of Jordan Hymowitz with Philadelphia Financial management of San Francisco.

Speaker Change #201: Perfect.

Jordan Hymowitz: And then if I could just squeak in one more here.

Jordan Hymowitz: Thanks, guys couple of questions.

Speaker Change #203: Moodys in their recent note.

Speaker Change #205: You know, Ara, the comments on ROE are, you know, very much appreciated and understood.

Speaker Change #204: Said, they would let the upgrades.

Speaker Change #205: You guys are, you know, the highest in the industry.

Speaker Change #205: Capital got below 50%.

Speaker Change #206: Projection is 42% by the end of this year and unless something goes crazy it'll be in the Thirty's by next year. So I guess my question is when does the next discussion with them.

Speaker Change #207: Does that play a role do you think the only negative as they upgrade to use somewhat recently, but the debt paydown has been so dramatic that could it happen again soon.

Jordan Hymowitz: I think one of the things that, you know, admittedly we struggle with a little bit, and I think it's probably investors do as well, given where your valuation is, is just the fact that, you know, your elevated ROE today obviously is somewhat driven by the book value having been depressed over the last few years. And, you know, it has compressed, you know, a year ago you were at 50%, you know, two years ago, 80%.

Jordan Hymowitz: Just to be clear Jordan that comment they made as a gross debt to cap basis, and a 42% as our net debt to net cap. So it takes the cash and the play so we will be getting close to the 50% to your point.

Jordan Hymowitz: So I'm not asking you to forecast ROE, but I guess, you know, when you think about the business over the next two, three years, you know, the long run in industry average has been somewhere around 15%.

Jordan Hymowitz: And we've had several builders say they think, you know, they're targeting more of a 20% ROE going forward on a sustainable basis.

Jordan Hymowitz: By year end, but I, just don't want you to be confused by the 42%.

Jordan Hymowitz: Is there a way to think about your business over the next three to five years from an ROE standpoint, once the book value has accreted, and once you're kind of at a normalized run rate of activity, the way you're thinking about the ROE of the business?

Speaker Change #208: And so I would be hopeful that certainly during next fiscal year, we're having another conversation about.

Speaker Change #208: Sure.

Jordan Hymowitz: Well, thanks for the question, Alan.

Jordan Hymowitz: Another upgrade.

Jordan Hymowitz: Okay.

Jordan Hymowitz: What's the gross number sorry.

Jordan Hymowitz: Yes.

Jordan Hymowitz: That's helpful.

Jordan Hymowitz: Okay.

Jordan Hymowitz: Thank you for the extra time there.

Jordan Hymowitz: We're looking at we didn't.

Jordan Hymowitz: Prepared ahead of time, so if we grab it in time.

Jordan Hymowitz: I think it's important to also talk about, EBIT ROI, because that has nothing to do with our equity or our leverage.

Jordan Hymowitz: We'll add it will make a comment.

Jordan Hymowitz: Can we extend that that occurs.

Jordan Hymowitz: It is pure home building performance.

Jordan Hymowitz: You put out a bunch of debt than originally it was helping you mean, the age but ends up being in the 10 to 11.

Jordan Hymowitz: A possibility next year you could cause some of that in our refinance at a lower level or their lockouts at that point.

Jordan Hymowitz: It's.

I would say it cost prohibitive as possible by cost prohibitive.

Jordan Hymowitz: Next next year likely unless rates were dramatically lower that we can say more on the on the delta in interest, but it's certainly something that we're going to be paying attention to Jordan, because we think we're getting really close to being able to if not able to do it right now transitioned from secured to unsecured which is something we want to do when we do a more global refi.

Jordan Hymowitz: And I'm proud to say we're the second highest performer on pure EBIT ROI.

Jordan Hymowitz: <unk> in the near future.

Jordan Hymowitz: And so it certainly will be we'll be paying attention to the cost.

Jordan Hymowitz: It's a rate trade off over the coming year on year, and a half I'll say I.

Speaker Change #209: I did get a calculation on the gross debt to cap.

Speaker Change #209: Projection for year end at about 56%. So we still won't be at 50 that will be on our way.

Speaker Change #210: Okay and final question is can you detail any income from the Saudi adventure. When do you think that will start to be an impactful number or any guidance on that in any way.

Speaker Change #210: I would say it's still.

Erik: A couple of years elaborate Erik comment as well, but right now we're just starting.

Speaker Change #212: Two or three new communities, we don't have any that are delivering at the moment. So I would say before there's any real meaningful profit, it's probably late fiscal 'twenty five 'twenty six.

Jordan Hymowitz: Second question, you know, the gross margin range you tightened, but it still implies a pretty, you know, pretty wide range for fourth quarter.

Jordan.

Speaker Change #212: And.

Jordan Hymowitz: A couple of comments to your first question.

Jordan Hymowitz: I know you mentioned the uncertainty around spec, you know, with that being two thirds of your business today.

Jordan Hymowitz: And that is that because we had higher leverage our cost of debt is higher than most of our peers, but our performance has been improving so dramatically and our leverage is improving dramatically that once the <unk>.

Jordan Hymowitz: I guess just from a high level, you know, your margins dipped a little bit sequentially.

Jordan Hymowitz: We outperform almost everybody, and we definitely outperform every single, one of our midsize peers. So I'd say, you know, we're proud. It's not a one-time thing, by the way. We've been doing that for several years now.

Jordan Hymowitz: So I'd say whatever you feel will be the ROE of our peers, once we get to a comparable debt-to-cap leverage, given our outperformance on EBIT ROI, I'd say we should end up higher than everyone else on an ROE on a long-term basis. That's assuming we continue our performance as we've been outperforming over the last few years.

Speaker Change #213: Hi, prepayment costs happen I think we all have a great opportunity to refinance in the future at substantially lower rates that should save us quite a bit of interest compared to what we had been paying our ROE has been outstanding even with the high interest, but I think it will get even better.

Speaker Change #213: I appreciate it.

Speaker Change #213: Thank you for the thoughts.

Speaker Change #213: Okay.

Speaker Change #213: You know, you're off of the recent highs.

Speaker Change #214: Thanks, Alan.

Speaker Change #214: As we have an interest more similar to our peers on top of that the reason we have a big different stream gross debt to cap and net debt to cap is we don't have a large unsecured route.

Speaker Change #214: Our next question will come from the line of Jordan Heimowitz with Philadelphia Financial, Management of San Francisco.

Speaker Change #214: Thanks, guys.

Speaker Change #214: A couple questions.

Speaker Change #214: But your line of credit like our peers I suspect that in the near future, we'll be able to achieve that once we refinance the bonds that will also save substantial dollars because right now we're operating with a big cash cushion that were paying interest on that will.

Speaker Change #214: Moody's, in their recent note, said they would look to, upgrade you if debt-to-capital got below 50 percent. Your own projection is 42 percent by the end of this year, and unless something goes crazy, it'll be in the 30s by next year.

Speaker Change #214: So I guess my question is, when is the next discussion with them?

Speaker Change #215: When does that play a, role?

Speaker Change #215: Well away as we traditionally do it.

Speaker Change #215: Transition to regular financing more like our peers and should substantially enhance our performance.

Speaker Change #215: Do you think – the only negative is they upgraded you somewhat recently, but the debt paydown has been so dramatic that could it happen again soon?

Speaker Change #216: Yeah.

Speaker Change #216: But thats, probably a second half 'twenty five yes sure it sounds like.

Speaker Change #217: Just to be clear, Jordan, that comment they made is a gross debt-to-cap basis, and the 42 percent is a net debt-to-net cap, so it takes the cash into play.

Speaker Change #217: Yeah early 2006, something like that yes, okay.

Speaker Change #217: So we'll be getting close to the 50 percent, to your point, by year-end, but I just don't want you to be confused by the 42 percent.

Speaker Change #219: And so I would be hopeful that certainly during next fiscal year, we're having another conversation about another upgrade.

Speaker Change #217: Okay. Thank you guys.

Speaker Change #219: What's the gross number?

Speaker Change #219: Thank you.

Speaker Change #220: We're looking.

Speaker Change #220: Where do you see the margin profile of the business, you know, vis-a-vis the third quarter result you just reported with all the moving pieces you've got going on.

Speaker Change #220: Our next question will come from the line of Alex Barron with housing Research Center.

Alex Barron: We didn't prepare it ahead of time, so if we, grab it in time, we'll make the comment. Fine.

Alex Barron: You know, incentives seem pretty pretty steady, but elevated.

Alex Barron: Yes, thanks gentlemen.

Alex Barron: I would imagine land costs are going up.

Alex Barron: To the extent that that occurs, you know, you put out a bunch of debt that originally was hoping to be in the H but ends up being in the 10 to 11.

Alex Barron: I wanted to ask about the Phantom share impact is that something that has some termination date or its just ongoing quarter to quarter.

