Q3 2025 Hovnanian Enterprises Inc Earnings Call

Speaker #1: Good morning, and thank you for joining us today for Hovnanian Enterprises' Q3 2025 earnings conference call. An archive of the webcast will be available after the completion of the call and will run for 12 months.

Michelle: Good morning and thank you for joining us today for Hovnanian Enterprises' Fiscal 2025 Third Quarter Earnings Conference call. An archive of the webcast will be available after the completion of the call and run for 12 months. This conference is being recorded for rebroadcast, and all participants are currently in a listen-only mode. Management will be making 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 investors' page of the company's website at www.khov.com. Those listeners who would like to follow along should now log on to the website. I would like to turn the call over to Jeff O'Keefe, Vice President of Investor Relations. Jeff, please go ahead.

Speaker #1: This conference is being recorded for rebroadcast, and all participants are currently in listen-only mode. Management will be making opening remarks about the Q3 results and then open the line for questions.

Speaker #1: The company will also be webcasting a slide presentation along with the opening comments for management. The slides are available on the investors' page of the company's website at www.khov.com.

Speaker #1: Those listeners who would like to follow along should now log on to the website. I would like to turn the call over to Jeff O'Keefe, Vice President of Investor Relations.

Speaker #1: Jeff, please go ahead.

Speaker #2: Thank you, Michelle, and thank you all for participating in this morning's call to review the results for our third quarter. All statements in this conference call that are not historical facts should be considered forward-looking statements within the meaning of the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995.

Jeff O’Keefe: Thank you, Michelle, and thank you all for participating in this morning's call to review the results for our third quarter. 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 Security Litigation Reform Act of 1995. Such statements involve known and unknown risks, uncertainties, and other factors that may cause actual results, performance, or achievements of the company to be materially different from any future results, performance, or achievements expressed or implied by the forward-looking statements. Such forward-looking statements include, but are not limited to, statements related to the company's goals and expectations with respect to its financial results for future financial periods.

Speaker #2: 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 #2: 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 #2: Although we believe that our plans, intentions, and expectations reflected and/or suggested by such forward-looking statements are reasonable, we can give no assurance that such plans, intentions, or expectations will be achieved.

Jeff O’Keefe: Although we believe that our plans, intentions, and expectations reflected and/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 predict or quantify. Therefore, actual results could differ materially and adversely from those forward-looking statements as a result of a variety of factors. Such risks, uncertainties, and other factors are described in detail in the sections entitled Risk Factors and Management's Discussion and Analysis, particularly the portion of MD&A entitled Safe Harbor Statement and our annual report on Form 10-K for the fiscal year ended October 31st, 2024, and subsequent filings with the Securities and Exchange Commission.

Speaker #2: By their nature, forward-looking statements speak only as of the date they are made, are not guarantees of future performance or results, and are subject to risks, uncertainties, and assumptions that are difficult to predict or quantify.

Speaker #2: Therefore, actual results could differ materially and adversely from those forward-looking statements as a result of a variety of factors. Such risks, uncertainties, and other factors are described in detail in the sections entitled "Risk Factors" and "Management's Discussion and Analysis," particularly the portion of MD&A entitled "Safe Harbor Statement," and our annual report on Form 10-K for the fiscal year ended October 31, 2024.

Speaker #2: And subsequent filings with the Securities and Exchange Commission. Except as otherwise required by applicable security laws, we undertake no obligation to public update or revise any forward-looking statements or whether or revise any forward-looking statements, whether as a result of new information, future events, or changes to circumstances or any other reason.

Jeff O’Keefe: Except as otherwise required by applicable security laws, we undertake no obligation to publicly update or revise any forward-looking statements or revise any forward-looking statements whether as a result of new information, future events, or changes to circumstances, or any other reason. Joining me today on the call are Ara Hovnanian, Chairman, President, and CEO, Brad O’Connor, Chief Financial Officer, David Micherson, Vice President, Corporate Controller, and Paul Eberly, Vice President, Finance and Treasurer. Ara, you can go ahead.

Speaker #2: Joining me today on the call are Ara Hovnanian, Chairman, President, and CEO; Brad O'Connor, Chief Financial Officer; David Micherson, Vice President and Corporate Controller; and Paul Eberle, Vice President of Finance and Treasurer.

Speaker #2: Ara, you can go ahead.

Speaker #3: Thanks, Jeff. I'm going to review our third quarter results and I'll also comment on the current housing environment. Brad, we'll follow me with more details as usual and, of course, we'll open it up to Q&A afterwards.

Ara Hovnanian: Thanks, Jeff. I am going to review our third quarter results, and I will also comment on the current housing environment. Brad will follow me with more details as usual, and of course, we will open it up to Q&A afterwards. Let me begin on slide five. Here we show our third quarter guidance compared to our actual results. Given all of the political and economic uncertainty that was present throughout the quarter, we are pleased that we met or exceeded the guidance we provided for all of the metrics. Starting at the top of the slide, revenues were $801 million, which was right at the midpoint of our guidance. Our adjusted gross margin was 17.3% for the quarter, which was just below the midpoint of the guidance range. Our SG&A ratio was 11.3%, which was better than the midpoint of our guidance.

Speaker #3: Let me begin on slide five. Here we show our third quarter guidance compared to our actual results. Given all of the political and economic uncertainty that was present throughout the quarter, we're pleased that we met or exceeded the guidance we provided for all of the metrics.

Speaker #3: Starting at the top of the slide, revenues were $810 million, which was right at the midpoint of our guidance. Our adjusted gross margin was 17.3% for the quarter, which was just below the midpoint of the guidance range.

Speaker #3: Our SG&A ratio was 11.3%, which was better than the midpoint of our guidance. Our income from unconsolidated joint ventures was $16 million, which was within the guidance range, although on the lower end.

Ara Hovnanian: Our income from unconsolidated joint ventures was $16 million, which was within the guidance range, although on the lower end. Adjusted EBITDA was $77 million for the quarter, which was above the high end of the guidance range. Finally, our adjusted pre-tax income was $40 million, which was at the very top of our guidance range. While this is adjusted pre-tax income, which excludes land charges, we did have higher walkaway costs and impairment charges during this year's third quarter. The majority of the impairments were in the west segment and were related to communities where we also walked away from land that did not meet our return thresholds. Again, given the challenging operating environment, we are satisfied that we are able to meet or exceed the guidance we provided. On slide six, we show our third quarter results compared to last year's third quarter.

Speaker #3: Adjusted EBITDA was $77 million for the quarter, which was above the high end of the guidance range. Finally, our adjusted pre-tax income was $40 million, which was at the very top of our guidance range.

Speaker #3: While this is adjusted pre-tax income, which excludes land charges, we did have higher walk-away costs and impairment charges during this year's third quarter. The majority of the impairments were in the West segment and were related to communities where we also walked away from land that didn't meet our return thresholds.

Speaker #3: Again, given the challenging operating environment, we're satisfied that we were able to meet or exceed the guidance we provided. On Slide 6, we show our third quarter results compared to last year's third quarter.

Speaker #3: Keep in mind that last year's third quarter was particularly strong, partly because it contained $46 million from a gain on consolidation of a joint venture.

