HOV - Earnings call transcript Q2 2022 | Hovnanian Enterprises, Inc.

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Operator

Good morning and thank you for joining us today for Hovnanian Enterprises Fiscal 2022 Second Quarter Earnings Conference Call. An archive of the webcast will be available after the completion of the call and run for 12 months. This conference is being recorded for rebroadcast and all participants are currently in a listen-only mode. Management will make some opening remarks about the second quarter results and then open the lines for questions. The Company will also be webcasting a slide presentation along with the opening comments from management. on page available website the are www.khov.com. at slides the of Investor company’s The would follow like log who listeners Those to the on along website. to now should Vice call I to turn like Relations. the would Jeff to O’Keefe, President, Investor over Jeff, please go ahead.

Jeff O’Keefe

be you or Carmen. statements. Such that statements second implied goals and not this our morning’s for you, cause for not the and this of are expectations performance, Reform forward-looking forward-looking ended which actual materially financial unknown considered facts known April involve achievements periods. review Thank by should of future respect provisions Act statements Securities statements any the include All all its results conference statements results, Company’s that statements of to in to the limited achievements to different participating results, results of future meaning expressed to the historical uncertainties, risks, related be to thank from Such XXXX. other or financial performance And factors are Harbor but may or within for quarter, call forward-looking XX, Private XXXX. Company as and call Safe with the the Litigation the

to portion of materially are result Management’s and statements, Safe XX, from of nature, plans, quantify. actual other and a our such made, the Analysis, expectations risks forward-looking statements of uncertainties and in intentions, statements are uncertainties, Annual suggested speak or in by assumptions are or or October the are fiscal and year our on result, and they Although not as will forward-looking plans, required such a Factors factors for forward-looking intentions, particularly XXXX, Discussion obligation subject Therefore, sections we that ended Harbor Report applicable the reflected entitled date information, statement expectations believe future XX-K described of achieved. forward-looking difficult no risks, only Risk of give differ as and detail reasonable, that Such those any or MD&A Securities laws, the and and and in subsequent variety in statements, and performance their Form could the By security circumstances, filings future Commission. are undertake assurance events, with to factors. result that update or results whether we other adversely as by are revise we of be can no a new any Except guarantees reason. changed to or Exchange publicly as entitled predict

Joining Vice President me Ara, now turn today Chief are go Ara Sorsby, Brad Vice Larry the Hovnanian, to CEO; President, O’Connor, and CFO; our Senior Treasurer. and I Chairman, Officer ahead. President over Accounting and CEO. will call and Executive

Ara Hovnanian

also going second to CFO, to with me I’m our our labor Jeff. details. the and I’ll Thanks, up pleased quarter On and we we the Despite volatility, second steady quarter it with supply compare on chain our mortgage lumber review presence shortages are our will issues, X, follow the uncertainty results guidance. results environment. comment And current rising results. slide housing in we’ll our economy, to open Sorsby, rates, very of then, Q&A. more Larry

to stock benefit column Additionally, we benefit quarter. phantom added of this the a results $X of third million compare our without

our were was well income, can standouts SG&A and were which and you If you guidance was our X.X% end our range. focus pretax on see that within gross adjusted over both range. The our guidance range the guidance that upper of above margin revenue third our column,

last the hand $XXX that quarter. the our Starting year. revenues comparisons you year-over-year flat the in quarter to slide of were portion for total second on with for see Moving show slide, second left X, can we million, our about

in this to portion of increased year, second that basis to right adjusted XX.X% Moving our XX.X% to us our home $XXX,XXX The raise can strong the and increase this home increases, more year’s average than hand points cost and labor is brought compared see to margin demand home to sales material slide, approximately prices XXX last of you that gross due quarter. the allowed delivered. magnitude to price per

Turning housing these significantly are here, over trending have time, same is lumber been down, past been from new deliver. averaged price the average lumber homes our higher second as homes just to show will in $XXX,XXX. lumber see cooling decline. contract The homes sales can our costs years. the of X, from -- recent begin the new two two first That we is fiscal the have price up to we for of margins. be market price on gross slide weeks. prices cause will up. Lumber than likely dropped that the about contracts half you this will benefit have our to trending quarter, XX% in prices lower the start the volatile about pressure prices of these prices in homes a In delivered. The very sales that ‘XX, helpful as will results These facts At

exceptionally strong. the As X, long the show over slide new lumber term. weeks, of have gross few On margins last prices contracts on we stayed

in lumber declined pricing. from normal have lumber use still budgets. we’re internal recently, lumber pricing long current While way our prices We a

of However, helpful. cost pricing as disruptions recently white-hot as levels. that we’ve it’s housing be chain a Lumber, and slows as housing. reasonable supply the return very to lumber know, pace And the resolved, experienced that to normal you are will assume will major from component market is

to affect In slide, year-over-year $XXX have quarter, slide, If XX% SG&A second to was delivery can slide In would this for compared portion right X.X% yet. adjusted the hand in portion the left see count, lower our of Turning last second that EBITDA related you that million. delays we not hand SG&A the now year’s XX.X% X. of our our COVID did increased to adversely been quarter. the ratio the show