Alex Barron: Is there a possibility next year you could call some of that and refinance at a lower level, or are there lockouts at that point?

Alex Barron: You still have some price and power in about a third of your communities.

Alex Barron: Is this 22% margin kind of like a decent run rate going forward or are there, you know, mixed considerations or cost considerations that we should think about into the fourth quarter and into 25?

Speaker Change #222: It's, I would say cost prohibitive.

Speaker Change #222: That could directly move that one way or the other.

Speaker Change #222: That there are there's been additional grants there's another grant.

Speaker Change #222: The speeding specifically about the fourth quarter, I think you're pretty much right on that 22 percent-ish ranges is where I would think we would be, but that's given the caveat that we've talked about, which is, you know, similar mortgage rate buy-down costs, etc.

Speaker Change #222: December.

Speaker Change #223: This fiscal year with Phantom share so there'll be some impact.

Speaker Change #222: From a construction cost perspective, I think we've been holding pretty stable, and we've had some decreases in areas, including some benefits from Lumber, which has helped our land cost, as you pointed out, but should, as we open new communities and get the leverage on those things, we'll probably increase from, because our newer deals, so that could put some pressure on margins in 2025.

Speaker Change #222: On the other hand, if mortgage rates go down, as, you know, I think people might anticipate when the Fed makes their moves, then the cost of buy-downs, and perhaps the amount of incentives we have to give will change as well, so potentially offset that.

Speaker Change #224: Going forward and obviously each quarter, we are providing that in the appendix that you can see what the impact is.

Speaker Change #222: So we're not really given 25 guidance, but I can answer your 24 quarter, 24 question by saying that, so we feel that the 22 percent range we're talking about is pretty reasonable.

Speaker Change #225: This quarter was the 2.2 dollars 2 million.

Speaker Change #222: Perfect, and then if I can just squeak in one more here.

Speaker Change #225: We're just trying to highlight that for everybody but.

Speaker Change #225: It can be very little if the stock price doesn't change. The good news is in this particular quarter that means the stock price went up significantly and that's why it was a $2 2 million.

Speaker Change #222: You know, the comments on ROE are, you know, very much appreciated and understood, you guys are, you know, at the highest in the industry.

Speaker Change #222: I think one of the things that, you know, admittedly, we struggle with a little bit, and I think it's probably investors do as well, given where your valuation is, is just the fact that, you know, you're elevated ROE today, obviously.

Speaker Change #222: It's somewhat driven by the book value, having been depressed over the last few years, and, you know, it has compressed, you know, a year ago, you were at 50 percent, you know, two years ago, 80 percent.

Speaker Change #225: Impact but.

Speaker Change #225: It's something that we will have going forward.

Speaker Change #222: So I'm not asking you to forecast ROE, but I guess, you know, when you think about the business over the next two, three years, you know, the long run industry average has been somewhere around 15 percent, and we've had several builders say they think, you know, they're targeting more of a 20 percent ROE going forward on a sustainable basis.

Speaker Change #226: And I'll add.

Speaker Change #225: I had mentioned.

Speaker Change #225: The quarter by quarter impact is in the appendix. It just hasnt been there and we will continue but it's just not a substantial number.

Speaker Change #222: Is there a way to think about your business over the next three to five years from an ROE standpoint?

Speaker Change #222: Once the book value has accreted, and once you're kind of at a normalized run rate of activity, the way you're thinking about the ROE of the business.

Speaker Change #225: The other quick comment to make Alex as we've looked it at that.

Alex Barron: The impact from an earnings perspective under the scenarios, where the stock price, increasing even pretty dramatically and it's still actually better for the shareholders because of the dilution that would have occurred had you done shares would actually be more impactful than the earnings hit so it's something we pay attention to.

Speaker Change #222: Sure.

Speaker Change #222: Well, thanks for the question now, and I think it's important to also talk about EBIT ROI, because that has nothing to do with our equity or our leverage.

When we've given some phantom shares so.

Speaker Change #227: Okay got it.

Speaker Change #229: It's possible, but cost prohibitive next, next year likely, unless rates were dramatically lower that we could save more on the on the Delta in interest, but it's certainly something we're going to be paying attention to, Jordan, because we think we're getting really close to being able to, if not able to do it right now, transition from secure to unsecured, which is something we want to do when we do a more global refinancing in the near future, and so it certainly will be we'll be paying attention to the cost-to-rate trade-off over the coming year to year and a half, I'll say.

Speaker Change #228: And then.

Speaker Change #229: It looked to me like the Bally.

Balance came down a little bit this quarter did you guys paid down some debt.

Speaker Change #229: I did get the calculation on the gross debt-to-cap projection for year-end at around 56%, so we still won't be at 50, but we'll be on our way.

Speaker Change #230: Okay, and final question is, can you detail any income from the Saudi venture?

Speaker Change #230: When do you think that will start to be an impactful number, or any guidance on that in any way?

Speaker Change #230: We did the.

Speaker Change #230: We talked about it in the <unk>.

Speaker Change #231: Our second quarter call, but the debt exchange that we did actually happened in may So it was a third quarter event.

Speaker Change #231: I would say it's still a couple years away, and I can have Eric comment as well, but, right now we're just starting two or three new communities.

Speaker Change #231: We don't have any that are delivering at the moment, so I would say before there's any real meaningful profit, it's probably late fiscal 25, early 26.

Speaker Change #231: So thats what Youre seeing is the change in the debt we did.

Speaker Change #231: Jordan, I'll add a couple of comments to your first question, and that is that because we had higher leverage, our cost of debt is higher than most of our peers, but our performance has been improving so dramatically, and our leverage is improving dramatically, that once the high prepayment costs happen, I think we'll have a great opportunity to refinance in the future at substantially lower rates. That should save us quite a bit of interest compared to what we've been paying.

Speaker Change #231: That restructuring back in May.

Speaker Change #231: Our ROE has been outstanding even with the high interest, but I think it'll get even better as we have an interest more similar to our peers.

Speaker Change #231: Hello, Okay got it.

Speaker Change #231: On top of that, the reason we have a big difference between gross debt to cap and net debt to cap is we don't have a large unsecured revolving line of credit like our peers. I suspect that in the near future we'll be able to achieve that once we refinance the bond. That will also save substantial dollars because right now we're operating with a big cash cushion that we're paying interest on. That will go away as we transition to regular financing more, like our peers and should substantially enhance our performance.

And then as it pertains to the deferred tax asset on your balance sheet.

Speaker Change #232: But that's probably a second half 25 issue, it sounds like.

Speaker Change #232: That's been obviously coming down is you're using it.

Speaker Change #233: Yeah, early 26, something like that.

Speaker Change #233: You guys have anticipated number of years. It will take before that goes away is that couple of years or three years of faster I mean, the way to think about that is I think we said with what $900 million of pre tax earnings Thats protected by the deferred tax asset at this point and so for this.

Speaker Change #233: Yeah.

Speaker Change #233: Okay.

Speaker Change #233: Thank you, guys.

Speaker Change #233: Thank you.

This year, we're projecting 300 ish million of pre tax.

Speaker Change #233: Our next question will come from the line of Alex Barron with Housing Research Center.

Speaker Change #233: At that run rate if we stay at that run rate is three years, we would hope given the growth, we're anticipating and what we've been talking about our growth in Canadian County, our profit will go up so maybe its a little less than three years something in the two two to two and a half year timeframe.

Speaker Change #233: Yeah, thanks, gentlemen.

Speaker Change #233: I wanted to ask about the phantom share impact.

Speaker Change #233: Is that something that has some termination date or it's just ongoing quarter to quarter?

Speaker Change #233: There's been additional grants.

Speaker Change #233: Okay.

Speaker Change #234: There's another grant in December of this fiscal year with phantom share.

Speaker Change #233: And.

Speaker Change #234: Given how cheap your stock was on a p/e basis have you guys.

Speaker Change #235: So there will be some impact going forward.

Speaker Change #235: Buying back stock or is there something that you districts because we did buy back shares in the quarter, we didn't talked about it briefly we spent.

Speaker Change #235: And, obviously, each quarter we're providing that in the appendix just so you can see what the impact is.

Speaker Change #235: This quarter was the $2.2 million.

Speaker Change #235: You know, we're just trying to highlight that for everybody.

Speaker Change #236: But it can be very little if the stock price doesn't change.

Speaker Change #236: $11 million 11 million at an average price of $139 during the quarter and we still have some availability under the board approval for buybacks. So when when we think it's opportune.

Speaker Change #236: To do it we'll certainly look at it.

Speaker Change #237: Okay guys best of luck. Thank you.

Speaker Change #238: The good news is in this particular quarter that means the stock price went up significantly, and that's why it was a $2.2 million impact.

Speaker Change #238: It is pure, home building performance, and I'm proud to say we're the second highest performer on pure EBIT ROI. We outperform almost everybody, and we definitely outperform every single one of our mid-sized peers.

