Q1 2026 Hovnanian Enterprises Inc Earnings Call

February 25, 2026

Operator: Good morning. Thank you for joining us today for Hovnanian Enterprises Fiscal 2026 Q1 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 Q1 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, Investor Relations. Jeff, please go ahead.

Speaker #1: Good morning and thank you for joining us today for Hovnanian Enterprises fiscal 2026 first quarter earnings conference call. An archive of the webcast will be available after the completion of the call and run for 12 months.

Speaker #1: 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 first quarter results and then open the line for questions.

Speaker #1: 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.

Operator: 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, Investor Relations. Jeff, please go ahead.

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

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

Jeff O'Keefe: Thank you, Michelle, thank you all for participating in this morning's call to review the results for our Q1. All statements on this conference call that are not historical facts should be considered as forward-looking statements within the meaning of the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Such statements involve known and unknown risks, uncertainties, and other factors that may cause actual results, performance, or achievements of the company to be materially different from any future results, performance, or achievements expressed or implied by the forward-looking statements. Such forward-looking statements include, but are not limited to, statements related to the company's goals and expectations related to its financial results for future financial periods.

Jeff O'Keefe: 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 related 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 related to its financial results for future financial periods.

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

Jeff O'Keefe: Although we believe that our plans, intentions, and expectations reflected in or suggested by such forward-looking statements are reasonable, we can give no assurance that such plans, intentions, or expectations will be achieved. By their nature, forward-looking statements speak only as of the date they are made, are not guarantees of future performance or results, and are subject to risks, uncertainties, and assumptions that are difficult to predict or quantify. Therefore, actual results could differ materially and adversely from those forward-looking statements as a result of a variety of factors. Such risks, uncertainties, and other factors are described in detail in the sections entitled Risk Factors and Management's Discussion and Analysis, particularly the portion of MD&A entitled Safe Harbor Statement in our annual report on Form 10-K for the fiscal year ended 31 October 2025, and subsequent filings with the Securities and Exchange Commission.

Speaker #2: By their nature, forward-looking statements speak only as of 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 in our annual report on Form 10-K for the fiscal year ended October 31, 2025, and subsequent filings with the Securities and Exchange Commission.

Jeff O'Keefe: Therefore, actual results could differ materially and adversely from those forward-looking statements as a result of a variety of factors. Such risks, uncertainties, and other factors are described in detail in the sections entitled Risk Factors and Management's Discussion and Analysis, particularly the portion of MD&A entitled Safe Harbor Statement in our annual report on Form 10-K for the fiscal year ended 31 October 2025, and subsequent filings with the Securities and Exchange Commission.

Speaker #2: Except as required by applicable securities laws, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, change circumstances, or any other reason.

Jeff O'Keefe: Except as required by applicable securities laws, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, changed circumstances, or any other reason. Joining me today are Ara Hovnanian, Chairman and CEO; Brad O'Connor, CFO; David Michaelson, Vice President, Corporate Controller; and Paul Eberly, Vice President, Finance and Treasurer. I'll now turn the call over to Ara. Ara, go ahead.

Speaker #2: Joining me today are Ara Hovnanian, Chairman and CEO; Brad O'Connor, CFO; David Mitreson, Vice President, Corporate Controller; and Paul Eberle, Vice President, Finance and Treasurer.

Speaker #2: I'll now turn the call over to Ara. Ara, go ahead.

Speaker #3: Thanks, Jeff. I'll start by highlighting our first quarter performance and sharing insights into how we're navigating the current housing market. Brad will then dive deeper into our results and our strategy and followed by an opportunity for your questions.

Ara Hovnanian: Thanks, Jeff. I'll start by highlighting our Q1 performance and sharing insights into how we're navigating the current housing market. Brad will then dive deeper into our results and our strategy, and followed by an opportunity for your questions. Let me begin with slide 5. Here, we share our Q1 results alongside the guidance we provided earlier. Even with ongoing challenges, both in the US and around the world, our team consistently delivered, meeting or exceeding guidance across all the metrics for the quarter. Beginning at the top of the slide, total revenues reached $632 million, approaching the high end of our guidance range. Adjusted gross margin came in at 13.4% for the quarter, which was just shy of the midpoint of our expectations. Our SG&A came in at 13.3%, better than the low end of our guidance.