Turning to senior benefit XX, last can see you that the $XXX notes year. completed million of we reduction the slide of

points XXX X.X% dollar this quarter year’s this million of from to basis $XX to XX% Our $XX second quarter revenues million in percentage amount absolute last of down X.X% from interest The year’s last interest to year. year. was expense decreased in total second

last we year, to even improved see $XX this XX, interest costs XXX% future. in the pretax On and that million later to compared an off we can million notes least lower Given notes to income senior additional end our $XXX pay million million fact reduced adjusted we our the very you slide senior quarter the the expect $XXX anticipate at that by additional of year. at second an of that $XX

$XX benefit $X.X to generate income not a deferred federal expense of of net if Regardless was our year, income more Our second tax you net Net pay income allowance have GAAP billion the our actual the pre-tax than tax the income $XX to cash to second for do income substantially million the huge in last reduced quarter for the reduction. of income federal as net year’s cash compared would’ve allows $XXX next from This we taxes implies. valuation of to been use last us this quarter, actually by XXXX the year, million, million. result asset. our

we portion significant debt a sheet. reduce cash to balance of using and the our We’re generate strengthen

X.X%. year quarter about we saw to mortgage our rates about talk environment, me let when increase from X.X% sales XX second Now,

portion On show going XX, to the community all we right hand the the for back of second per slide contracts way quarter, XXXX.

and was ‘XX, the ‘XX. can ‘XX, XX.X increase. XX.X quarters That of see that our in from XX% pace second of a jumped You white-hot a contract ‘XX fiscal fiscal pace of an average to in

as pre-COVID ‘XX, in sales was the a ‘XX. second ‘XX year’s a from that years boom average not quarter of second current pace historical stronger ‘XX, pace neither housing as and quarter that this pace higher contracts for time While in XX Further a average. XX.X. per quarter bust per is to than contracts to the or community was last The the second still we was our of XXXX XX was year, than much industry. contract strong the left, our of show of the community This

Given to slow underwriting raise home very of to home to to the related contracts presentation. home construction prices gross ability the more gross our high the it’s summer. Due a demand discuss In inflation, expect and mortgage reasonable returning fear that margins levels, reasonable in costs, rates softens our little a to may return this it’s also with home levels. normal our recent to land will written assume rising purchases normal conservatism pace, in will more than to regarding sales further If all be Larry Ukrainian further, uncertainties similar down our to margins. topic, demand war, recession, later continue

prepared that our and assumed multiyear our key I review levels. we’re targets, those key we going we metric to last pace note margins targets While decline we quarter, that will showed discussed normal to not lower, eventually more metric would that when gross and

green, we ago The blue, transparency, month quarter. years gray. greater most of in slide recent last through same For per month the contracts two show same ago is on from year month month our light community in monthly a the XX, April, the is is May dark in

been all For our on blazing this shown lower pace. XX last than contracts have months slide, year’s

for pace year, also sales a the sales However, but The last our remained strong homes we reflects demand pace shows slide month with shown compare favorably same pace. every second pre-COVID this month’s in sales month that every on decreasing from quarter.

moderation and we during many to forward month expect home rise pace if the further, of in in it’s prices prices. raise May, communities, to Although current both, sales going continue rates in home reasonable mortgage

contracts X.X contracts through rise war We just May, ‘XX. every inflation, cetera, pre-COVID ‘XX, Turning pace, well month May. May for than of was pace Unlike community of ‘XX beginning way There’s in ‘XX, in of the in show second pace [X.X] per et in ‘XX. greater had doubt Ukraine, the quarter little the to for the all dampened the slide month of have yesterday. in (sic) ended lower XX, where rate as sales than which slightly pace of as pre-COVID was we the community home our that of fears interest the May demand per the

to As for industry We believe as of and use today, we still have the modest be of very this true incentives well. concessions.

of incentives it’s paces sales concessions. industry As and reduce and normal the to use that will likely both, return further, we

us, rates. historical to could For from used down concessions increase mortgage more qualify incentives additional The and levels about recently to buying customers X.X%. X% of by would about that be incentives our

helpful able to since buyers were have home qualify declined Fortunately, that large consumers shows ‘XXs. mortgage returns. points. of reality over few since how It’s today’s slide not more will expensive usually generating basis This On XX, in sustain same of for adjust Xst to that early perspective still mortgage of mortgage of a it show before. January this sign slide When how are a that gross higher since mortgage time On mortgage can can increase slide the strong afford. year, are while they for mortgages rates a beginning rates able high rates XX-year past XXX slightly a to the of have have the this it’s rates the the is to about risen we margins XX, and happens rates they for where normalized and quickly the concessions, quickly, increase portion fixed of increased quite to as rate takes the home increases not rates rate reset long-term show year. we calendar mortgage Perhaps some interesting Any expectations their note been and that weeks. of be stabilizing the now. to have