Speaker Change #237: Okay.

Speaker Change #238: I'll add one other comment on that.

Speaker Change #238: The tax benefit.

Speaker Change #239: But it's something that we will have going forward.

Speaker Change #239: While the.

Speaker Change #241: Third tax asset.

Speaker Change #241: We will be decreasing because we're earning so much.

Speaker Change #241: And I'll add, as Brad mentioned, the quarter-by-quarter impact is in the appendix.

Speaker Change #241: It just hasn't been.

Speaker Change #241: We are active in the energy tax benefits from the energy efficient homes, we build.

Speaker Change #241: It's there and will continue, but it's just not a substantial number, a couple of millions.

Speaker Change #241: And that is something I think we're increasingly focused on so we will have some advantages going forward even after the.

Speaker Change #241: The other quick comment to make, Alex, is we've looked at that, the impact from an earnings perspective, under scenarios with stock price increasing even pretty dramatically, and it's still actually better for the shareholders because the dilution that would have occurred had you done shares would actually be more impactful than the earnings hit.

Speaker Change #241: NOI deferred tax benefit goes away.

Speaker Change #241: So it's something we've paid attention to when we've given some phantom shares.

As a reminder, if you'd like to ask a question at this time. Please press star one on your Touchtone telephone.

Speaker Change #241: Okay, got it.

Speaker Change #241: And then it looked to me like the debt balance came down a little bit this quarter.

Speaker Change #241: I'm showing no further questions in queue at this time I'd like to turn the call back to Ara Hovnanian for closing remarks.

Speaker Change #241: Did you guys pay down some debt?

Ara Hovnanian: Yes.

Ara Hovnanian: We talked about it in our second quarter call, but the debt exchange that we did actually happened in May, so it was a third-quarter event. So that's what you're seeing is the change in the debt. We did a debt restructuring back in May.

Ara Hovnanian: Thank you very much and we enjoyed the questions.

Ara Hovnanian: Okay, got it.

Ara Hovnanian: So I'd say, you know, we're proud.

We're excited about the future and we look forward to reporting our fabulous fourth quarter as well.

Ara Hovnanian: And then as it pertains to the deferred tax asset on your balance sheet, that's been obviously coming down as you're using it.

Ara Hovnanian: It's not a one-time thing, by the way.

Speaker Change #242: Do you guys have an anticipated number of years it will take before that goes away?

Ara Hovnanian: <unk>.

Speaker Change #242: Is it a couple years or three years or faster than that?

Speaker Change #242: We've been doing that for several years now.

Speaker Change #242: I mean, the way to think about that is I think we said it's, what, $900 million of free tax earnings that's protected by the deferred tax asset at this point. And so this year we're projecting $300-ish million of free tax.

Speaker Change #242: This concludes our conference call for today. Thank you all for participating and have a nice day all parties may now disconnect.

Speaker Change #242: So at that run rate, if we stay at that run rate, it's three years.

Speaker Change #242: So I'd say whatever you feel will be the ROE of our peers, once we get to a comparable debt to cap leverage, given our outperformance on EBIT ROI, I'd say we should end up higher than everyone else on an ROE on a long-term basis.

Speaker Change #242: We would hope, given the growth we're anticipating, and we've been talking about our growth and community count, our profit will go up.

Speaker Change #242: So maybe it's a little less than three years, something in the two- to two-and-a-half-year time frame.

Speaker Change #242: Okay.

Speaker Change #242: Thank you.

Speaker Change #242: That's assuming we continue our performance as we've been outperforming over the last few years.

Speaker Change #242: And, you know, given how cheap your stock is on a PE basis, have you guys considered buying back stock?

Speaker Change #242: Thank you for the boss.

Ara Hovnanian: Or is there something that restricts you from doing that?

Ara Hovnanian: Our next question will come from the line of Jordan Hymowitz with Philadelphia Financial Management of San Francisco.

Ara Hovnanian: We did buy back shares in the quarter.

Ara Hovnanian: Thanks, guys.

Ara Hovnanian: We talked about it briefly. We spent $11 million at an average price of $139 during the quarter, and we still have some availability under the board approval for buybacks. So when we think it's opportune to do it, we'll certainly look at it.

Ara Hovnanian: Yes.

Ara Hovnanian: A couple of questions.

Ara Hovnanian: Okay guys, best of luck.

Ara Hovnanian: Moody's in their recent note said they would look to upgrade you at the Capitol, got below 50%.

Ara Hovnanian: Your own projection is 42% by the end of this year, and unless something goes crazy, it'll be in the 30s by next year.

Ara Hovnanian: So I guess my question is, when is the next discussion with them?

Ara Hovnanian: When does that play a role?

Ara Hovnanian: Do you think the only negative is they upgraded you somewhere recently?

Ara Hovnanian: But the red debt paid out has been so dramatic that could it happen again soon?

Ara Hovnanian: Yeah, just to be clear, Jordan, that comment they made is a gross debt to cap basis, and the 42% is a net debt to net cap, so it takes the cash into play.

Ara Hovnanian: So, you know, we'll be getting close to the 50% to your point by year end, but I just don't want you to be confused by the 42%.

Ara Hovnanian: And so I would be hopeful that certainly during next fiscal year, we're having another conversation about another upgrade.

Ara Hovnanian: What's the gross number?

Ara Hovnanian: Sorry, isn't it up here?

Ara Hovnanian: We're looking, we didn't prepare it at a time, so if we grab it in time, we'll make the comment.

Ara Hovnanian: Fine, to the extent that that occurs, you know, you put out a bunch of debt that originally was hoping to be in the age, but ends up being in the tender 11.

Ara Hovnanian: Is that a possibility next year?

Ara Hovnanian: You could call some of that and refinance at a lower level, or their log out to that point.

Ara Hovnanian: It's, I would say cost prohibitive, it's possible, but cost prohibitive next year, likely in less rates, we're dramatically lower than we could say more on the delta in interest, but it's certainly something we're going to be paying attention to, Jordan, because we think we're getting really close to being able to.

Ara Hovnanian: If not able to do it right now, transition from secured to unsecured, which is something we want to do when we do one global refinancing in the near future.

Ara Hovnanian: And so it certainly will be, we'll be paying attention to the cost to rate trade off over the coming year to year and a half, I'll say.

Ara Hovnanian: I did get the calculation on the gross debt to cap projection for your end at about 56%.

Ara Hovnanian: So we still won't be at 50, but we'll be on our way.

Ara Hovnanian: Okay, and final question is, can you detail any income from the Saudi venture?

Ara Hovnanian: When do you think that will start to be an impactful number or any guidance on that in any way?

Ara Hovnanian: I would say it's still a couple of years away, I'm making an error comment as well, but right now we're just starting two or three new communities, we don't have any that are delivering at the moment.

Ara Hovnanian: So I would say before there's any real meaningful profit, it's probably late fiscal 25 or early 26.

Ara Hovnanian: Jordan, I'll add a couple of comments to your first question, and that is that because we had higher leverage, our cost of debt is higher than most of our peers, but our performance has been improving so dramatically and our leverage is improving dramatically.

Ara Hovnanian: That once the high pre-payment costs happen, I think we'll have a great opportunity to refinance in the future at substantially lower rates that should save us quite a bit of interest compared to what we've been paying.

Ara Hovnanian: Our ROE has been outstanding even with the high interest, but I think it'll get even better as we have an interest more similar to our peers.

Ara Hovnanian: On top of that, the reason we have a big difference between gross debt to cap and net debt to cap is we don't have a large, unsecured, evolving line of credit like our peers.

Ara Hovnanian: I suspect that in the near future we'll be able to achieve that once we refinance the bond that will also save substantial dollars, because right now we're operating with a big cash cushion that we're paying interest. That will go away as we transition to regular financing more like our peers and should substantially enhance our performance.

Ara Hovnanian: I bet that's probably a second half, 25 as you would sound like.

Ara Hovnanian: Yeah, early 26.

Ara Hovnanian: Something like that.

Ara Hovnanian: Yeah.

Ara Hovnanian: Okay.

Ara Hovnanian: Thank you guys.

Ara Hovnanian: Thank you.

Ara Hovnanian: Our next question will come from a line of Alex Barron with Housing Research Center.

Ara Hovnanian: Yeah.

Ara Hovnanian: Thanks, gentlemen.

Ara Hovnanian: I wanted to ask about the Phantom Share impact.

Ara Hovnanian: Is that something that has some termination data?

Ara Hovnanian: It's just ongoing quarter to quarter.

Ara Hovnanian: There's been additional grants in December of this fiscal year with Phantom Share.

Ara Hovnanian: So there'll be some impact going forward.

Ara Hovnanian: And obviously each quarter we're providing that in the appendix just so you can see what the impact is.

Ara Hovnanian: This quarter was the 2.2 million.

Ara Hovnanian: We're just trying to highlight that for everybody, but it can be very little.