Speaker #3: Let me begin with slide five. Here, we share our first quarter results alongside the guidance we provided earlier. Even with ongoing challenges, both in the US and around the world, our team consistently delivered.

Speaker #3: Meeting or exceeding guidance across all the metrics for the quarter. Beginning at the top of the slide, total revenues reached $632 million approaching the high end of our guidance range.

Ara Hovnanian: Beginning at the top of the slide, total revenues reached $632 million, approaching the high end of our guidance range. Adjusted gross margin came in at 13.4% for the quarter, which was just shy of the midpoint of our expectations. Our SG&A came in at 13.3%, better than the low end of our guidance.

Speaker #3: Adjusted gross margin came in at 13.4% for the quarter, which was just shy of the midpoint of our expectations. Our SG&A came in at 13.3%, better than the low end of our guidance.

Speaker #3: Income from unconsolidated joint ventures totaled $3 million; this was slightly below the midpoint of our expectations, although income from consolidation of certain joint ventures exceeded our expectations as we'll discuss in a moment.

Ara Hovnanian: Income from unconsolidated joint ventures totaled $3 million. This was slightly below the midpoint of our expectations, although income from consolidation of certain joint ventures exceeded our expectations, as we'll discuss in a moment. We're satisfied to report that both of the profit figures we guided to beat expectations. Adjusted EBITDA for the quarter was $63 million, which was significantly higher than our guidance range. Adjusted pre-tax income was $31 million, also significantly above the range we forecasted. We'll discuss this more later in our presentation. On slide 6, we show the Q1 results compared to last year's Q1. The comparison is difficult, mainly because we've offered even greater incentives this year to maintain sales pace, which has driven much of the year-over-year decline in profit. In addition, deliveries were lower due to slower market conditions.

Speaker #3: We're satisfied to report that both of the profit figures we guided to beat expectations. Adjusted EBITDA for the quarter was $63 million, which was significantly higher than our guidance range.

Speaker #3: Adjusted pre-tax income was $31 million, also significantly above the range we forecasted. We'll discuss this more later in our presentation. On slide six, we show the first quarter results compared to last year's first quarter.

Ara Hovnanian: Adjusted pre-tax income was $31 million, also significantly above the range we forecasted. We'll discuss this more later in our presentation. On slide 6, we show the Q1 results compared to last year's Q1. The comparison is difficult, mainly because we've offered even greater incentives this year to maintain sales pace, which has driven much of the year-over-year decline in profit. In addition, deliveries were lower due to slower market conditions.

Speaker #3: The comparison is difficult, mainly because we've offered even greater incentives this year to maintain sales pace which is driven much of the year-over-year decline in profit.

Speaker #3: In addition, deliveries were lower due to slower market conditions. In the upper left-hand section of the slide, you can see that our total revenues fell by 6% compared to last year.

Ara Hovnanian: In the upper left-hand section of the slide, you can see that our total revenues fell by 6% compared to last year. We delivered 12% fewer homes, which was the main reason for the decrease, but a land sale in the first quarter helped offset some of that decline. Turning to adjusted gross margin, we saw a year-over-year decline, primarily due to the additional incentives provided to help buyers manage affordability and challenges, a theme you'll hear throughout our presentation. Our current approach emphasizes maintaining steady sales and clearing older, lower-margin lots and older QMIs. Looking ahead, as we open new communities where these incentive costs are already factored in during land acquisition, we anticipate stronger gross margins, provided the market doesn't require further increases in incentives. Based on our recent sales, which we'll share in a moment, we don't anticipate that to happen.

Speaker #3: We delivered 12% fewer homes, which was the main reason for the decrease but a land sale in the first quarter helped offset some of that decline.

Speaker #3: Turning to adjusted gross margin, we saw a year-over-year decline primarily due to the additional incentives provided to help buyers manage affordability in challenges, a theme you'll hear throughout our presentation.