fixed the mortgage Although it has increased lowest seen decades. levels have for XX-year the five that among today’s rate remains we to X.X%, past

prices While I times digit home in many they’ve significantly, in the increased have recognize percentages past. double increased

in see had on can rates impact increase rates. has you the little cancellation very As in mortgage slide our XX,

to For the quarter. XX% second in rate XX% cancellation quarter our last ‘XX, was of second compared year’s

rate cancellation rate quarter see in inventory the you sale cancellation is slide single years. second the we the the If The is to quarter you XX, this back slide, family a seen can last range normal On have that look over for the of in low-XXs. in what second XX consistent since we show with XXXX. the high-teens XX% on existing

general. for below is. the for historical average of X.X lack XXX,XXX of is homes sale at new if million reasons that there currently and slide, supply would the of in as it X.X As specs us finished that show On XX, community, both, respect see homes, supply, near sale This per one are new existing remains homes. we ground homes as no to industry of for had spec the the all-time we With homes we the below virtually homes which is slide strong average this we still community. homes low on our demand community, on you per significantly doubled be number existing is would existing long-term this you an X.X be of for specs still our our spec below we Like long-term of per homes, doubled average. if homes. today Even can

show this also on that unsold we little end a that X Only XXX started our our is homes in XXX day was XX, count slightly There that We homes of On we had the slide of community the We increased home the unsold country finished. year-over-year. the show very construction. entire supply. slide start we were quarter. at a second started spec, consider

at by quarter. end consolidated community increased count X% communities the of or second Our year-over-year the X

in We of half to year. second this expect our community increase the count

changes material or than no to delays have XXX scheduled including market expect permitting slightly end previous with behind land the guidance pace in unconsolidated our to is count anticipated. the and we communities, higher we due This openings slightly which community delays, our Given set a than conditions, slightly lower initially development joint year ventures. at

of are through country. efforts We incredibly couldn’t higher have We these the the with half company the profitability first of associates ‘XX. levels pleased dedicated throughout our our combined achieved performance without of

our achieve year’s we teams lot As to this I’m growth it Larry year, our Financial Chief of significant our we’re in we’ve guidance. we turn We job backlog, have backlog to fiscal to this but this of build the I’ll firmly that already going back over deliveries ‘XX. all half of at our to get of confident expected the homes begun We still and fiscal for now be Officer. can profit we ‘XX have deliver, look done. believe to a need Sorsby, able

Larry Sorsby

start in lot raw to key going build I’m the is with position made progress we’ve to Ara. need the we Thanks which homes. growing our material our

We Based to XX. through position equates our about over XX-month We a that couple we this lot Turning have show or by XX,XXX our than been slide steadily past now of on more XX%. Primarily lot years. X.X-year use lots the to trailing options the lot control year-over-year count deliveries, X,XXX by of increased finished lots. increasing supply.

prices, show low gives comfortable lot flat XX% our optioned XXXX remained current see, On current we to slide a a of XX% current made can percentage By over by now The flexibility lots tremendous land remains percent will you stabilizes, the a we X% We of profit, and position As of owned the acquisitions second past the lot to internal market by automatically of of market. X.X-year continue to position lots. of pretax adjust increased. a and year-over-year, acquisitions rate increased while controlled we’ve rate owned remain we feel the home acquisitions. sales for underwriting and land in lots a when housing using rational cost market construction XX, quarter minimum new making with our the us self optioned year. from XX-plus-percent standards pace in return second hurdle to very supply market our conditions. have cautious quarter underwrite in changes ‘XX, to Until the shifting

deals past sales paces by unsustainable, late we and able lower, to of land the more higher in pace normal paces, over we’ve a using our position. of increase COVID these fair Even fueled we summer sales grow have underwriting win been parcels XXXX, share taken COVID the of rather using the months. more pre-COVID onset land approach the slower land consistently since However, in sales new the our XX than to our when experienced sales paces, conservative

and can lots for rising recent community deals developed mind of and and total XX, the growth a sale. in revenues today’s revenue control be October ‘XX, ‘XX and there’s lag second room land contract land the same which home per Keep those a the underwriting XXX% concessions October still a achieve recently will the in controlled put community and show to incentives will of XXXX. that significant that rates, were land our open not needed, substantially during further sales XX, XXXX concerns profits today. housing underwritten the when were slowdown to very need pace we our all to when of current strong between ‘XX land under underwriting under our the slide we XX,XXX and than control before our targets. in Given inflation place controlled lots lower prices our increase concessions were of we standards of our use sale market, virtually lots put regarding fiscal new to provides we mortgage tightened margins. assume of quarter prior until the vintage and ‘XX fiscal quarter position. XX% Most lots we fiscal while necessary control for at lots to our incentives We and XX% under communities On and we delivering profit during Those fourth open and achieve beyond. XX, fully if currently fiscal be when of adjust will and of in control us we

beyond. and our to fiscal and control of but $XXX million land that of second senior $XXX on spend deliveries land $XXX ‘XX, primarily additional after million focused second notes liquidity. of some means they’re of paying off have primarily the a Even obtaining ended acquisition we for excess with XX. the slide during on fiscal to home quarter, That Turning Today, continue focused ‘XX liquidity. land we and million are quarter teams

outlook, mortgage housing now environment approach are conservative more taking the underwriting on uncertain new a an and market rising economic even purchases. land rates, cooling we Given