Ara Hovnanian: Keep in mind that last year's third quarter was particularly strong, partly because it contained $46 million from a gain on consolidation of a joint venture. As Brad will discuss later, we anticipate yet another gain from consolidation of a joint venture in the fourth quarter. Given the current high level of incentives, it is no surprise that adjusted gross margin and adjusted pre-tax profit experienced year-over-year declines. Starting in the upper left-hand portion of the slide, you can see that our total revenues increased 11% year-over-year due to an increase in deliveries. Moving across the top to adjusted gross margin, our gross margin was down year-over-year, mainly due to increased incentives for affordability and also related to our focus on pace versus price and our short-term strategy of burning through low margin lots. During this year's third quarter, incentives were 11.6% of the average sales price.

Speaker #3: As Brad O'Connor will discuss later, we anticipate yet another gain from the consolidation of a joint venture in the fourth quarter. Given the current high level of incentives, it's no surprise that adjusted gross margin and adjusted pre-tax profit experienced year-over-year declines.

Speaker #3: Starting in the upper left-hand portion of the slide, you can see that our total revenues increased 11% year-over-year due to an increase in deliveries.

Speaker #3: Moving across the top to adjusted gross margin, our gross margin was down year-over-year, mainly due to increased incentives for affordability and also related to our focus on pace versus price and our short-term strategy of burning through low-margin lots.

Speaker #3: During this year's third quarter, incentives were 11.6% of the average sales price. The majority of this cost is related to buying down mortgage rates.

Ara Hovnanian: The majority of this cost is related to buying down mortgage rates. This is up 390 basis points from a year ago. It is up 110 basis points from the second quarter of 2025, and it is up 860 basis points from fiscal year 2022, which was prior to the mortgage rate spike impacting our deliveries. Other than the extraordinary cost to buy down mortgage rates to make our homes affordable today, our gross margin would be very healthy. Moving to the bottom left, you can see that our total SG&A improved 110 basis points year-over-year to 11.3%. In the bottom right-hand portion of the slide, you can see the negative impact the gross margin decline had on our year-over-year profitability.

Speaker #3: This is up 390 basis points from a year ago. It's up 110 basis points from the second quarter of 2025, and it's up 860 basis points from fiscal year 2022, which was prior to the mortgage rate spike impacting our deliveries.

Speaker #3: Other than the extraordinary cost to buy down mortgage rates to make our homes affordable today, our gross margin would be very healthy. Moving to the bottom left, you can see that our total SG&A improved 110 basis points year-over-year to 11.3%.

Speaker #3: In the bottom right-hand portion of the slide, you can see the negative impact the gross margin decline had on our year-over-year profitability. Again, while much lower than last year, it was at the top of our guidance range.

Ara Hovnanian: Again, while much lower than last year, it was at the top of our guidance range, which was consistent with our focus on burning through our older vintage lots and QMIs and emphasizing sales pace over price and clearing our balance sheet for our newer land contracts, which have much higher margins. If you turn to slide seven, you can see that contracts for the third quarter increased 1% year-over-year. Once again, there was considerable variability in monthly sales shown on slide eight. Contracts were down 4% in May, then bounced back with a 1% increase in June and followed by a 7% increase in July. On slide nine, you can see that the most recent three months continued a trend of choppiness over the last year. If you turn to slide 10, you can see that contracts per community increased this year compared to last year's third quarter.

Speaker #3: This approach was consistent with our focus on burning through our older vintage lots and QMIs, emphasizing sales pace over price, and clearing our balance sheet for our newer land contracts, which have much higher margins.

Speaker #3: If you turn to slide seven, you can see that contracts for the third quarter increased 1% year-over-year. Once again, there was considerable variability in monthly sales shown on slide eight.

Speaker #3: Contracts were down 4% in May, then bounced back with a 1% increase in June, followed by a 7% increase in July. On slide nine, you can see that the most recent three months continued a trend of choppiness over the last year.

Speaker #3: If you turn to slide ten, you can see that contracts per community increased this year compared to last year's third quarter. Additionally, the 9.8 contracts per community in this year's third quarter was higher than our quarterly average of 9.1 for the third quarter since 2008, but we didn't get back to the $97.02 levels that we consider to be a normal sales environment.

Ara Hovnanian: Additionally, the 9.8 contracts per community in this year's third quarter was higher than our quarterly average of 9.1 for the third quarter since 2008, but we did not get back to the 1997 through 2002 levels that we consider to be a normal sales environment. On slide 11, we give more granularity and show the trend of monthly contracts per community compared to the same month a year ago and to long-term monthly averages. Here, you can see that for the first two months of the quarter, this year's sales pace was lower than last year. This trend flipped in the month of July when we sold 3.4 homes per community compared to 3.2 homes in July of 2024. When you look at the most recent month compared to the monthly average since 2008, the last two months of the quarter were better than the long-term average.

Speaker #3: On slide 11, we provide more granularity and show the trend of monthly contracts per community compared to the same month a year ago and to long-term monthly averages.

Speaker #3: Here, you can see that for the first two months of the quarter, this year's sales pace was lower than last year. This trend flipped in the month of July, when we sold 3.4 homes per community compared to 3.2 homes in July of '24.

Speaker #3: When you look at the most recent month compared to the monthly average since 2008, the last two months of the quarter were better than the long-term average.

Speaker #3: Turning to slide 12, we show contracts per community as if we had a June 30th quarter-end. This way, we can compare our results to our peers that report contracts per community on a calendar quarter-end.

Ara Hovnanian: Turning to slide 12, we show contracts per community as if we had a June 30th quarter end. This way, we can compare our results to our peers that report contracts per community on the calendar quarter end. At 9.6 contracts per community, our sales pace is the third highest among the public home builders. On slide 13, you can see that year-over-year contracts per community decline for all home builders shown on the slide that report this metric. While any decline is not desirable, we outperformed all but two of our peers. Again, this was as if our quarter ended in June so that we could compare our results to these other companies. Our July quarter was stronger with a 3% year-over-year increase in contracts per community, and the month of July was up 6% over the prior year in contracts per community.

Speaker #3: At 9.6 contracts per community, our sales pace is the third highest among the public home builders. On slide 13, you can see that year-over-year contracts per community declined for all home builders shown on the slide that report this metric.

Speaker #3: While any decline is not desirable, we outperformed all but two of our peers. Again, this was as if our quarter ended in June, so that we can compare our results to these other companies.

Speaker #3: Our July quarter was stronger, with a 3% year-over-year increase in contracts per community, and the month of July was up 6% over the prior year in contracts per community.

Speaker #3: What we're trying to illustrate in these last two slides is that, even though the recent sales pace is not what Everland had hoped for, our focus on pace over price has resulted in an above-average number of contracts per community for us compared to our peers.

Ara Hovnanian: What we're trying to illustrate in these last two slides is that even though the recent sales pace is not what everyone had hoped for, our focus on pace over price has resulted in an above-average number of contracts per community for us compared to our peers. On slide 14, you can see that for a considerable percentage of our deliveries, our homebuyers continued to utilize mortgage rate buy-downs. The percentage of homebuyers using buy-downs in this year's third quarter was 75%. The buy-down usage in our deliveries indicates that buyers continue to rely on these rate buy-downs to combat affordability at the current mortgage rates. Given the persistently high mortgage rate environment, we assume buy-downs will remain at similar levels going forward.