Ara Hovnanian: If the stock price doesn't change, the good news is in this particular quarter, that means the stock price went up significantly.

Ara Hovnanian: That's why it was a 2.2 million in fact, but it's something that we will have going forward.

Ara Hovnanian: And I'll add, as Brad mentioned, the quarter by quarter impact is in the appendix.

Ara Hovnanian: It just hasn't been, it's there and will continue, but it's just not a substantial number.

Ara Hovnanian: A couple of reasons.

Ara Hovnanian: Yeah, the other quick comment to make Alex is we've looked at that.

Ara Hovnanian: The impact from an earnings perspective under the scenarios was stock price increasing even pretty dramatically.

Ara Hovnanian: And it's still actually better for the shareholders because the dilution that would have occurred had you done shares would actually be more impactful than the earnings hit.

Ara Hovnanian: So it's something we paid attention to when we've given some financial shares.

Ara Hovnanian: Okay, got it.

Ara Hovnanian: And then it looked to me like that yet balance came down a little bit.

Ara Hovnanian: Is this quarter that you guys paid down some debt? Yes, we did the, we talked about it in the our second quarter call, but the debt exchange that we did actually happened in May.

Ara Hovnanian: So it was a third quarter event.

Ara Hovnanian: So that's what you're seeing is the change in the debt.

Ara Hovnanian: We did a debt restructuring back in May.

Ara Hovnanian: Oh, okay, got it.

Ara Hovnanian: And then it pertains to the, the perk tax asset on your balance sheet.

Ara Hovnanian: That's been obviously coming down as you're using it.

Ara Hovnanian: Do you guys have a anticipated number of years it will take you for that goes away that couple years or three years or.

Ara Hovnanian: I mean, the way to think about that is, I think we said it's what 900 million of free tax earnings that's protected by the deferred tax asset at this point. And so if we're, you know, this year we're projecting 300 ish million of pre tax.

Ara Hovnanian: So at that run rate, if we stay at that run rate, three years, we would hope given the growth we're anticipating.

Ara Hovnanian: And when we've been talking about our growth and community account, our profit will go up.

Ara Hovnanian: So maybe it's a little less than three years, something into two, two to two and a half year timeframe.

Ara Hovnanian: Okay.

Ara Hovnanian: And, you know, given how cheap your stock is on a PE basis, have you guys considered buying back stock?

Ara Hovnanian: Or is there something that restricts?

Ara Hovnanian: We did buy back shares in the quarter.

Ara Hovnanian: We didn't we talked about it briefly.

Ara Hovnanian: We spent 11 million and an average price of $139 during the quarter.

Ara Hovnanian: And we still have some availability under the border approval for buy back.

Ara Hovnanian: So when, you know, when we think it's opportune to do it, we'll certainly look at.

Ara Hovnanian: I'll add one of the comment on the tax benefit while the deferred tax asset will be decreasing because we're earning so much.

Ara Hovnanian: We are active in the energy tax benefits from the energy efficient homes we build and that is something I think we're increasingly focused on.

Ara Hovnanian: So we will have some advantages going forward even after the NOI deferred tax benefit goes away.

Ara Hovnanian: As a reminder, if you'd like to ask a question at this time, please press star 1-1 on your touch on telephone.

Ara Hovnanian: I'm showing no further questions in Q at this time.

Ara Hovnanian: I'd like to turn the call back to Ara Hovnanian for closing remarks.

Ara Hovnanian: Thank you very much.

Ara Hovnanian: We enjoyed the questions.

Ara Hovnanian: We're excited about the future and we look forward to reporting a fabulous fourth quarter as well.

Ara Hovnanian: Thank you.

Ara Hovnanian: This concludes our conference call for today.

Ara Hovnanian: Thank you all for participating and have a nice day.

Ara Hovnanian: All parties may now disconnect.

Ara Hovnanian: [inaudible] Good morning.

Ara Hovnanian: Good morning.

Ara Hovnanian: [inaudible] Good morning.

Ara Hovnanian: Good morning.

Ara Hovnanian: [inaudible] Jordan.

Ara Hovnanian: Joining me today are Ara Hovnanian, Chairman, President and CEO, Brad OConnor, CFO and Treasurer, and David Miterson, Vice President Corporate Controller.

Ara Hovnanian: I'll now turn the call over to Ara.

Ara Hovnanian: Thanks, Jeff.

Ara Hovnanian: I'm going to review our third quarter results, and I'll also comment on the current housing environment.

Ara Hovnanian: Brad or CFO will follow me with more details, and of course, we'll open up for a question and answers afterwards.

Ara Hovnanian: Let me begin on slide five.

Ara Hovnanian: Here we show our third quarter of guidance compared to our actual results. Starting on the top of the slide, revenues were $723 million, which was right at the midpoint of our guidance. Our adjusted S-GNA ratio was 12.4%.

Ara Hovnanian: This was just above the high end of a guidance we gave.

Ara Hovnanian: If you ignore the $2.2 million impact from the incremental phantom stock expense, which is solely due to stock price increases, our S-GNA would have been 12.1%, which is slightly above the top end of the range we gave. One of the reasons our S-GNA is running a little high is that we're gearing up for a significant community count growth, and we have to make new hires well in advance of those communities. In addition, there are other expenses related to preparing for community count growth.

Ara Hovnanian: Another contributor to higher than usual S-GNA is an increase in our advertising spend.

Ara Hovnanian: Adjusted EBITDA was $131 million for the quarter, which is significantly above the high end of the range that we gave.

Ara Hovnanian: Finally, our adjusted pre-tax income was $100 million, which is also significantly better than the high end of the range that we gave. We're obviously pleased that our profitability exceeded our guidance for the quarter.

Ara Hovnanian: Slide 6, we here we show our results compared to last year's third quarter.

Ara Hovnanian: Starting in the upper left hand quadrant of the slide, you can see that due to an increase in deliveries, a higher average sales price and the land sale and Phoenix, our total revenues increased 11% to $723 million.

Ara Hovnanian: In the upper right hand portion of the slide, you can see that our growth margin decreased year of year to 22.1%. On a sequential basis, we also decreased slightly from 22.6% to 22.1% in the second quarter of 24.

Ara Hovnanian: Our results for the quarter were within the range of guidance that we gave.

Ara Hovnanian: We recognized in advance that there was a risk of seeing a year of a year decrease in growth margin given the previous movements and mortgage rates and more specifically the cost to buy down those rates.

Ara Hovnanian: The good news is that with the more recent declines and mortgage rates, the cost to offer mortgage rate buy downs in the future may decrease for us in the future.

Ara Hovnanian: Moving to the bottom left hand portion of the slide, you can see that our adjusted EBITDA increased 20% to $131 million in this year's third quarter.

Ara Hovnanian: Finally, in the bottom right hand portion of the slide, adjusted pre-tax profit increased 34% to $100 million.

Ara Hovnanian: I know new orders have been a focus of many analysts that follow home builders, so I'm going to discuss contracts in much greater detail this time.

Ara Hovnanian: Turning to slide 7, if you start at the top of the table, you can see that our year-to-date contracts increased 8% for the first nine months of the year.

Ara Hovnanian: However, as we break it down by quarter, you can see that it's been choppy. Contracts increased significantly in the first quarter when we were up 43%. In the second quarter, contracts were up 9%, and in the third quarter, contracts declined 13%. However, during the last five weeks, which we share with the bottom of the table, trends have improved substantially, and our total contracts increased 23% over the same five weeks a year ago.

Ara Hovnanian: Even though contracts have been choppy, we feel very good about demand overall, and I'll describe in a little more detail contracts in the upcoming moments.

Ara Hovnanian: If you turn to slide 8, you can see contracts per community for the third quarter decreased year over year to 9.5.

Ara Hovnanian: There are a couple of things on the slide I want to point out.

Ara Hovnanian: First of all, 9.5 contracts per community that we achieve this year is close to our third quarter average of 9.9 contracts per community historically.

Ara Hovnanian: Secondly, last year's 14.2 contracts per community was the second best third quarter of contracts per community over the past 20 years.

Ara Hovnanian: You can also see on the slide in the third quarter of 20 with the COVID surge, our contracts per community were at 19 in unbelievably high level, but last year's 14.2 is still a very tough comparison.

Ara Hovnanian: The third point I want to make is that the timing of the increase in our community count in the quarter hurts the calculation of contracts per community. That's because half of the community count increase occurred in July the last month of our quarter, so you don't get the benefit of a full month of contract from those new communities much less the benefit during the full quarter.

Ara Hovnanian: Finally, some of our outperformance in last year's third quarter was due to a high level of build for rent contracts. The 23 third quarter was the quarter that had the most build for rent contracts since we began selling to this type of buyer. 259 build for rent contracts, all of them happened to be in the South East segment during the quarter.