Turning options. land to peers, we via XX. that the our of have slide third Compared now percentage see to you controlled highest

use possible options our returns to on whenever capital to and high We to land achieve risk. continue reduce turns, enhance inventory

land at XX% ‘XX to of ‘XX. the of from at of XX% quarter second fiscal the the use options end end Our of quarter increased of the second

inventory of of to XX. our we High second future to the and now use to in inventory believe We improve options continue on turns Compared key we have further and to to a turns strategy. peers, inventory rate. component returns opportunities highest our overall inventory continue our Turning years. have land our are slide increase turnover to

We this to of our maturity ladder ‘XX. now of Turning slide ‘XX, Last notes we’re paid the able believe an at XX, off ‘XX. to on do second quarter. show we note million fiscal notes. fiscal we of end currently additional slide, second the committed quarter the After we at ‘XX. refinance of $XXX of due in Furthermore, notes paid And least $XXX senior revolving X.XX% credit undrawn of the million its should at not maturities end fiscal that paying during we debt the senior maturity million quarter year, any that, senior until of our first ‘XX. the our $XXX ahead facility in another of we remainder have be off to off of

our taxes approximately accelerate have come deferred cash $X.X to will tax balance will billion in Given rapidly progress asset, enhance significantly and improving flows $XXX years will This our our not to benefit our pre-tax sheet. tax million earnings. on federal of future of pay we income

billion ‘XX. increased to of in the consolidated to the the the at of Sequentially, end second backlog slide years backlog further coming the first is to ‘XX quarter we the the up focus On of show reduce the of were our from our of second $X.X Our value of debt. X% year-over-year quarter end quarter. XX% dollars dollar end XX

able sharp Given customers analyzing and mortgage with for diligently current where the still them If mortgage teams make programs backlog to at rates, our be alternative mortgage. mortgage rise in approved. can rates, contract home our they to a to qualify our recent are building provide customers mortgage we attempt been have not can sure qualify

we our XX% of If to respectively in on We rates backlog. stress have ‘XX obtain increase gross nicely to estimate backlog and able backlog, currently mortgage that or XX% be our X.X%, test roughly not customers our strong a our financial to improvements performed sets expected would including up margin, The a mortgage. fiscal in expected achieve our performance. us X% of strength

already well. for We backlog as developing are ‘XX fiscal our

the full in our assumes increases for and ‘XX guidance of the chain rates. market financial quarter year material no in in or current Our no fiscal including adverse conditions, deterioration mortgage third changes further supply

Our cycle to our phantom mortgage of SG&A at to HOV months. compared construction continued to supply the of guidance assumes from full the construction we ongoing related lumber months year uncertainty labor than persistent end second Further, of excludes impact approximately extended stock and rather X any stock are times our the of from for quarter increases, expenses price price solely increasing X market to chain issues, cycle of fluctuations our guidance pre-COVID expense Due stock surrounding to rate for X price times it fiscal movement of ‘XX. $XX.XX ‘XX. potential tightness, the reiterating

to now We XX. provide third quarter for guidance fiscal of the Moving slide ‘XX.

and expect revenues between the to million. third quarter for million $XXX $XXX We total be

is and XX.X%. to We to range XX% X.X% to in be expected also expect between margins the be XX%. gross of SG&A

for Finally, On fiscal’XX $XX XX, we year. to full to between profit $XX for million. our of pretax guidance quarter third million the grow our reiterate expect adjusted we fiscal slide and ‘XX

billion We expect the for between revenues total be $X $X.X and year billion. to

in to margins total between XX.X% be expected SG&A revenues to XX.X%. to be and $XXX percent be range gross and of the between $XXX We X.X% EBITDA expect as million million. XX.X%. is of to expected a Adjusted also is

million and $XXX million. profit We be ‘XX expect $XXX our adjusted fiscal to pretax for between