Speaker #3: On slide 14, you can see that for a considerable percentage of our deliveries, our home buyers continued to utilize mortgage rate buy downs. The percentage of home buyers using buy downs in this year's third quarter was 75%.

Speaker #3: The buy down usage in our deliveries indicates that buyers continued to rely on these home on these rate buy downs to combat affordability at the current mortgage rates.

Speaker #3: Given the persistently high mortgage rate environment, we assume buy downs will remain at similar levels going forward. In order to meet home buyers' needs for lower mortgage rates and certainty, we're intentionally operating at an elevated level of quick move-in homes, or QMIs as we call them, since QMIs, with a delivery date in 60 to 90 days, can have mortgage rates bought down and locked in a cost-efficient manner.

Ara Hovnanian: In order to meet homebuyers' needs from lower mortgage rates and certainty, we're intentionally operating at an elevated level of quick move-in homes, or QMIs as we call them, since QMIs with a delivery date in 60 to 90 days can have mortgage rates bought down and locked in a cost-efficient manner. On slide 15, we show that we had 8.2 QMIs per community at the end of the third quarter. This is the second consecutive quarter of sequential reductions in QMI per community. We are down from 9.3 in the first quarter of 2025 to 8.6 in the second quarter of 2025 to 8.2 in the third quarter. This gets us closer to our current target of about eight quick move-in homes per community with varied delivery dates and model types. As a reminder, we define quick move-in homes as any unsold home where we've begun framing.

Speaker #3: On slide 15, we show that we had 8.2 QMIs per community at the end of the third quarter. This is the second consecutive quarter of sequential reductions in QMI per community.

Speaker #3: We are down from 9.3 in the first quarter of '25 to 8.6 in the second quarter of '25 to 8.2 in the third quarter.

Speaker #3: This gets us closer to our current target of about 8 QMIs per community, with varied delivery dates and model types. As a reminder, we define QMIs as any unsold home where we've begun framing.

Speaker #3: On slide 16, we show the decline in total QMIs from January '25 until July of '25. Here, you can see that QMIs decreased from 1,163 in January to 1,073 in April, and then to 1,016 in July.

Ara Hovnanian: On slide 60, we show the decline in total quick move-in homes from January 2025 until July of 2025. Here, you can see that quick move-in homes decreased from 1,163 in January to 1,073 in April and then to 1,016 in July. This is a 13% decrease from January to July. In the third quarter of 2025, quick move-in home sales were 79% of our total sales. This was equal to last quarter, which was the highest quarter since we started reporting this number 12 quarters ago. Historically, that percentage was 40%, about half. The demand for quick move-in homes remains high, so we're comfortable with the current level of quick move-in homes in this environment. We ended the third quarter with 323 finished quick move-in homes. On a per-community basis, that puts us at 2.6 finished quick move-in homes per community.

Speaker #3: This is a 13% decrease from January to July. In the third quarter of '25, QMI sales were 79% of our total sales. This was equal to last quarter, which was the highest quarter since we started reporting this number 12 quarters ago.

Speaker #3: Historically, that percentage was 40%, about half. So, obviously, the demand for QMIs remains high, and we're comfortable with the current level of QMIs in this environment.

Speaker #3: We ended the third quarter with 323 finished QMIs. On a per-community basis, that puts us at 2.6 finished QMIs per community. The focus on quick move-in homes results in more contracts that are signed and delivered in the same quarter.

Ara Hovnanian: The focus on quick move-in homes results in more contracts that are signed and delivered in the same quarter. That leads to lower levels of backlog at quarter ends, but a higher backlog conversion rate. During the third quarter of 2025, 34% of our homes delivered in the quarter were contracted in the same quarter. This makes it a little more challenging when providing guidance for the next quarter. It also resulted in a high backlog conversion ratio of 84%, which is significantly higher than the third quarter average backlog conversion ratio of 55% going all the way back to 1998. We continue to manage our quick move-in homes on a community level, and we're highly focused on matching our quick move-in home starts pace with our quick move-in home sales pace.

Speaker #3: That leads to lower levels of backlog at quarter ends but a higher backlog conversion rate. During the third quarter of '25, 34% of our homes delivered in the quarter were contracted in the same quarter.

Speaker #3: This obviously makes it a little more challenging when providing guidance for the next quarter. It also resulted in a high backlog conversion ratio of 84%, which is significantly higher than the third quarter average backlog conversion ratio of 55%, going all the way back to 1998.

Speaker #3: We continue to manage our QMIs on a community level, and we're highly focused on matching our QMI starts pace with our QMI sales pace.

Speaker #3: If you move to slide 17, you can see that even with higher mortgage rates and a slower-than-anticipated sales pace nationally, we are still able to raise net prices in 21% of our communities during the third quarter.

Ara Hovnanian: If you move to slide 17, you can see that even with higher mortgage rates and a slower than anticipated sales pace nationally, we are still able to raise net prices in 21% of our communities during the third quarter. 71% of the communities with price increases were in Delaware, Maryland, New Jersey, South Carolina, Virginia, and West Virginia, which are among our better-performing markets. While the sales environment has been difficult, we've been focusing on pace versus price, as we have been for many quarters now, but we're still raising prices and lowering incentives when our sales pace at certain communities blinds it. Economic uncertainty, high mortgage rates, affordability, and low consumer confidence have caused many consumers to delay purchasing a new home. To increase our sales pace and make our homes affordable, we continue to offer mortgage rate buy-downs.

Speaker #3: Seventy-one percent of the communities with price increases were in Delaware, Maryland, New Jersey, South Carolina, Virginia, and West Virginia, which are among our better-performing markets.

Speaker #3: While the sales environment has been difficult, we've been focusing on pace versus price as we have been for many quarters now. However, we're still raising prices and lowering incentives when our sales pace at certain communities warrants it.

Speaker #3: Economic uncertainty, high mortgage rates, affordability, and low consumer confidence have caused many consumers to delay purchasing a new home. To increase our sales pace and make our homes affordable, we continue to offer mortgage rate buy-downs.

Speaker #3: Our gross margins, ignoring the mortgage rate incentives, continue to be strong. However, offering mortgage rate buy-downs is very expensive and continues to negatively impact our gross margin at many locations.

Ara Hovnanian: Our gross margins, ignoring the mortgage rate incentives, continue to be strong. However, offering mortgage rate buy-downs is very expensive and continues to negatively impact our gross margin at many locations. Our new land purchases show excellent margins at the current sales pace and price and excellent IRRs even after the expense of buy-downs. I will now turn it over to Brad O’Connor, our Chief Financial Officer.

Speaker #3: Our new land purchases show excellent margins at the current sales pace and price, and excellent IRRs even after the expensive buy downs. I'll now turn it over to Brad O'Connor, our Chief Financial Officer.

Speaker #4: Thank you, Ara. Turning to slide 18, you can see that we ended the quarter with a total of 146 open-for-sale communities, which is the same total as last year's third quarter.

Brad O’Connor: Thank you, Aaron. Turning to slide 18, you can see that we ended the quarter with a total of 146 open for sale communities, which is the same total as last year's third quarter. 124 of those communities were wholly owned. During the third quarter, we opened 25 new wholly owned communities and sold out of 26 wholly owned communities. Additionally, we had 22 domestic unconsolidated joint venture communities at the end of the third quarter. We closed one during the quarter. We continue to experience delays in opening new communities, primarily related to utility hookups and permitting delays throughout the country. We do expect community count will grow sequentially in the fourth quarter of fiscal 2025. The leading indicator for further community count growth is shown on slide 19. We ended the quarter with 40,246 controlled lots, which equates to a seven-year supply of controlled lots.