Ara Hovnanian: And it totally there seemed to be some hesitancy from home buyers during the third quarter, causing some of the choppiness in sales that I referred to similar to what other home builders have been reporting. It's difficult to pinpoint cause of the choppiness, but economic mortgage rate and geopolitical uncertainty were likely partially responsible.

Ara Hovnanian: Furthermore, we had extended disruption from Hurricane Burrell across our Texas operations in particular, which is one of our single largest states by deliveries. Both our Houston and Dallas offices and many of our associates were without power for the better part of a week during the critical last month of the quarter.

Ara Hovnanian: This hurt sailed and delivered.

Ara Hovnanian: As you'll see in a moment, sales have jumped back in a very strong manner in recent weeks.

Ara Hovnanian: If you turn to slide 9, we show interest rate trends.

Ara Hovnanian: The gray line on this slide shows what happened to interest rates last year between July 22 and August of 23.

Ara Hovnanian: During this period, whenever rates decline, after a little delayed reaction, we eventually saw a pickup in sales.

Ara Hovnanian: The blue line shows what happened with mortgage rates during this past year between July of 23 and August of 24.

Ara Hovnanian: For most of the time, Schum, they coincidentally followed a very similar pattern of monthly increases and decreases just at slightly higher rates this year.

Ara Hovnanian: Over the past few weeks, we've seen mortgage rates reduced to lower levels. Whenever mortgage rates come down, there are more potential buyers, obviously, that can qualify for mortgages. For the first time in a while, mortgage rates are actually lower now than they were last year.

Ara Hovnanian: We've already seen the benefits of the lower rates.

Ara Hovnanian: If you turn to slide 10, we show that over the past five weeks, contracts have increased 23 percent compared to the same weeks a year ago. This improved trend suggests that home buyers have already reacted positively to the recent decreasing mortgage rate environment.

Ara Hovnanian: In addition, web traffic continues to be very strong.

Ara Hovnanian: As a matter of fact, the last four weeks were better than the same weeks going all the way back to 2019 with the exception of the COVID surge in August of 2020.

Ara Hovnanian: In the last week, however, we actually matched the robust web site visit levels that we hit in that peak time in August 2020.

Ara Hovnanian: That leading indicator makes me particularly optimistic about future demand.

Ara Hovnanian: On slide 11, we give even more granularity and shows trend of monthly contracts per community. Compared to the same months a year ago.

Ara Hovnanian: Here you can see the impact of build for rent on the contracts in the month of June this year compared to last year.

Ara Hovnanian: Again, we have seen the sales trend change to very positive comparisons over the last five weeks.

Ara Hovnanian: Turning to slide 12, we show our contracts per community as of the 12 months ended in June 30th of 24 and that way we can compare our results to our peers that report contracts per community on our calendar quarter ends.

Ara Hovnanian: At 42 contracts per community, our trailing 12 month sales pace per community is the fourth highest among the public home builders that reported for this time period.

Ara Hovnanian: On slide 13, you can see that our year-over-year growth in contracts per community for that same period was also the fourth highest among our peers.

Ara Hovnanian: What we're trying to illustrate on these last two slides is even though sales in this most recent quarter were choppy, we're still selling an above average number of homes compared to our peers.

Ara Hovnanian: On the top of slide 14, you can see that for a sizeable percentage of our deliveries, home buyers continued to utilize mortgage rate buy-downs.

Ara Hovnanian: The percentage of customers that used buy-downs this year was 71% in the third quarter compared to 73% in the second quarter and 79% in the first quarter.

Ara Hovnanian: The bottom of the slide gives more granularity, we show monthly trends over the same period.

Ara Hovnanian: Since the beginning of the year, the buy-down usage in our deliveries has averaged 74% which seems to indicate home buyers have been consistently relying on mortgage rate buy-downs to combat affordability at the current mortgage rate levels.

Ara Hovnanian: Given the relatively high mortgage rate environment, we assume buy-downs will remain at similar levels going forward.

Ara Hovnanian: We are budgeting the cost of buy-downs to remain constant, however, the cost of buy-downs may decrease with the decline in mortgage rates that we've seen recently.

Ara Hovnanian: In order to meet home buyers' desires to use mortgage rate buy-downs, elevated levels of quick moving homes or QMI's, as we call them, remain part of our new operating philosophy in the last few years. On slide 15, we show that we had 8 QMI's per community at the end of the third quarter.

Ara Hovnanian: It remains at a high level, but we're very comfortable with that level. Furthermore, due to the increase in community count in the quarter, it's not surprising to see that our finished QMI's increased to 192 finished homes on a per community basis that puts us at 1.5 finished QMI's per community. That's up slightly from 1.3 finished QMI's per community at the end of the second quarter, but it's lower than 1.9 finished QMI's at the end of our first quarter.

Ara Hovnanian: Our goal with QMI's is obviously to sell them before completion. In the third quarter of 24, QMI's sales were about 67% of our total sales, a slight increase from 65% in the second quarter of 24.

Ara Hovnanian: Historically, that percentage was about 40%, so obviously demand for these homes is still high.

Ara Hovnanian: We'll continue to manage our QMI's at a community level. We track our start schedule per community with our current sales pace per community to make sure we don't get too far ahead of ourselves.

Ara Hovnanian: If you move to slide 16, you can see that even with the choppiness and the third quarter of sales, we're still able to raise net prices in 33% of our community, ities.

Ara Hovnanian: Despite the choppiness, the current level of demand should support the growth that we hope to achieve over the next several years.

Ara Hovnanian: I'll now turn it over to Brad OConnor, our chief financial officer.

Ara Hovnanian: Thank you, Ara.

Ara Hovnanian: Before I get to the next slide, I want to comment on the other income line on our income statement.

Ara Hovnanian: During the third quarter of 24, we assume control of one of our unconsolidated joint ventures after our partner received their final cast distribution, but before the communities were finished. Under gap, we were required to consolidate the joint venture at fair value, and based on the exceptionally strong performance of these communities, we recorded a $46 million gain in the other income and expense line upon consolidation. Even after this stepped up value, we now have a high performing, wholly owned community that is projected to achieve an IRR in excess of 20% and provides significant profits for the next few years.

Ara Hovnanian: Similarly, in the third quarter of 23, we recorded a $19 million gain in the other income and expense line upon consolidation of a different joint venture.

Ara Hovnanian: This could happen again in future reporting periods when final cast distributions to the partners are made on existing and future new joint ventures.

Ara Hovnanian: Now getting back to the slides.

Ara Hovnanian: On slide 17, you can see that we ended the quarter with a total of 146 open for sale communities, a 20% increase from last year.

Ara Hovnanian: 126 of those communities were wholly owned. During the third quarter, we opened 22 new wholly owned communities sold out of 10 wholly owned communities, transitioned six communities from a joint venture to wholly owned and contributed one community to a joint venture.

Ara Hovnanian: We also opened four new unconsolidated joint venture communities and closed two unconsolidated joint venture meetings during the quarter.

Ara Hovnanian: The total community count of 146 was also up 11% or 14 communities sequentially from the end of the second quarter of fiscal 24.

Ara Hovnanian: As there are mentioned, half of those 14 community openings took place in the month of July.

Ara Hovnanian: The financial benefits of these new communities will begin in subsequent quarters. Even with the robust growth and community count this quarter, we still experience delays in opening new communities, primarily due to utility lookups throughout the country.

Ara Hovnanian: We expect community counts to continue to grow further on the fourth quarter at fiscal 25, predicting community count to be challenging given a variety of factors. The leading indicator for further community count growth is shown on slide 18. We ended the quarter with 39,516 controlled lots which equates to a 7.7 year supply of controlled lots.

Ara Hovnanian: Our count increased 7% sequentially and 34% year over year.

Ara Hovnanian: If you include lots from our unconsolidated joint ventures, we now control 42,580 lots. We added 4,800 lots in 57 communities during the third quarter.

Ara Hovnanian: Our land teams are actively engaging with land sellers and negotiating for new land parcels that meet our underwriting standards. Our land and land development spent increased 28% year over year to 216 million in the third quarter of fiscal 24. This brings the latest four quarter average to $224 million a quarter.

Ara Hovnanian: The last four quarters in a row is higher than typical levels of land and land development spent.

Ara Hovnanian: Our Corporal Land Committee counter continues to be busy, which is an indication that our lot counts your continuity increase over time, but not always in a straight line.

Ara Hovnanian: We are using current home prices, including the current level of mortgage rate buy downs, current construction costs and current sales pace, to underwrite to a 20% plus internal rate of return.

Ara Hovnanian: Our underwriting standards automatically self-adjusts to any changes in market conditions.

Ara Hovnanian: We are finding many opportunities in our markets and are very focused on growing our top and bottom lines for the long term.

Ara Hovnanian: The growth in last control proceeds growth in community account, which proceeds growth in deliveries. On slide 19, we share the percentage of our lots controlled via option increased from 46% in the third quarter of fiscal 2015 to 82% in the third quarter of fiscal 24.