Finally, between earnings and to share. be $XX.XX rate tax a assuming $XX per share, per XX% we expect our

than improved EPS of see On midpoint to guidance, Given ‘XX. the where expect XX, X.XX our the multiple we’re of at declined in fiscal earnings. you have midpoint can past the stock our EBITDA further X.X significantly trading over debt metrics closed fiscal as few only for to yesterday the and ‘XX Total ‘XX. X.X fiscal X.X projected times and projected ‘XX, X.X to Net declined times fiscal to EBITDA X.X fiscal times adjusted for from ‘XX to debt in in for fiscal up ‘XX. X.X times more in interest ‘XX, ‘XX times EBITDA has times from in X ‘XX. for fiscal and our to we years, for to slide how our doubled Adjusted X.X improvement to to guidance projected times times incurred achieve from well adjusted ‘XX fiscal times at coverage fiscal to and X.X as credit

slide Turning XX. to

ratio midpoint decline ‘XX. XXX% fiscal of point the And of Assuming fiscal our end debt pretax from result we ‘XX to hit our end year-end at fiscal fiscal by our the at from guidance, it’s midpoint expected to at our is XX% position of ‘XX the in net the than will further of more equity end projected profit, -- guidance equity shareholders’ ‘XX. fiscal to level. of continuing ‘XX our for This end to in to to fiscal double XX% capital year improvement reduce

continue our growing balance to expect equity. and debt sheet We improving by reducing

goal to a mid-XX% capital to debt ratio. achieve net Our is

consolidated building continue our our the when have on we trailing going is home our show return XX, if XX slide and entire last being to improving the higher that at have above recession, in the of to recognize return to the industry The slide that a us our metrics at to the periods. credit slide show housing We repeat of EBIT peer Xth occur. our inventory great we ratio XX, group. XX.X% trend we the we expect On believe of on for for to show a leverage. discount XX is a group our we’re future We highest compared price-earning we should valued because have very XXX% compared XX, months months. On to on And and that equity peers. which highest trade peers our we unlikely stock as

to sheet, believe times home on our how of compared EBIT equity multiple our how focused price of further been we for undervalued increasing $XX.XX, average. a most and We stock stack our our given market next at levels to balance discount given lowest improving credit XX% superior a our on our discount Based yesterday’s closing strengthening XX% we’ve rapidly sheet. peers industry stock of on of return performance. balance our entire is price will our the public and X.XX trading at peer earnings give the returns remain of eventually to up are and our profitability inventory the on However, we us universe builders. The the and

I’ll Ara for it some back turn comments. Now, closing to brief

Ara Hovnanian

Thanks, Larry.

fiscal making slightly me They community. Let at sales, I’d by were start night, were balance of of ended our end through I show mentioned our sheet. Over cash principal gave X.X time, end $XXX to last per debt we which contracts correction. May our this for our from to the we by reduced higher almost actually the million. of one ‘XX, XX, up X.X. period like wrap back the this and last cash had of guidance the call buying year. On with reduced value luxury and have debt we two the already saying the years, will peers stock using debt many have of that our public slide their levels aggressively we’ve been of by strengthen our while their reduce debt have excess on focused over the outstanding

If XX, to our XXXX made we’ve progress to of sheet end see year. some strengthening fiscal from that balance the you slide in you significant could turn this

taking clearly, strengthen increase year an our that balance to state expected long-term we over think a XX, current levels. price. impact more single debt positive our X had recently we’ve single industry good we the current currently market. are debt We of by over almost has long-term time the we’re years, of believe cost thanks family We since this our as public to sheet to future perspective show million. just family $XXX XX million industry, average our past steps the On equity years. Our housing and boom, the the million we on of housing of ‘XX was $XXX that This have produced for gives stock reduced is several the the will well a the we at starts simultaneously slide homes and slightly starts averages previous the valuations than for just the it mortgages. pace. In and reached subprime time, first production XXXX, by

More at the and and saw are recognize levels but cooling in likely price. in positioned. off late feel know of decade it at a the the than prepared dramatically and housing is will views said production there a regarding the years importantly, have average supply I benchmark feel definitely like We future, indicative better XX varying we better the time the and the pace it’s housing a last recession housing of production nothing of we demographics aren’t good previous necessarily levels. is Enterprises position on that the lower the market average any we in better half. and than be And great like sales be been will XXXXs. Hovnanian like Having industry

increases. prior recent We of we price significant the at have land prices fixed home controlled much a strong which position, to

of We have with backlog billion very margins. a $X.X large solid really

lumber prices down. trending seeing We’re

there. We a declines us We gross which to feel turn you. sales, be we’ll large concludes about of we have in very room formal solid solid margins performance Q&A. quarters We lot the our prepared. reporting comments. that price forward All-in-all, land home over look our it the That position. excited net ahead. know out give in happy there’s we have for Thank and we’re continued And future to option a to flexibility uncertainty and of our absorb current

Operator

Your from question Instructions] & with [Operator Zelman Associates. Alan Ratner first comes

Your line ahead. open. is Please go

Alan Ratner

for color I far. comments Thanks all morning. so questions. the taking And good appreciate of guys, Hey and my

you the activity, that for saw demand? a kind and the about differences, points there sales look the disclosure. talk cooling the whether can where a you in the that, pullback you you or to as price little May First, and in can sequential at well, to various that across quarter, When of the notable just thank either adding markets in contributed across cancellation And your just pullback? month greater saw May trends whether pace any you and you on bit versus talk were about second