Speaker #4: $124 million of those communities were wholly owned. During the third quarter, we opened 25 newly owned wholly owned communities and sold out of 26 wholly owned communities.

Speaker #4: Additionally, we had 22 domestic unconsolidated joint venture communities at the end of the third quarter. We closed one during the quarter. We continue to experience delays in opening new communities, primarily related to utility hookups and permitting delays throughout the country.

Speaker #4: We expect community count will grow sequentially in the fourth quarter of fiscal '25. The leading indicator for further community count growth is shown on slide 19.

Speaker #4: We ended the quarter with 40,246 controlled lots, which equates to a seven-year supply of controlled lots. Our lot count increased 2% year-over-year, and 36% from two years ago.

Brad O’Connor: Our lot count increased 2% year over year, but 36% from two years ago. If you include lots from our domestic unconsolidated joint ventures, we now control 43,343 lots. We added 3,500 lots in 30 future communities during the third quarter. Our land teams are actively engaging with land sellers, negotiating for new land parcels that meet our underwriting standards, even with high incentives and the current sales pace. In fiscal 2024, we began talking about our pivot to growth. This followed a stretch of several years when we had used a significant amount of cash generated to pay down debt. One interesting trend to point out about the growth on this slide, our lot options grew by more than 13,000, and our lots owned shrunk by more than 2,400 lots as we continue to focus on our land-light strategy.

Speaker #4: If you include lots from our domestic unconsolidated joint ventures, we now control 43,343 lots. We added 3,500 lots in 30 future communities during the third quarter.

Speaker #4: Our land teams are actively engaging with land sellers, negotiating for new land parcels that meet our underwriting standards, even with high incentives and the current sales pace.

Speaker #4: In fiscal '24, we began talking about our pivot to growth. This followed a stretch of several years when we used a significant amount of cash generated to pay down debt.

Speaker #4: One interesting trend to point out about the growth on this slide: our lot options grew by more than 13,000, and our lots owned shrunk by more than 2,400 lots as we continue to focus on our land-light strategy.

Speaker #4: On the far right side of slide 20, you can see that our lot count decreased sequentially for the second quarter in a row. These recent declines are reflective of the operating environment.

Brad O’Connor: On the far right side of slide 20, you can see that our lot count decreased sequentially for the second quarter in a row. These recent declines are reflective of the operating environment. We are definitely being more selective with the new lots that we controlled during these last two quarters, and we also walked away from about 6,500 lots during the same two quarters, including 4,059 lots in the third quarter. Having said that, we were able to put 6,500 lots under contract in the last two quarters that met or exceeded our margin and IRR hurdle rates, even after factoring in our current high level of incentives. On slide 21, we show our land and land development spend for each quarter going back five years.

Speaker #4: We are definitely being more selective with the new lots that we control during these last two quarters, and we also walked away from about 6,500 lots during the same two quarters, including 4,059 lots in the third quarter.

Speaker #4: Having said that, we are able to put 6,500 lots under contract in the last two quarters that met or exceeded our margin and IRR hurdle rates, even after factoring in our current high level of incentives.

Speaker #4: On slide 21, we show our land and land development spend for each quarter going back five years. You can see for much of the time shown on this slide how that pivot to growth impacted our land and land development spend.

Brad O’Connor: You can see for much of the time shown on this slide how that pivot to growth impacted our land and land development spend. However, for the past two quarters, you can see decreases due to the current market environment. This is another indication of our discipline in underwriting new land acquisitions. Again, we always use current home prices, including the current high level of mortgage rate buy-downs and other incentives, current construction cost, and current sales pace to underwrite to a 20% plus internal rate of return. Right before we are about to acquire the lots, we re-underwrite them based on the then-current conditions just to be sure that it still makes sense to go forward with the land purchase. We feel good that our new acquisitions will yield solid IRRs since we are building in huge incentives and a slower sales pace.

Speaker #4: However, for the past two quarters, you can see decreases due to the current market environment. This is another indication of our discipline in underwriting new land acquisitions.

Speaker #4: Again, we always use current home prices, including the current high level of mortgage rate buy downs and other incentives, current construction costs, and current sales pace to underwrite to a 20% plus internal rate of return.

Speaker #4: And then, right before we are about to acquire the lots, we re-underwrite them based on the then-current conditions, just to be sure that it still makes sense to go forward with the land purchase.

Speaker #4: We feel good that our new acquisitions will yield solid IRRs since we are building in huge incentives and a slower sales pace. Our underwriting standards automatically adjust to any changes in market conditions.

Brad O’Connor: Our underwriting standards automatically adjust to any changes in market conditions. We are still finding opportunities in our markets and are very focused on growing our top and bottom lines for the long term, but we are not stretching to make deals work. We are being very disciplined. Thus, we would expect our land and land development spend in the fourth quarter will be significantly less than last year. On slide 22, we show the percentage of our lots controlled via option increased from 46% in the third quarter of fiscal 2015 to 86% in the third quarter of fiscal 2025. This is the highest percentage of option lots we have ever had, continuing our strategic focus on land-light. Turning now to slide 23, you see that we continue to have one of the highest percentages of land controlled via option compared to our peers.

Speaker #4: We are still finding opportunities in our markets and are very focused on growing our top and bottom lines for the long term, but we are not stretching to make deals work.

Speaker #4: We are being very disciplined. Thus, we would expect our land and land development spend in the fourth quarter to be significantly less than last year.

Speaker #4: On slide 22, we show that the percentage of our lots controlled via option increased from 46% in the third quarter of fiscal '15 to 86% in the third quarter of fiscal '25.

Speaker #4: This is the highest percentage of option lots we've ever had, continuing our strategic focus on land light. Turning now to slide 23, you see that we continue to have one of the highest percentages of land controlled via option compared to our peers.

Speaker #4: Needless to say, with the fourth highest percentage of option lots, we are significantly above the median. On slide 24, compared to our peers, we have the third highest inventory turnover rate. High inventory turns are a key component of our overall strategy.

Brad O’Connor: Needless to say, with the fourth highest percentage of option lots, we are significantly above the median. On slide 24, compared to our peers, we have the third highest inventory turnover rate. High inventory turns are a key component of our overall strategy. We believe we have opportunities to continue to increase our use of land options and further improve our inventory turns in future periods. Our focus on pace versus price is evident here. Turning to slide 25, even after spending $193 million on land and land development, we ended the third quarter with $278 million of liquidity, which is well above our targeted liquidity range. Turning to slide 26, this slide shows our maturity ladder as of July 31st, 2025.

Speaker #4: We believe we have opportunities to continue to increase our use of land options and further improve our inventory turns in future periods. Our focus on pace versus price is evident here.

Speaker #4: Turning to slide 25, even after spending $193 million on land and land development, we ended the third quarter with $278 million of liquidity, which is well above our targeted liquidity range.

Speaker #4: Turning to slide 26, this slide shows our maturity ladder as of July 31, 2025. Keep in mind that during the second quarter, we paid off early the remaining $27 million of the 13.5% notes, our highest cost debt.