Ara Hovnanian: This is the highest percentage of option loss we have ever had.

Ara Hovnanian: This increase is intentional and has been a consistent focus of our land-like, highest inventory turnover land strategy.

Ara Hovnanian: We are pleased with the progress we have made.

Ara Hovnanian: 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.

Ara Hovnanian: On slide 21, compared to our peers, we are tied for the second highest inventory turnover rate. High inventory turns are a key component of our overall strategy.

Ara Hovnanian: We believe we have opportunities to continue to increase our use of land options and to further improve our terms on inventory and future periods. Another way to improve our inventory terms is by shortening our construction cycle times. We made good progress in reducing our cycle times from 190 days at the peak during COVID to 160 days in the last half of 23. Our cycle times remained around 160 days for the first two quarters of 24, but during the third quarter of 24, we were able to shorten the average cycle time by another 10 days to about 150 days.

Ara Hovnanian: We still have some work ahead of us to get back to pre-pandemic cycle times in about four months or 120 days, but we are making substantial progress. Returning to our normal cycle time should significantly boost our ROI and ROE.

Ara Hovnanian: Turning to slide 22, even after spending $216 million in land and land development, $32 million on debt reduction and $11 million to repurchase stock, we still ended the third quarter with $250 million of liquidity just above the high end of our target and liquidity range.

Ara Hovnanian: We are much closer to our goal of being fully invested, which reduces the interest burden of any excess cash and puts all of our capital to work.

Ara Hovnanian: Turning now to slide 23, this slide shows our maturity ladder as of July 31, 2024. This is reflective of the exchange we did at the beginning of the third quarter, which lowered the face value of our debt by $75 million reduced our annual cash interest by $4.6 million and our annual interest expense by approximately $8.5 million.

Ara Hovnanian: This was the most recent example of the steps we had taken to improve our maturity ladder over the past several years.

Ara Hovnanian: We are still committed to further strengthening our balance sheet. Turning to slide 24, we show the progress we have made to date to grow our equity and reduce our debt. Starting on the upper left hand part of the slide, we show the growth and equity over the past few years as well as the year-end projected equity, assuming the midpoint of our guidance.

Ara Hovnanian: On the upper right hand part, we show the growth and equity of our equity and reduce We reduced our debt by $669 million since the beginning of fiscal 20.

Ara Hovnanian: On the bottom of this slide you can see that our net debt to net cap at the end of the third quarter was 55.9%, which is a significant improvement from our 146.1% at the beginning of fiscal 20. Using the midpoint of our guidance and assuming we have cash at the same level we've finished last year, we expect to end the year with net debt to net cap of 42%.

Ara Hovnanian: We still have more work to do to achieve our goal of a mid 30% level.

Ara Hovnanian: We are comfortable that we have a path to achieve our target soon. We've made considerable progress which is evident by the credit rating upgrades we received from both S&P Global and Moody's during our third quarter of 24.

Ara Hovnanian: Our balance sheet has improved significantly over the last five years and we expect to continue to make no more of the progress moving forward.

Ara Hovnanian: Given our remaining $258 million of the first tax assets, we will not have to pay federal income taxes on approximately $900 million of future pre-tax earnings. This benefit will continue to significantly enhance our cash loan years to come and will accelerate our growth plans as well as our ability to pay down debt.

Ara Hovnanian: Our financial guidance for the full year of 24 seems no adverse changes in current market conditions including no further deterioration in our supply chain or material increases in mortgage rates and inflation or cancellation rates.

Ara Hovnanian: Our guidance assumes continued extended construction cycle times averaging five months compared to our pre-COVID cycle time for construction in approximately four months.

Ara Hovnanian: It also assumes that we continue to be more reliant on QMI sales which makes forecasting gross margins more difficult.

Ara Hovnanian: Our guidance assumes continued use of mortgage rate by down similar to recent months.

Ara Hovnanian: Further it excludes any impact to SG&A expense from our phantom stock expense related solely to the stock price movement from the $209.89 cents stock price at the end of the third quarter of fiscal 24.

Ara Hovnanian: Slide 25 shows our increased guidance for all the fiscal 24. We increased our expectations for total revenues for the full year to be between $2.9 billion and $3.05 billion. We tightened the range slightly for expected adjusted gross margin to be in the range of 21.5% to 22.5%.

Ara Hovnanian: Then we kept the range for SG&A as a percent of total revenue to be between 11 and 12%.

Ara Hovnanian: We are providing guidance on income from joint ventures for the first time. For the year we expect income from joint ventures to be between $55 million and $65 million.

Ara Hovnanian: We increased guidance for adjusted EVA DAH, us just a pre-tax income, EPS and book value per share. Our guidance for adjusted EVA DAH increased to a range between $4.20 million and $45 million. And our expectations for adjusted pre-tax income for the full year increased to be between $300 million and $325 million.

Ara Hovnanian: We now expect our diluted earnings per share for the full year to be in the range of $29.31 at the midpoint of our guidance.

Ara Hovnanian: We anticipate our common book value per share to increase by about 50% at October 31, 2024 to approximately $109 per share compared to last year's value at the end of $73, for sure.

Ara Hovnanian: And on the only focus on price of the book, Mr. Point regarding our industry leading returns and rapid growth in book value.

Ara Hovnanian: Turning to slide 26, we show that our return on equity was 38.8%, which is the highest over the trail in 12 months compared to our peers.

Ara Hovnanian: And on slide 27, we show that compared to our peers, that we have one of the highest consolidated EBIT returns on investment at 33.7%. 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-size peers. Over the last several years, we have consistently had one of the highest EBIT ROIs among our peers.

Ara Hovnanian: Eventually investors will recognize our consistent spirit returns on capital and significantly improve balance sheet.

Ara Hovnanian: Given our rapidly growing book value, we think there will be appropriate to consider a variety of metrics, including EBIT return on investment, enterprise value to EBIT and our price to earnings multiple when establishing a fair value for our stock.

Ara Hovnanian: We believe when all of the fundamental financial metrics are considered, our stock is still a compelling value. On slide 28, we show our price to book multiple compared to our peers.

Ara Hovnanian: We do compare more favorably on this metric based on the mid-twitter guide it to be expected in October with the book value approximately $109 per share.

Ara Hovnanian: On slide 29, we show the trail in 12 months price to earnings ratio for us in our group based on our price earnings multiple of 6.48 times at yesterday's stock price of $207.60. We are trading at 36% discount to the home building industry average PE ratio.

Ara Hovnanian: We recognize that our stock may trade at a discount agreement because of our higher leverage, but our leverage has been shrinking rapidly.

Ara Hovnanian: On slide 30, we show that despite our extremely high ROE, there are still four peers that have a higher price to book ratio than us.

Ara Hovnanian: This slide more visually demonstrates how much we are undervalued relative to the other home builders when looking at the relationship between ROE and price to book. A very similar result exists when looking at ROE to price to earnings.

Ara Hovnanian: These last few slides further emphasize our point that given our 38.28% return on equity, our top courts I'll either 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 home builders.

Ara Hovnanian: I will now turn it back to error for some closing remarks.

Ara Hovnanian: Thanks Brad.

Ara Hovnanian: I want to spend a few minutes talking about our joint ventures during this call.

Ara Hovnanian: We consider joint ventures to be a core part of our operations. Income from our unconsolidated joint ventures has been an important part of our operations for a long time. On slide 31, we show income from unconsolidated joint ventures for the past six fiscal years. You can see on the far right hand portion of the slide that income from joint ventures was already $37 million for the first nine months of fiscal 24, and the midpoint of the guidance we gave is for it to reach $60 million for the full year.

Ara Hovnanian: Based on the current level of joint venture activity, we believe that our income from joint ventures should continue to be a meaningful portion of our earnings for the next several years.

Ara Hovnanian: Roberts.

Ara Hovnanian: Keep in mind, these bars do not reflect the $19 million gain from consolidation during fiscal 23 or the $46 million gain from consolidation in the third quarter of 24.

Ara Hovnanian: These gains from consolidation could occur in the future to adventures as they've been performing very well.

Ara Hovnanian: Turning to slide 32, we get some reasons we engage and join ventures.

Ara Hovnanian: An alternate tool to achieve a high return on investment is the use of joint ventures.

Ara Hovnanian: They allow us to build larger communities with less capital, typically 20 to 25% of the peak capital, particularly for larger, longer life communities.

Ara Hovnanian: If these joint ventures hit certain hurdle rates, we can receive a disproportionate share of the upside performance. This improves both IRR and the net profit dollars we receive.

Ara Hovnanian: By limiting our capital to 20 to 25%, we can invest in multiple communities with the same amount of capital, diversifying risk, and leveraging our fixed costs.

Ara Hovnanian: We don't always achieve our IRR targets for our communities.