Ara Hovnanian

I’d entry backlog weaker, has cancellation mortgage we’ve between picture the from big working slightly everything stronger, qualified regarding level been has to rates, say, been has make a the same. I adult divisions active the that qualify perspective, solid. been the mean, and and May has mortgage our and have sure been team uber around been in can Sure. And we no, diligently -- for or alternative is have very our segment programs.

this cancellations. pretty as as at been far we’ve commented, good So, Larry as stage,

Larry Sorsby

Yes.

of May. clear, all rates to in we make to the of at crystal Just no saw our month speak it cancellation in change

Alan Ratner

Perfect. guys. Thanks that, for

in implies hand, expected next this And, the obviously the saying guess, you the sold to year. It quarter next question. two? It you more coming be contributing I lower? maybe likely looks the if that or what other Because might stays increased these kind would levels that the mortgage you were at although moves What’s like I for about where the well Yet gross hit were margins those of pullback the guidance to the look is incentives, like a sounds even margin, from over multipart you if when this you’re homes do before levels. some year point in Second, half in But, haven’t of benefit quarter. predominantly increasing that run-up or of presumably excess on really at lumber, back on pullback some you’re start to pace these yet. sales getting in rates? think incentives guided

Ara Hovnanian

this missing environment chain disrupted gross cost predict we’ve a to Alan, environment, these appliance solutions little supply it’s or tricky Because first, minute allowing for shortage a extra we’re with regarding accurately. number a to for we’ve got higher this doors gone, very replace of an margins, in labor super garage are a it’s where end because a or appliance all windows backordered. last handful sudden got of it’s and

hence, as that part our do the been were to end was little little trying in we cautious it costs. And margins we’ve better to of we’re upper of than reason range. cautious than our better the be turns more were guidance our So, out, a why about. a gross And, able bit

that this our in new as the you brand like weekend So, solid. new I really the of been our -- same generally balance contracts of view can gross mean, speaking take are into have comment regarding really, margins year.

to more then multipart fall you more, know We’ve your that. what last seen off more. saw Larry you just little And part in don’t regarding the So, question, as and a tell to They’re I pace about really of then May. solid. finally, it turn I’ll answer to some

by in looking of terms an not community average are We movement community. slowness. It’s

still metering increasing and have We sales sales that prices. we’re communities

communities concessions. first are be that other back that communities hand, the going have we that definitely and some would have those normal the to the we start slowed ones On

carefully. across all. want tactical At you board and So, really haven’t going by concessions normal stage, elaborate? we to Larry, community implemented look And to back we’ll looking be community. to continue do we’re this the at

Larry Sorsby

couple projections. more the to difficulty the on the gross points margin, in emphasize A making just

that higher cancellations reiterated The projected from first to we anticipated were December it we occurred home point up. a than continued December our at ironically, we quarter in go first that resell and able results. the back believe is because margin when price I’d announced we and Any second make prices to got I higher quarter forward,

one that’s things it. led that So, to of the

this The And too, are previously been had goes a the that terms into higher very which other anticipated to half of went a we through cost biggest that going second that coming in the prices, were construction have is in component is and that have, the than lumber deliveries well. prices up volatile. months lumber ago certainly few of as year, home thing single in

could lead year. the that margin of second of some So, in to the dampening the out half

that. at So, leave it I’ll

I was Ara’s comprehensive. pretty explanation think

Alan Ratner

of both answers. the you Thanks detailed for guys Thanks. Great.

Operator

And with Research question your from next Barron comes Housing Center. Alex

go line Your open. ahead. Please is

Alex Barron

and strengthening On you the some the you’ve said on guys paying debt ask, potential At so paying job down path it I congratulations kind guys is going previously likely had And balance expressed now, gentlemen. that year? and point, you and to just as refi. the global the you, that strong sheet. are down Thank the go far of on results, I of debt more good this to down note, of for know rest the wanted

Ara Hovnanian

Yes.

also now, and been that inflation has rates, disrupted obviously yield I higher by high think for right cetera. market et the

refinance to expectations, have changes would’ve going debt down refinanced. opportunity. great didn’t our would continue about then pay given on We to it, the gave to quarter, do debt. metric premiums We we’re key in say to the were in pressure saw safe pay that given it’s especially we opportunistically earlier. refinancing. if call we a just any think we we to targets also But, market, have last concerned that So, And I

we’ve the and So, see there. right to some the chip will horizon now, in at on near sheet term is strengthened, you’ll as balance look debt. refinancing. think away the I just at condition better got point us at our future, continue we in And Nothing

Alex Barron

you need Okay, good. it guys Well, need the -- good thing didn’t do to is it.

good. that’s So,

you you or I On incentives To lines? the that for the minimizes along are ask through what guys any offering? other Difficulty] who’s you those guys? year you the people discussion extended something so, paying fiscal rate incentives. on about cancellations customer hand, guys What wanted potential if and your the of the to the guys through that, or have end extent Are backlog locks secured if [ph] some [Technical