Brad O’Connor: Keep in mind that during the second quarter, we paid off early the remaining $27 million of the 13.5% notes, our highest cost debt that was scheduled to mature in February of 2026. This is the latest example of the steps we have taken over the past several years to improve our maturity ladder and reduce our interest cost. We remain committed to further strengthening our balance sheet going forward. Turning to slide 27, 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 $1.3 billion growth in equity over the past few years. During that same time period, on the upper right-hand portion, you can see the $769 million reduction in debt.

Speaker #4: That was scheduled to mature in February 2026. This is the latest example of the steps we have taken over the past several years to improve our maturity ladder and reduce our interest costs.

Speaker #4: We remain committed to further strengthening our balance sheet going forward. Turning to slide 27, we show the progress we've made to date to grow our equity and reduce our debt.

Speaker #4: Starting in the upper left-hand part of the slide, we show the $1.3 billion growth in equity over the past few years. During that same time period, in the upper right-hand portion, you can see the $769 million reduction in debt.

Speaker #4: On the bottom of the slide, you can see that our net debt to net cap at the end of the third quarter of fiscal '25 was 47.9%, which is a significant improvement from our 146.2% at the beginning of fiscal '20.

Brad O’Connor: On the bottom of the slide, you can see that our net debt, the net cap at the end of the third quarter of fiscal 2025, was 47.9%, which is a significant improvement from our 146.2% at the beginning of fiscal 2020. We still have more work to do to achieve our goal of 30%, but we are comfortable that we are on a path to achieve our targets soon. Before we move on, I want to comment briefly on our interest expense for the quarter. Our interest expense as a percentage of total revenues increased year over year in the third quarter to 4.2% compared with 4% in the prior year's third quarter, despite reductions in our debt balance. This increase was predominantly due to a year-over-year increase in land banking arrangements under inventory not owned.

Speaker #4: We still have more work to do to achieve our goal of 30%, but we are comfortable that we are on a path to achieve our targets soon.

Speaker #4: Before we move on, I want to comment briefly on our interest expense for the quarter. Our interest expense as a percentage of total revenues increased year-over-year in the third quarter to 4.2% compared with 4% in the prior year's third quarter, despite reductions in our debt balance.

Speaker #4: This increase was predominantly due to a year-over-year increase in land banking arrangements under inventory not owned. Note that when we land bank inventory after we have already purchased the lots, we must reflect the transaction as a financing, showing the inventory and inventory not owned, and the cash received as a liability from inventory not owned.

Brad O’Connor: Note that when we land bank inventory after we already purchased the lots, we must reflect the transaction as a financing, showing the inventory in inventory not owned and the cash received as a liability from inventory not owned. The cost paid to the land banker in this situation is shown as interest expense. When the land banker purchases the land directly from the seller, the cost paid to the land banker is shown as part of land costs in cost of sales. The latter case is our more common approach, but sometimes we are unable to align the timing of the purchase with the land banker, and therefore we own the lots for a short period of time before the land banker buys them. While land banking is more expensive than debt, the downside risk is lower in more significant market downturns.

Speaker #4: The cost paid to the land banker in this situation is shown as interest expense. When the land banker purchases the land directly from the seller, the cost paid to the land banker is shown as part of land costs and costs of sales.

Speaker #4: The latter cases are a more common approach, but sometimes we are unable to align the timing of the purchase with the land banker, and therefore we own the lots for a short period of time before the land banker buys them.

Speaker #4: While land banking is more expensive than debt, the downside risk is lower with more significant market downturns. Given our remaining $221 million of deferred tax assets, we will not have to pay federal income taxes on approximately $700 million of future pre-tax earnings.

Brad O’Connor: Given our remaining $221 million of deferred tax assets, we will not have to pay federal income taxes on approximately $700 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. Regarding guidance, given the volatility and the difficulty in projecting margins with moving interest rates and volatility in general, we will focus our guidance only on the next quarter. Our financial guidance assumes no adverse changes in current market conditions, including no further deterioration in our supply chain or material increases in mortgage rates, tariffs, inflation, or cancellation rates. Our guidance assumes continued extended construction cycle times averaging five months compared to our pre-COVID cycle times for construction of approximately four months. As we continue to be more reliant on QMI sales, forecasting profits becomes more difficult.

Speaker #4: This benefit will continue to significantly enhance our cash flow in years to come and will accelerate our growth plans. Regarding guidance, given the volatility and the difficulty in projecting margins with moving interest rates and volatility in general, we will focus our guidance only on the next quarter.

Speaker #4: Our financial guidance assumes no adverse changes in current market conditions, including no further deterioration in our supply chain or material increases in mortgage rates, tariffs, inflation, or cancellation rates.

Speaker #4: Our guidance assumes continued extended construction cycle times averaging five months compared to our pre-COVID cycle times for construction of approximately four months. As we continue to be more reliant on QMI sales, forecasting profits becomes more difficult.

Speaker #4: We recognize that we beat pre-tax guidance in the first quarter and performed at the very high end of the guidance range in the second and third quarters.

Brad O’Connor: We recognize that we beat pre-tax guidance in the first quarter and performed at the very high end of the guidance range in the second and third quarters. Notwithstanding the challenge of projecting even one quarter in this environment, we endeavor to provide guidance that we can meet and if situations are ideal to be. Our guidance assumes continued use of mortgage rate buy-downs and other incentives similar to recent months. Further, it excludes any impact to SG&A expenses from our phantom stock expense related solely to the stock price movement from the $119.47 stock price at the end of the third quarter of fiscal 2025. Slide 28 shows our guidance for the fourth quarter of fiscal 2025 compared to actual results for the third quarter of 2025. Our expectation for total revenues for the fourth quarter is between $750 million and $850 million.

Speaker #4: Notwithstanding the challenge of projecting even one quarter in this environment, we endeavor to provide guidance that we can meet and, if situations are ideal, beat.

Speaker #4: Our guidance assumes continued use of mortgage rate buy-downs and other incentives similar to recent months. Further, it excludes any impact to SG&A expenses from our phantom stock expense related solely to the stock price movement from the $119.47 stock price at the end of the third quarter of fiscal '25.

Speaker #4: Slide 28 shows our guidance for the fourth quarter of fiscal 2025 compared to actual results for the third quarter of 2025. Our expectation for total revenues for the fourth quarter is between $750 million and $850 million. The midpoint of our total revenue guidance would be the same as the third quarter.

Brad O’Connor: The midpoint of our total revenue guidance would be the same as the third quarter. Adjusted gross margin is expected to be in the range of 15% to 16.5%. This is lower than a typical gross margin, particularly because of the increased cost of mortgage rate buy-downs and our focus on pace versus price. We expect the range of SG&A as a percentage of total revenues to be between 11% and 12%, which is still higher than usual. One of the reasons our SG&A is running a little high is that we are gearing up for significant community count growth and we have to make new hires in advance of those communities. Our expectations for adjusted pre-tax income for the fourth quarter are between $45 million and $55 million. This would be down from last year, but up from our third quarter.

Speaker #4: Adjusted gross margin is expected to be in the range of 15% to 16.5%. This is lower than a typical gross margin, particularly because of the increased cost of mortgage rate buy-downs and our focus on pace versus price.

Speaker #4: We expect a range of SG&A as a percentage of total revenues to be between 11% and 12%, which is still higher than usual. One of the reasons our SG&A is running a little high is that we are gearing up for significant community count growth, and we have to make new hires in advance of those communities.