Ara Hovnanian: When done in a joint venture, our joint venture partners typically share in the downside risk. Having said that, as you can see from our results, our joint ventures have been performing very well for our company and for our partners.

Ara Hovnanian: We're also paid a management fee for our joint ventures, which helps offset some of our overhead costs.

Ara Hovnanian: We believe these benefits to utilizing joint ventures makes a lot of sense from several perspectives, and will continue to seek joint venture partners to work with for future communities. On slide 33, we show some metrics for a recent community that we're considering contributing to a joint venture.

Ara Hovnanian: As a wholly-owned transaction, the peak capital on this community would be $74 million.

Ara Hovnanian: The IRR would be 31%, and the community life profit would be $82 million.

Ara Hovnanian: As you can see, based on this underwriting, it's a very solid community, and it would make sense to go forward with this transaction on a wholly-owned basis.

Ara Hovnanian: However, if we were to joint venture this community instead, our peak capital would only be $14 million. The IRR would improve to 47%, and we'd still get a community life profit of $33 million.

Ara Hovnanian: The decrease in profit at first blush seems discouraging. However, if we add four other communities like this one, our peak capital for the entire joint venture for all five communities would be only $70 million less than one wholly-owned community in the example. Our community life profit for the joint venture would be $165 million, more than double that of just one wholly-owned community. In addition, we get the benefit of diversifying our risk.

Ara Hovnanian: I could make an academic argument that we should joint venture all of our communities.

Ara Hovnanian: Now, frankly, that wouldn't be feasible, but the point I'm trying to get across is that the returns from these joint ventures are very compelling.

Ara Hovnanian: Joint ventures will continue to be part of our overall strategy and deliveries for years to come.

Ara Hovnanian: The majority of our joint ventures are domestic here in the memorandum of understanding with the Ministry of Housing in Saudi Arabia.

Ara Hovnanian: This will expand our activities in Saudi and expand our partnership, increasing housing for a growing population of young middle-class families.

Ara Hovnanian: Overall, given our recent community count growth and continuing growth in our lockdown, we find ourselves on the precipice of substantial growth, which will allow us to continue to deliver top-tier industry returns to our shareholders.

Ara Hovnanian: That concludes our formal comments, and I'm happy to turn it over for Q&A now.

Ara Hovnanian: The company will now answer questions so that everyone has an opportunity to ask questions.

Ara Hovnanian: Participants will be limited to three questions and a follow-up, after which they will have to get back into the queue to ask another question.

Ara Hovnanian: We will open the call to questions.

Ara Hovnanian: If you'd like to ask a question, please press star one one on your telephone and wait for your name to be announced.

Ara Hovnanian: To withdraw your question, please press star one one again.

Ara Hovnanian: Please stand by when we compile the Q&A roster.

Ara Hovnanian: Our first question will come from the line of Alan Ratner with Zellman and Associates.

Ara Hovnanian: Hey guys, good morning.

Ara Hovnanian: Nice quarter, and thanks for all the details so far.

Ara Hovnanian: My first question, and maybe this is more for Brad, I'd love to just get a little more color or insight on the JB consolidation since it was such a big driver of the upside in the quarter, and it also sounds like it might be something that at least repeats on a inconsistent basis going forward.

Ara Hovnanian: I just want to make sure I understand the moving pieces here.

Ara Hovnanian: You book the big gain this quarter and going forward, I guess the sale of homes will be flowing through your revenue and cogs line and then gross margin.

Ara Hovnanian: The offset, when I look at your annual JB income, running around $60 million per tax, does that mean that that number should come down as like you're not booking the gains from that project going forward and now that's shifting into your wholly owned business?

Ara Hovnanian: Not exactly.

Ara Hovnanian: I mean, you're thinking of it correctly, but the reality is we have other new JBs that have also started, which will provide JB income going forward, so with respect to that specific joint venture, the income that we had recorded over the last year or so for our returns, that will go away and now come through wholly owned just like you described, and the one thing to add to that is it comes through at a higher land value because we had to record the step up on consolidation, so that gain basically adds to the book value that we put on our book, and so as we're recognizing those deliveries, they have a higher cost, higher land cost, and they did when they were in the joint venture.

Ara Hovnanian: So just keep that in mind.

Ara Hovnanian: As I commented though, when you record the fair value, we do it calculating IRR that's still in the 20% range.

Ara Hovnanian: So it still will provide good profits for us, just not as high as what was being generated in the JV itself.

Ara Hovnanian: But with that said, because of other JVs that are coming online, as they're kind of commenting, we expect JV income to continue in the future like what you've been seeing.

Ara Hovnanian: The other comment I'll make is the reason you may see this gain phenomenon happen going forward is some of our joint ventures, we structure as press structures so that the partner gets paid out first.

Ara Hovnanian: And when that happens, and the partner then hits their IRR or hurdle and gets paid out, that's when this occurs and it becomes a wholly owned community.

Ara Hovnanian: In the case where it's a Perry Passou, JV and the distributions occur over time to both parties and both parties are in the venture until the end and continue to get paid out, you won't see this occur.

Ara Hovnanian: So more recently, more of our JVs have been done as prefer structures.

Ara Hovnanian: So that's why you're seeing this last year and this year, and I think you might see it going forward from some of the joint ventures we have in place.

Ara Hovnanian: But we still do some JVs that's very passive.

Ara Hovnanian: And in those cases, you wouldn't see this happen.

Ara Hovnanian: So I just want to give that extra clarification.

Ara Hovnanian: Got it, and I appreciate all that added color.

Ara Hovnanian: And what does one more on this topic?

Ara Hovnanian: So you mentioned the step up in land cost, obviously, or land basis, obviously.

Ara Hovnanian: Just relative to your, you know, the rest of your business, I mean, is this going to be diluted to your margins going forward?

Ara Hovnanian: Obviously it's only one project or is it not written up to a similar margin?

Ara Hovnanian: It would be relatively similar margin to what our other projects are because they use a similar underwriting error that we do for our existing projects.

Ara Hovnanian: And just that community was actually performing at much higher margins in the JV itself.

Ara Hovnanian: So now it'll be performing at what we're doing kind of wholly on our regular with all other communities.

Ara Hovnanian: Gotcha.

Ara Hovnanian: Okay.

Ara Hovnanian: That's helpful.

Ara Hovnanian: Thank you for the extra time there.

Ara Hovnanian: The second question, you know, the gross margin range you tightened, but it still implies a pretty, you know, pretty wide range or fourth quarter.

Ara Hovnanian: I know you mentioned the uncertainty around spec, you know, with that being two thirds of your business today.

Ara Hovnanian: I guess just from a high level, you know, your margins dipped a little bit sequentially, you know, you're off of the recent highs.

Ara Hovnanian: Where do you see the margin profile of the business, you know, VZV, the third quarter result you just reported with all the moving pieces you've got going on, you know, incentives seem pretty pretty steady, but elevated.

Ara Hovnanian: I would imagine land costs are going up.

Ara Hovnanian: You still have some price and power and about a third of your communities.

Ara Hovnanian: Is this 22% margin, kind of like a decent run rate going forward or they're, you know, mix considerations or cost considerations that we should think about into the fourth quarter and into 25 that could directly move that one way or the other.

Ara Hovnanian: Speeding specifically about the fourth quarter, I think you're pretty much right on that 22% range is where I would think we would be, but that's given the caveat we talked about, which is, you know, similar mortgage rate by down costs, et cetera.

Ara Hovnanian: From a construction cost perspective, I think we've been.