Ara Hovnanian

I market and X% mention, have those been -- closing we’ve largely levels. rate mean, were -- April rates just I’ll May, been mortgage and First, in the homes in

been mentioned, comment on on cancellations. you want qualifications seen rate our has of I huge diligently And the working to Larry, the locks? to We check buyers. haven’t as do team

Larry Sorsby

both, obviously We been to long-term others. by our rate locks some have and by short-term it’s been taken refused and contract Yes. backlog, offering and

than few that’s of XX% least said our has to bit, some that’s backlog that, backlog Difficulty]. comfort rates as than it already of We’re the quarter been consumers if you Having I’d haven’t higher going kind when dropped the a normally been would and locked. And in a Maybe have they by given [Technical And weeks And say last decide to are point seen that strong, that encouraged so a help to fact with little But here be. case we they make third little recent comfort lock will been scrub well. at back by to there up. more we say in customer at have isolated And occurred. consumer. some that does we’ve qualify, a in rate a assistance decisions we’ll an have still case. divisions I help but would those buy have provide order rate time, margins down instance or to need a our and this because our those have

Ara Hovnanian

the of the locks our that look consumer offered consider been all and themselves. rate offered cost Just hasn’t at clarification, we’ve Generally, mentioned, our cost. Larry to can as backlog at it

Alex Barron

And, it gone opened people that mean, Correct. it’s that with afford no that Got haven’t rates home. I secret are very have some perhaps if combined to yet. it. the interest up new on could significantly, home one made more, I for ask difficult communities and prices a

ASPs new lines? those affordable, the or or upgrades just off comment smaller at them the communities, along sizes houses make plan on there either included them So, more lower fewer anything to introduce in start somehow is any something? or Can you

Ara Hovnanian

community offered. home range lot we a question. the rates we’ve and range at upgrades selling and were changing they our margins that our Similarly, were our our we They offer the same. I they to select price interest home typically gravitate large definitely of the of me, percentage. smaller to expensive adding a of seen fair communities, our margin margin. end excuse lower, the also good gross selecting. a dampening, more of but been greater very -- a tended a small of or larger a or When little were options a selection were We At they at little mention similar homes we more a tampering been of spectrum. price prices a product home, home and small almost There of have say, or homes amount largest, just It’s least all very, typically offerings. sizes the offer most want homes, toward could a it’s without I’d from Sure. same we the home size upgrades. homes upgrades. at gross has recently, mid-size Whether

were homes to do the choose have smaller. their doing lot adjustments. times saw really a rise they And sold think and us that, the they their obviously takes can a that all upgrades past of anything the It of sudden next a ability and and in you did definitely said we the decisions more ability hesitation. the those I to little a in customers of in rates May. still own buyers make expectations. for an But, to when without affordable. is there make rapidly, they see are have them Having adjust that, May hoping house time that make a that So, the for homes reduce we or People lot many little disappointed

Operator

you. Thank

Goldman Your next Sachs. comes with Abrokwah Please go from question Kwaku ahead.

Your line is open.

Kwaku Abrokwah

I if on Hi, mortgage the get permit you guys. rates. quarter. month May, current in terms what a on kind of Congrats of sense of you seeing are buyer wanted to just follow me, of to attitude the the at up

a go XXXX surge late seeing are rates. what saw Specifically, today a you trying on to more I’ll marketplace. I’m absorption going Is between stop that to below, introduce we start get versus the into in to trying a mentioned we if there I’m incentives -- compare mortgage level saw X.X there. what of, we in you that, comparable when pace. you And sense

Ara Hovnanian

specific. community communities. I’ll and That’s in in in the the Carolinas. it many in in communities many increases Florida many situation We Dallas, see case. many neighborhood Southeast responding again and and in certainly start with -- highly that metering by Delaware, price at the have in just a We that in still South Phoenix, it’s communities

hasn’t We wouldn’t we have many pace the -- slowing. where examples been

entry been communities they and be before, very has internal community I we get fall pace. can look back on expectations some again there our pace. It able pace, they’re If then that if buy met, But to to not disappointed. phenomenon, have and mentioned we’d have with fallen do adjust if on those -- to it’s have on pace, that So, concessions a then our the of that some getting of off off smaller for at that home, by at and communities regular communities be lot don’t ultimately a community if community. budgets a

there’s and Fortunately, to gross return mentioned high, normal margins room some are of we numerous very plenty as to concessions. times,

Kwaku Abrokwah

community a internally, per just on pace else is is not month, you’re clarification it that. level somewhere I’m around And or sure it if level? per Is X revealed, targeting, a quick that different the you