Speaker #4: Our expectations for adjusted pre-tax income for the fourth quarter are between $45 million and $55 million. This would be down from last year but up from our third quarter.

Speaker #4: This includes the expectation of other income from the consolidation of a joint venture in the fourth quarter, when the partner is expected to reach their full return of all capital as prescribed in the JV agreement.

Brad O’Connor: This includes the expectation of other income from the consolidation of a joint venture in the fourth quarter when the partner is expected to reach their full return of all capital as prescribed in the JV agreement. As a reminder, this has become a normal part of the life cycle of our joint ventures as we have had other income from JV-related transactions three times in the past nine quarters. Moving to slide 29, we show all of the guidance we gave for the fourth quarter. The only two lines on here that we have not mentioned are income from unconsolidated joint ventures and adjusted EBITDA. We expect income from joint ventures to be between $8 million and $12 million, and our guidance for adjusted EBITDA is between $77 million and $87 million. Turning to slide 30, we show that our return on equity was 19%.

Speaker #4: As a reminder, this has become a normal part of the lifecycle of our joint ventures, as we have had other income from JV-related transactions three times in the past nine quarters.

Speaker #4: Moving to slide 29, we show all of the guidance we provided for the fourth quarter. The only two lines on here that we have not mentioned are income from unconsolidated joint ventures and adjusted EBITDA.

Speaker #4: We expect income from joint ventures to be between $8 million and $12 million, and our guidance for adjusted EBITDA is between $77 million and $87 million.

Speaker #4: Turning to slide 30, we show that our return on equity was 19%. Over the last 12 months, we are the second highest among our midsize peers, shown in the dark green on this slide, and the fourth highest when including the larger peer group.

Brad O’Connor: Over the last 12 months, we are the second highest amongst our midsize peers shown in the dark green on this slide and the fourth highest, including the larger peer group. Obviously, this is helped by our higher leverage. On slide 31, we show that compared to our peers, we have one of the highest adjusted EBITDA returns on investment at 22.1%. On this basis, we are the highest amongst the midsize peers and fifth highest overall. While our ROE was helped by our leverage, our adjusted EBITDA return on investment is a true measure of pure home building operating performance. Over the last several years, we have consistently had one of the highest ROIs and ROEs among our peers. On slide 32, we show our price-to-book value compared to our peers, and we are slightly higher than the median for all of the peers shown on the slide.

Speaker #4: Obviously, this is helped by our higher leverage. On slide 31, we show that compared to our peers, we have one of the highest adjusted EBITDA returns on investment at 22.1%.

Speaker #4: On this basis, we are the highest amongst the midsize peers and the fifth highest overall. While our ROE was helped by our leverage, our adjusted EBIT return on investment is a true measure of pure home building operating performance.

Speaker #4: Over the last several years, we've consistently had one of the highest ROIs and ROEs among our peers. On slide 32, we show our price-to-book value compared to our peers, and we are slightly higher than the median for all of the peers shown on the slide.

Speaker #4: On slide 33, we show the trailing 12-month price-to-earnings ratio for us and our peer group. Based on our price-to-earnings multiple of 7.24 times, using Wednesday's stock price of $148.95, we are trading at a 31% discount to the home building industry average P/E ratio if you consider all public builders, and an 18% discount when considering our midsize peers.

Brad O’Connor: On slide 33, we show the trailing 12-month price-to-earnings ratio for us and our peer group. Based on our price-to-earnings multiple of 7.24 times, using Wednesday's stock price of $148.95, we are trading at a 31% discount to the home building industry average PE ratio if you consider all public builders at an 18% discount when considering our midsize peers, even though we have the highest ROI among the midsize peers. We recognize that our stock may trade at a discount to the group because of our higher leverage, but our leverage has been shrinking and our equity has been growing rapidly. On slide 34, we show that despite our extremely high ROE, there are a number of peers that have a higher price-to-book ratio than us. This slide more visually demonstrates how much we are undervalued relative to other builders when looking at the relationship between ROE and price-to-book.

Speaker #4: Even though we have the highest ROI among the midsize peers, we recognize that our stock may trade at a discount to the group because of our higher leverage.

Speaker #4: But our leverage has been shrinking and our equity has been growing rapidly. On slide 34, we show that despite our extremely high return on equity (ROE), there are a number of peers that have a higher price-to-book ratio than us.

Speaker #4: This slide visually demonstrates how much we are undervalued relative to other 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.

Brad O’Connor: A very similar result exists when looking at ROE to price-to-earnings. On slide 35, you can see an even more glaring disconnect with our high adjusted EBITDA ROI and our PE. We have the fifth highest adjusted EBITDA ROI, and yet our stock trades at the lowest multiple to earnings of the entire group. These last six slides further emphasize our point that given our high return on equity and 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. I will now turn it back to Ara for some brief closing comments.

Speaker #4: On slide 35, you can see an even more glaring disconnect with our high EBIT ROI and our PE. We have the fifth highest EBIT ROI, and yet our stock trades at the lowest multiple to earnings of the entire group.

Speaker #4: These last six slides further emphasize our point that, given our high return on equity and 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 #4: I'll now turn it back to Ara for some brief closing comments.

Speaker #5: Thanks, Brad. I want to emphasize that in this more challenging environment, we continue to work with some of our land sellers currently under option in order to find a compromise where we both share a bit of the pain in a slow market.

Ara Hovnanian: Thanks, Brad. I want to emphasize that in this more challenging environment, we continue to work with some of our land sellers currently under option in order to find a compromise where we both share a bit of the pain in a slow market. We have made a strategic decision to burn through certain less profitable land parcels at lower gross margins that clear the way for our newer land acquisitions, which meet our historical return metrics even after the big incentives. Fortunately, we are still finding new land opportunities that meet our return hurdles, again, even after the high level of incentives and at the slower sales pace. To wrap up, we met or exceeded our expectations for the third quarter. Regardless of market conditions, we closely monitor our communities and adjust our local strategies on a weekly basis.

Speaker #5: We've made a strategic decision to burn through certain less profitable land parcels at lower gross margins, which clear the way for our newer land acquisitions that meet our historical return metrics, even after the big incentives.

Speaker #5: Fortunately, we're still finding new land opportunities that meet our return hurdles. Again, even after the high level of incentives and at the slower sales pace.

Speaker #5: To wrap up, we met or exceeded our expectations for the third quarter. Regardless of market conditions, we closely monitor our communities and adjust our local strategies on a weekly basis.

Speaker #5: Given the tough operating environment, we are focusing on this even more today. Our goal is to be able to deliver strong ROE and ROI results even in difficult markets.

Ara Hovnanian: Given the tough operating environment, we are focusing on this even more today. Our goal is to be able to deliver strong ROE and ROI results even in difficult markets. That concludes our formal comments, and we will be happy to turn it over for Q&A now.

Speaker #5: That concludes our formal comments, and we'll be happy to turn it over for a Q&A now.

Speaker #1: Thank you. The company will now answer questions. To ensure that everyone has an opportunity to ask questions, participants will be limited to two questions and a follow-up.