Ara Hovnanian: And, um, I'm holding pretty stable in fact I've had some some decreases in areas including some benefits from from lumber which has helped our land cost as you pointed out should as we open new communities and get deliveries from those new communities will probably increase from because they're newer deals so that could put some pressure on margins in 2025 on the other hand it mortgage rates go down as you know I think people might anticipate when the Fed makes their their moves then the cost of buy downs and perhaps the amount of incentive we have to give will change as well so potentially offset that so we're not really given 25 guys but I can answer your 24th floor or 24th question by saying that that we feel that the 22% range you're talking about is pretty reasonable perfect and then if I can just squeak in one more here you know Ara the comments on our we are you know very much appreciated and understood you guys are you know at the highest in the industry I think one of the things that you know admittedly we struggle with a little bit and I think it's probably investors do as well given where your valuation is is just the fact that you know you're elevated early today obviously is somewhat driven by the book value having been depressed over the last few years and you know it has compressed you know a year ago you were at 50% you know two years ago 80% so I'm not asking you to forecast our we but I guess you know when you think about the business over the next two three years you know the long run in industry average has been somewhere around 15% and we've had several builders say they think you know they're targeting more of a 20% are we going forward on a sustainable basis is there a way to think about your business over the next three to five years from an Ara we standpoint once the book value has accreted and once you're kind of at a normalized run rate of activity the the way you're thinking about the Ara we have the business sure um well uh thanks for the question now and uh I think it's important to uh also talk about evid ROI because that has nothing to do with our equity or our leverage it is pure home building performance and I'm proud to say we're the second highest uh performer on pure evid ROI we outperform almost everybody and we definitely outperform every single one of our midsize peers so I'd say you know we're proud it's not a one-time thing by the way we've been doing that for several years now uh so I'd say whatever you feel will be the ROE of our peers once we get to a comparable debt to cap leverage given our outperformance on evid ROI I'd say we should end up higher than everyone else on an ROE on a long term basis that's assuming we continue our performance as we've been performing outperforming over the last few years I appreciate it thank you for the thoughts okay thanks Alan our next question will come from the line of Jordan hymowitz with Philadelphia financial management of San Francisco uh thanks guys couple questions um moody's in their recent note uh said they would let the upgrade you with that the capital got below 50 percent um your own projection is 42 percent by the end of this year and unless something goes crazy it'll be in the thirties by next year so I guess my question is when does the next discussion with them when does that play a role do you think the only negative is they upgraded you somewhere recently but the red debt paid out has been so dramatic that could it happen again soon yeah but just to be clear Jordan that comment they made is a gross debt to cap basis and the 42 percent is a net debt to net cap so it takes the cash in the play so you know we'll be getting close to the 50 percent to your point um by year end but I just don't want you to be confused by the 42 percent uh and so I would be hopeful that certainly during next fiscal year we're having another conversation about uh another up What's the gross number?

Ara Hovnanian: Sorry.

Ara Hovnanian: We're looking.

Ara Hovnanian: We didn't prepare it at a time.

Ara Hovnanian: So if we grab it in time, we'll make the comment.

Ara Hovnanian: But to the extent that that occurs, you know, you put out a bunch of debt that originally was helping to be in the age, what ends up being in the 10 to 11?

Ara Hovnanian: Is that a possibility next year?

Ara Hovnanian: You could call some of that and refinance at a lower level or their lockouts at that point.

Ara Hovnanian: I would say cost prohibitive.

Ara Hovnanian: It's possible.

Ara Hovnanian: The cost prohibitive next year likely in less rates were dramatically lower that we could save more on the delta and interest.

Ara Hovnanian: But it's certainly something we're going to be paying attention to, Jordan, because we think we're getting really close to being able to, if not able to do it right now, in transition from secured to unsecured, which is something we want to do when we do a more global refinancing in the near future.

Ara Hovnanian: And so it certainly will be paying attention to the cost to rate trade-off over the coming year to year and a half, I'll say.

Ara Hovnanian: I did get the calculation on the gross debt-to-cap projection for a year and around 56%.

Ara Hovnanian: So we still won't be at 50, but we'll be on our way.

Ara Hovnanian: Okay, and final question.

Ara Hovnanian: Can you detail any income from the Saudi venture?

Ara Hovnanian: When do you think that will start to be an impactful number or any guidance on that in any way?

Ara Hovnanian: I would say it's still a couple of years away.

Ara Hovnanian: I'm going to air a comment as well.

Ara Hovnanian: But right now we're just starting two or three new communities.

Ara Hovnanian: We don't have any that are delivering at the moment.

Ara Hovnanian: So I would say before there's any real meaningful profit, it's probably late fiscal 25 or early 26.

Ara Hovnanian: Jordan, I'll add a couple of comments to your first question. And that is that because we had higher leverage, our cost of debt is higher than most of our peers.

Ara Hovnanian: But our performance has been improving so dramatically and our leverage is improving dramatically that once the high pre-payment costs happen, I think we'll have a great opportunity to refinance in the future at substantially lower rates that should save us quite a bit of interest compared to what we've been paying.

Ara Hovnanian: Our ROE has been outstanding even with the high interest, but I think it'll get even better as we have an interest more similar to our peers.

Ara Hovnanian: On top of that, the reason we have a big difference between gross debt to cap and net debt to cap is we don't have a large, unsecured, evolving line of credit like our peers. I suspect that in the near future we'll be able to achieve that once we refinance the bond that will also save substantial dollars because right now we're operating with a big cash cushion that we're paying interest on.

Ara Hovnanian: That will go away as we transition to regular financing more like our peers and should substantially enhance our performance, and that's probably a second half, 25, as you would sound like.

Ara Hovnanian: Yeah, or early 26, something like that, yeah.

Ara Hovnanian: Okay, thank you guys.

Ara Hovnanian: Thank you.

Ara Hovnanian: Our next question will come from a line of Alex Barron with Housing Research Center.

Ara Hovnanian: Yeah, thanks, gentlemen.

Ara Hovnanian: I wanted to ask about the Phantom Share Impact.

Ara Hovnanian: Is that something that has some termination data?

Ara Hovnanian: It's just on going quarter to quarter.

Ara Hovnanian: There are, there's been additional grants.

Ara Hovnanian: There's another grant in December of this fiscal year with Phantom Share.

Ara Hovnanian: So they'll be some impact going forward.

Ara Hovnanian: And obviously each quarter we're providing that in the appendix just so you can see what the impact is.

Ara Hovnanian: This quarter was the 2.2 million.

Ara Hovnanian: You know, we're just trying to highlight that for everybody, but it can be very little.

Ara Hovnanian: If the stock price doesn't change, the good news isn't this particular quarter. That means the stock price went up significantly and that's why I was a 2.2 million dollar impact.

Ara Hovnanian: But it's something that we will have going forward.

Ara Hovnanian: And I'll add, as Brad mentioned, the quarter by quarter impact is in the appendix.

Ara Hovnanian: It just hasn't been, it's there and we'll continue, but it's just not a substantial number.

Ara Hovnanian: A couple of minutes.

Ara Hovnanian: Yeah, there's a quick comment to make, Alex, as we've looked at that, the impact from an earnings perspective under the scenarios with stock price increasing even pretty dramatically. And it's still actually better for the shareholders because the dilution that would have occurred as you've done shares would actually be more impactful than the earnings hit.

Ara Hovnanian: So it's something we've paid attention to when we've given some financial shares.

Ara Hovnanian: Okay, got it.

Ara Hovnanian: And then it looked to me like the debt balance came down a little bit.

Ara Hovnanian: Like this quarter, did you guys pay down some debt?

Ara Hovnanian: Yeah.

Ara Hovnanian: We did the, we talked about it in our second quarter call, but the debt exchange that we did actually happened in May.

Ara Hovnanian: So it was a third quarter event.

Ara Hovnanian: So that's what you're seeing is the change in the debt.

Ara Hovnanian: We did a debt restructuring back in May.

Ara Hovnanian: Oh, okay, got it.

Ara Hovnanian: And then it pertains to the per tax asset on your balance sheet.

Ara Hovnanian: That's been obviously coming down as you're using it.

Ara Hovnanian: Do you guys have an anticipated number of years?

Ara Hovnanian: It will take you for that goes away.

Ara Hovnanian: Is it a couple of years or three years?

Ara Hovnanian: So at that run rate, if we stay at that run rate, three years, we would hope given the growth we're anticipating.

Ara Hovnanian: And when we've been talking about our growth and keen account, our profit will go up.

Ara Hovnanian: So maybe it's a little less than three years, something in a two to two and a half year timeframe.

Ara Hovnanian: Okay.

Ara Hovnanian: And, you know, given how cheap your stock is on a PE basis.

Ara Hovnanian: Have you guys considered buying back stock?

Ara Hovnanian: Or is there something that we're doing?

Ara Hovnanian: We did buy back shares in the quarter.

Ara Hovnanian: We didn't, we talked about it briefly.

Ara Hovnanian: We spent 11 million at an average price of $139 during the quarter. And we still have some availability under the board approval for buy back.

Ara Hovnanian: So when, you know, when we think it's opportune to do it, we'll certainly look at.

Ara Hovnanian: Okay, guys, best of luck.

Ara Hovnanian: Thank you.

Ara Hovnanian: I'll add one of the comment on the tax benefit while the deferred tax asset will be decreasing because we're earning so much.

Ara Hovnanian: We are active in the energy tax benefits from the energy efficient homes we build, and that is something I think we're increasingly focused on. So we will have some advantages going forward even after the NOI deferred tax benefit goes away.

Ara Hovnanian: As a reminder, if you'd like to ask a question at this time, please press star 1-1 on your touchstone telephone.

Ara Hovnanian: I'm showing no further questions in queue at this time.

Ara Hovnanian: I'd like to turn the call back to Ara Hovnanian for closing remarks.

Ara Hovnanian: Thank you very much.

Ara Hovnanian: We enjoyed the questions.

Ara Hovnanian: We're excited about the future and we look forward to reporting a fabulous fourth quarter as well.

Ara Hovnanian: Thank you.

Ara Hovnanian: This concludes our conference call for today.

Ara Hovnanian: Thank you all for participating and have a nice day.

Ara Hovnanian: All parties may now disconnect.

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