Ara Hovnanian

from dramatically community. varies community It to

might would than communities that higher-end very Our entry communities higher lower or level be that. three be than or our lower;

it’s basis. a very much So, community by community

Kwaku Abrokwah

question Got you. here. to follow up I appreciate of on that. a And the color different on sort just

cancellation terms or in in the the of spread buy what’s doing, to mortgages versus payments, to adjustable I have at In your guys cancellation, et pie, split contract backlog if talk you’ve terms greater are been of out you or quarters? seeing cetera? two combination, would of are And what backlog versus rate the downs look willing how many guess, a moving you you be if buyers over to about what the past down the

Larry Sorsby

a of Brad been, my wouldn’t adjustable and lot people been that number rate than are Q, can of hasn’t this Maybe that direction. been point historical rate. not it qualify our I rate X.X% different because significant Again, in qualify adjustable to rate. do XX-year arm to in fixed. say very standard, normalized have seen below -- just materially been that But question. contract a well Certainly that rate -- point answer I that a they’re material have rate -- there’s it cancellation But fingertips. huge adjustable this lower our second have in provide what what little cancellation that Brad, on call mortgages, modest trends at We’ve a people time. some use of historical between a fixed have K by can those just don’t think rate spread look I XX-year the can’t a it direction. seen our I a versus in We part going don’t been bit Not your at cancellation at cancellation a of there’s the an going backlog we’ve our shift not backlog up. contract and cancellation two still is, rates. the has

Ara Hovnanian

little will cash communities affected bit many other typically of at probably of percentage greater We them than have get of are Many Many bit mortgage of not rates. a peers. age-restricted all small very I are of a one them consumers our buyers. by Those add color. of mortgages.

indifferent are I rates. the So, made that’s and see more part comment about We mortgage segment I that strength suspect, earlier. reason the more of in and just they

Brad O’Connor

the last is Larry’s the beginning that’s backlog Adding which relatively low. comment, was second quarter historically, year’s for it rate quarter. X%, exactly the to And as on same backlog, was cancellation

Operator

is Research Thank Barron ahead. you. with Alex [Operator Housing question Instructions] Next go Center. from Please

Alex Barron

my follow-up. Yes. Thanks for taking

of or do guys -- end that see Regarding That’s specs, my guys you with at doesn’t you any end a have specs spec any very starts question. the little like slow in or just to see if down first of could up risk need I’m this some things the specs. a finished pace? sound it wondering, year, point by you do don’t you improve terms completed sales

Ara Hovnanian

homes Right are There start things uncertainty. many to just in in now, have time scrambling we worry this the to of we backlog. are about

a $X We over billion. huge have backlog,

about So, specs. not on our specs, worried very are nor we we are just focused

are We than less specs number than than community less we the half half. of per are historically,

think have we country, the in zero, and two have finished concern, two a we from far specs. it’s virtually So, I entire

one of many radar not just it’s of the our on So, concerns.

Alex Barron

ask Got X%? buy locks, generally? where starting X% like in downs, whatever, also in any Is do incentives, it. rate terms or impact of, to would that it wanted much are margins rate to how I communities you

Larry Sorsby

be Ara be not going to whole as think it’s mentioned, has company. I across It’s brush specific. the community Again, to broad going a

be an and time. impacting communities of slows of just over think, noticeable So, I and more by half anytime a to would to or soon. dozen increase, by year of market slow or is us or communities, think if becomes one something. then increase hundred would next near-term, a use by in and But, use not be the come selling be points, we basis extremely at the incentives of But or incentives. noticeable. terms I it industry of a do gradual decided starts further even the If half increase room three, modest two to margins that in maybe you as just I fact community it’ll more there don’t think it’ll second if through industry incentives trend, the in couple

Ara Hovnanian

Alan, I do want to add.

eventually And normalcy. that results -- get way like metrics, going back those that Right we we’re we margin. think in It’s gravitate key far eventually market’s make we XX% forecasted but And anything as to that our multi-year not a to the now, are we I that. at, that in into mentioned happen And the talked uncertainty currently our marketplace. margins not margins certainly think we that the last gross eventually the mean, reported earlier, delusional we’re we’ve don’t about in quarter And gross that market selling the think indefinitely. as We just normalize. gross we the will about and I well. ultimately metrics. don’t better, will its seeing can to

Alex Barron

good. it’s No, Yes.

implemented a the your on outlook, have not homes sell obviously You’ve because or minute. hoping conservatism any, we’re might though them of that to a start in your spec, of did even last ton and almost guys specs lot ton of peers you at a

thanks happens. But very we’ll So, what and much luck. see good

Ara Hovnanian

you. Thank

Operator

our Q&A Thank you. to call for And turn his final this I Hovnanian Ara remarks. concludes back will session. the

Ara Hovnanian

as transparent you thank be Well, Great. don’t else’s anybody May contracts yet. tried to reported think possible. I And as much. very We’ve

good So, continued in our quarters. got you. information. fresh you’ve Thank you results to giving upcoming hopefully, we look forward And

Operator

you for call our have And And this all concludes conference participating. Thank for day. today. a nice

now disconnect. may You

Hovnanian Enterprises (HOV) 1 Jun 222022 Q2 Earnings call transcript