Michelle: Thank you. The company will now answer questions. So that everyone has an opportunity to ask questions, participants will be limited to two questions and a follow-up, after which they will get back into the queue to ask another question. We will open the call to questions. If you would like to ask a question, please press star one one. If your question has been answered and you would like to remove yourself from the queue, please press star one one again. Our first question comes from Alan Ratner with Zelman & Associates. Your line is open.

Speaker #1: After which, they will get back into the queue to ask another question. We will open the call to questions. If you'd like to ask a question, please press *11.

Speaker #1: If your question has been answered and you'd like to remove yourself from the queue, please press *11 again. And our first question comes from Alan Rattner with Zelman & Associates.

Speaker #1: Your line is open.

Speaker #6: Hey, guys. Good morning. Thanks. This is always for the great information so far. First, I'd love to just drill in a little bit on the improvement you guys saw in order activity in July.

Alan Ratner: Hey guys, good morning. Thanks as always for the great information so far. First, I would love to just drill in a little bit on the improvement you guys saw in order activity in July. I am curious, if you feel like that was more macro and market-driven based on maybe some of the tariff noise subsiding and rates coming down, or were there any company-specific actions you guys took to drive that improvement, i.e., higher incentives or community openings or anything like that?

Speaker #6: I'm curious, you know, if you feel like that was, you know, more macro and market-driven based on, you know, maybe some of the tariff noise subsiding and rates coming down, or were there any company-specific actions you guys took to, you know, drive that improvement? I.e., higher incentives or community openings or anything like that?

Speaker #3: I'd say, in general, Alan, as you saw with our incentives, we did increase incentives a bit this quarter versus last quarter. But overall, I'd say the market is more driven by macroeconomic and political uncertainty, as well as news.

Ara Hovnanian: I'd say in general, Alan, as you saw with our incentives, we did increase incentives a bit this quarter versus last quarter, but overall, I'd say the market is more macro, economic, and political uncertainty, news-driven. It is just amazing. If there is a good headline, sales are good that week. If there is a bad world headline, the sale, it can go back and forth and back and forth. Other than a slightly more, buy-down rate, we really did not do anything very different. It was more macro.

Speaker #3: I mean, it's just amazing. There's a good headline; sales are good that week. If there's a bad world headline, the sales, you know, it can go back and forth and back and forth.

Speaker #3: But other than a slightly more, you know, buy-down rate, we really didn't do anything very different. It was more macro.

Speaker #6: Got it. In terms of August activity, month-to-date, would you say that the improvement seen in July has continued thus far, or is it remaining choppy here so far?

Alan Ratner: Got it. In terms of August activity month to date, would you say that July improvement has continued thus far, or is it remaining choppy here so far?

Speaker #3: I would say, really don't go ahead.

Ara Hovnanian: I would say it's just remaining.

Alan Ratner: Go ahead.

Speaker #4: I I would just say it's I would say it's just remaining choppy. I think we see we week changes just like we kind of showed in the monthly data we were showing there, just bounces back and forth.

Ara Hovnanian: I would just say it is remaining choppy. You see week changes, just like we kind of showed in the monthly data we were showing in there, just bounces back and forth.

Speaker #6: Got it. Okay. I appreciate that. Second question, you know, on the gross margin guidance down sequentially, you know, obviously it makes sense given the strategy you guys are working through some of the maybe the underperforming assets.

Alan Ratner: Got it. Okay. Appreciate that. Second question, on the gross margin guide down sequentially, obviously it makes sense given the strategy you guys are working through some of the maybe the underperforming assets. I am just curious if you can kind of give some framework on how, when you have that very helpful slide in there with the vintage of your lots and you can kind of see, I guess, the land that was underwritten during a better time. When you think about the headwind that might continue from working through these assets, is this like a couple of quarter type phenomena? Is this something that is likely going to persist through 2026? Can you help frame the size of the bucket of assets that you are kind of focusing on burning through at this point?

Speaker #6: But I’m just curious if you can kind of give some framework on how, you know, when we have that very helpful slide in there with the vintage of your lots, and you can kind of see, I guess, the land that was underwritten during a better time.

Speaker #6: When you think about the headwinds that might continue from working through these assets, is this like a couple of quarters type phenomenon? Is this something that's likely going to persist through '26?

Speaker #6: Just can you help frame the size of the bucket of assets that you're kind of focusing on burning through at this point?

Speaker #3: You You know, it it's hard to comment on that and and I can't say we specifically project it. The the prices and the margins are not just lot vintage driven, but are also geography driven.

Ara Hovnanian: It is hard to comment on that, and I cannot say we specifically project it. The prices and the margins are not just lot vintage driven, but are also geography driven. I mentioned earlier the markets that are mostly East Coast that are doing far, far better than some of our West Coast markets. Plus, Texas has been a little slower and Florida has been a little slower. So some of it depends on really burning through the tougher communities in the tougher geographies. Having said that too, we are having some success working with the sellers of lots to us to share some of the pain, which helps margins and allows us to feel more comfortable burning through some of the lower margins rather than walking from lots. We prefer not to walk from lots where we really can avoid it.

Speaker #3: I mentioned earlier the markets, which are mostly on the East Coast, that are doing far, far better than some of our West Coast markets. Plus, Texas has been a little slower, and Florida has been a little slower.

Speaker #3: So, some of it depends on really burning through the tougher communities in the tougher geographies. Having said that, too, we are having some success working with our sellers of lots to us to share some of the pain, which helps margins.

Speaker #3: ...and allows us to feel more comfortable burning through some of the lower margins rather than walking from lots. We prefer not to walk from lots where we can really avoid it.

Speaker #3: So the long-winded answer, Alan, is I'm not sure we really haven't focused on how long it's going to be. I will say that we've reduced the number of lots that we bought in 2023 and 2024 by almost 2,000 homes, and we've increased our recent purchases, our recent lots that we bought this year in 2025 by about 1,000 homes.

Ara Hovnanian: So the long-winded answer, Alan, is I am not sure we really have not focused on how long it is going to be. I will say that we have reduced the number of lots that we bought in 2023 and 2024 by almost 2,000 homes, and we increased our recent purchases, our recent lots that we bought this year in 2025 by about 1,000 homes. So the recent purchases have excellent margins even with the rate buy-downs, as we said several times. So when that gets into a better balance, I cannot quite say, but I am feeling pretty good about our new land acquisitions and eager to clear the road in our balance sheet to pursue more and more of the new land acquisitions.

Speaker #3: So the recent purchases have excellent margins, even with the rate buy-downs, as we said several times. So when that, you know, gets into better balance, I can't quite say, but I'm feeling pretty good about our new land acquisitions and eager to clear the road in our balance sheet to pursue more and more of the new land acquisitions.

Speaker #6: That's great. I appreciate that. And, Brad, can I just squeak in one last housekeeping question?

Alan Ratner: That's great. I appreciate that. Brad, can I just squeak in one last housekeeping question?

Speaker #3: Sure.

Ara Hovnanian: Sure.

Speaker #6: The consolidation on the JV next quarter, did you give a dollar amount? What's going to flow through the other income line?

Alan Ratner: The consolidation on the JV next quarter, did you give a dollar amount and what is going to flow through the other income line?

Speaker #4: We didn't give a dollar amount, but on those three previous transactions I mentioned, we averaged about $30 million. This will probably be in that same neighborhood.

Ara Hovnanian: We didn't give a dollar amount, but on those three previous transactions I mentioned, we averaged about $30 million, and this will probably be in that same neighborhood.

Speaker #6: And that's embedded within the pre-tax income?

Alan Ratner: That is embedded within the pre-tax increase guide, correct?

Speaker #4: Correct.

Speaker #6: Correct?

Ara Hovnanian: Correct.

Speaker #4: Correct.

Speaker #6: Perfect. Thanks a lot, guys. Appreciate it.

Alan Ratner: Okay. Perfect. Thanks a lot, guys. Appreciate it.

Speaker #3: Mm-hmm.

Speaker #1: Thank you. As a reminder, to ask a question, please press *11. Our next question comes from Jay McAnliss with Wedbush. Your line is open.

Michelle: Thank you. As a reminder, to ask a question, please press star one one. Our next question comes from Jay McCanless with Wedbush. Your line is open.

Speaker #7: Hey, good morning, everyone. Thanks for taking my questions. I guess first, can we talk about the balance sheet and what type of debt restructuring opportunities might be out there at this point?

Jay Mccanless: Hey, good morning, everyone. Thanks for taking my questions. I guess first, can we talk about the balance sheet and what type of debt restructuring opportunities might be out there at this point?

Speaker #4: Sure. I mean, as I said in the past, I'm always looking at ways to continue to improve our balance sheet. One of those ways that we've talked about previously with the market is the idea of refinancing our secured debt into unsecured debt, and it's something we're certainly continuing to take a look at and will take advantage of if the opportunity arises.

Ara Hovnanian: Sure. We, as we have said in the past, are always looking at ways to continue to improve our balance sheet. One of those that we talked about previously with the market is the idea of refinancing our secured debt into unsecured. It is something we are certainly continuing to take a look at and we will take advantage of if the opportunity arises. It is something I pay a lot of attention to on a regular basis.

Speaker #4: Something I've paid a lot of attention to on a regular basis.

Speaker #7: Yeah. Overall, I'd say the market for high yield, even in the home building industry, is getting a little better and a little stronger.

Jay Mccanless: Overall, I'd say the market for high yield, even in the homebuilding industry, is getting a little better and a little stronger. So we think there will be opportunities in the very near future. Okay.

Speaker #7: So we think there will be opportunities in the very near future. Okay, great. Thank you. and then the second question kind of following on what Alan was asking, are there opportunities maybe to do bulk sales in terms of of moving through some of these lots going ahead and taking an even larger gross margin hit to get that off your books, so so that these newer communities and and the and the better gross margins can shine through a little easier?

Ara Hovnanian: Great. Thank you. Then the second question, kind of following on what Alan was asking, are there opportunities maybe to do bulk sales in terms of moving through some of these lots, just going ahead and taking an even larger gross margin hit to get that off your book so that these newer communities and the better gross margins can shine through a little easier?

Speaker #3: You know, we look at that regularly, and we're constantly looking at the potential loss in a sale or a walk away versus building out.

Jay Mccanless: We look at that regularly, and we are constantly looking at the potential loss in a sale or a walkaway versus building out. We have not done a lot of land sales in bulk. We have done a couple of walkaways. Generally speaking, as I mentioned earlier, we are finding some better opportunities with sharing the pain with our land-light partners. I think that is probably more of the strategy. I will also say, we mentioned, Brad O’Connor mentioned three times in the last nine quarters, we have had a gain from consolidation. We have also had probably three or four quarters with a gain from land sales. We tend to do more of the latter, the gain from land sales than the loss from land sales. It makes sense if you consider that 85% of our lots are optioned.

Speaker #3: And we haven't done a lot of land sales in bulk. We have done a couple of walkaways, but generally speaking, as I mentioned earlier, we're finding some better opportunities by sharing the pain with our land-light partners.

Speaker #3: So I think that's probably more of the strategy. I will also say, you know, we mentioned—Brad mentioned—that, three times in the last nine quarters, we've had a gain from consolidation.

Speaker #3: We've also had probably three or four quarters with gains from land sales. So, we tend to do more of the latter, the gain from land sales, than the loss from land sales.

Speaker #3: And it makes sense. If you consider that 85% of our lots are optioned, we don't have a lot of bulk land on our balance sheets today to sell in bulk at a loss.

Jay Mccanless: We do not have a lot of bulk land on our balance sheets today to sell in bulk at a loss. We do have, from time to time, entitled land that is more than where the entitlements come through a little earlier than we planned and more than we need for a given market, and we have been having good success selling those at a profit.

Speaker #3: But we do have, from time to time, entitled land that's more than we planned, and where the entitlements come through a little earlier than we planned, and more than we need for a given market.

Speaker #3: And we've been having good success selling those at a profit.

Speaker #4: Just to add to your comment, one of the land sales we had earlier this year was basically what you described. It was an underperforming community that we did flip to somebody else.

Ara Hovnanian: Just to add to your comment, one of the land sales we had earlier this year was basically what you described. It was an underperforming community that we did flip to somebody else. So it is something we do look at as I described.

Speaker #4: So it's something we do look at, as Ara described.

Speaker #7: Got it. Okay, great. And then the 21% of communities where you could raise prices this quarter, I know there were mostly focused in the Northeast, Mid-Atlantic, and I think that for the second quarter in a row, we're all seeing good performance there. But diving down a little further, is that entry-level active adult? Any color you can give us on what buyer groups are resilient enough where you can raise prices at this point?

Jay Mccanless: Got it. Okay. Great. The 21% of communities where you could raise price this quarter, I know that we are mostly focused in the Northeast, Mid-Atlantic, and I think that is the second quarter in a row where you all have seen good performance there. But diving down a little further, is that entry-level, active adult, any call you can give us on what buyer groups are resilient enough where you can raise price at this point?

Speaker #3: I’d say generically, the entry-level market is the tougher market. We’ve had some good success in active adult, as a couple of our peers have had.

Ara Hovnanian: I'd say generically, the entry-level is the tougher market. We've had some good success in active adult, as a couple of our peers have had, and we've had some good success on first-time and second-time move-up. It's been a more challenging environment in the tertiary super low entry price points.

Speaker #3: And we've had some good success on first-time and second-time move-up. It's been a more challenging environment in the tertiary super low entry price points.

Speaker #7: Thank you for taking my questions.

Jay Mccanless: Okay. That's great. Thanks for taking my question.

Speaker #1: Thank you. There are no further questions. I'd like to turn the call back over to Ara for any further comments.

Michelle: Thank you. There are no further questions. I turn the call back over to Ara for any further comments.

Speaker #3: Thank you very much. Again, we're pleased to have met our expectations and guidance. Even though we're not performing as well as we did last year, we are excited about the opportunities in the land market and replenishing our land supply. We look forward to delivering some good results.

Ara Hovnanian: Thank you very much. Again, we are pleased to have met our expectations and guidance, even though we are not as good as we performed last year. But we are excited about the opportunities in the land market and replenishing our land supply, and we will look forward to delivering some good results. I think we have shown that we have a great franchise that can really deliver some industry-leading ROEs and ROIs. I think as we continue to replace our land position with newer and newer land parcels, I think our performance is going to get just that much better. Thank you very much.

Speaker #3: I think we've shown that we have a great franchise that can really deliver some industry-leading ROEs and ROIs. As we continue to replace our land position with newer and newer land parcels, I think our performance is going to get just that much better.

Speaker #3: Thank you very much.

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