Ara Hovnanian: Our current approach emphasizes maintaining steady sales and clearing older, lower-margin lots and older QMIs. Looking ahead, as we open new communities where these incentive costs are already factored in during land acquisition, we anticipate stronger gross margins, provided the market doesn't require further increases in incentives. Based on our recent sales, which we'll share in a moment, we don't anticipate that to happen.

Speaker #3: Our current approach emphasizes maintaining steady sales and clearing older lower-margin lots and older QMIs. Looking ahead, as we open new communities where these incentive costs are already factored in during land acquisition, we anticipate stronger gross margins, provided the market doesn't require further increases in incentives.

Speaker #3: But based on our recent sales, which we'll share in a moment, we don't anticipate that to happen. In this year's first quarter, incentives accounted for 12.6% of the average sales price.

Ara Hovnanian: In this year's Q1, incentives accounted for 12.6% of the average sales price. The majority of this cost was attributed to mortgage rate buydowns, an essential tool for unlocking affordability and driving demand. This represents an increase of 40 basis points from the Q4 of 2025. The quarter-to-quarter increases are beginning to level off, although it's still up 290 basis points compared to the same quarter a year ago, and higher by 960 basis points versus the full fiscal year in 2022, which was before the mortgage rate spike began affecting margins on our deliveries. Offsetting the year-over-year increases in incentives, our base construction and option costs per square foot on delivered homes decreased 2% year-over-year in the Q1.

Speaker #3: The majority of this cost was attributed to mortgage rate buy-downs and essential tool for unlocking affordability and driving demand. This represents an increase of 40 basis points from the fourth quarter of '25.

Speaker #3: The quarter-to-quarter increases are beginning to level off, although it's still up 290 basis points compared to the same quarter a year ago, and higher by 960 basis points versus the full fiscal year in '22, which was before the mortgage rate spike began affecting margins on our deliveries.

Ara Hovnanian: The quarter-to-quarter increases are beginning to level off, although it's still up 290 basis points compared to the same quarter a year ago, and higher by 960 basis points versus the full fiscal year in 2022, which was before the mortgage rate spike began affecting margins on our deliveries. Offsetting the year-over-year increases in incentives, our base construction and option costs per square foot on delivered homes decreased 2% year-over-year in the Q1.

Speaker #3: Offsetting the year-over-year increases in incentives are based construction and option costs per square foot on delivered homes decreased 2% year-over-year in the first quarter.

Speaker #3: Additionally, our cycle times for single-family detached homes decreased 17 days to 133 calendar days in the first quarter of '26, compared to the same quarter a year ago.

Ara Hovnanian: Additionally, our cycle times for single-family detached homes decreased 17 days to 133 calendar days in Q1 2026 compared to the same quarter a year ago. Looking at the bottom left section, you'll see that our total SG&A expenses as a percentage of total revenue went up a bit in Q1. This was due to our revenue decreasing more than our SG&A costs, even though we managed to reduce absolute SG&A expenses compared to last year. At the corporate level, we're investing more heavily in technology and processes for the future. While this should yield savings in the future, it is adding to SG&A in the current periods. Moving to the bottom right-hand section of the slide, while our profit exceeded our guidance, it declined 24% year-over-year, primarily due to higher levels of incentives used this year.

Speaker #3: Looking at the bottom left section, you'll see that our total SG&A revenue, went up a bit in the first quarter, this was due to our revenue decreasing more than our SG&A costs, even though we managed to reduce absolute SG&A expenses compared to last year.

Ara Hovnanian: At the corporate level, we're investing more heavily in technology and processes for the future. While this should yield savings in the future, it is adding to SG&A in the current periods. Moving to the bottom right-hand section of the slide, while our profit exceeded our guidance, it declined 24% year-over-year, primarily due to higher levels of incentives used this year.

Speaker #3: At the corporate level, we're investing more heavily in technology and processes for the future. While this should yield savings in the future, it is adding to SG&A in the current periods.

Speaker #3: Moving to the bottom right-hand section of the slide, while our profit exceeded our guidance, it declined 24% year-over-year, primarily due to higher levels of incentives used this year.

Ara Hovnanian: Our approach remains focused on efficiently turning over existing inventory, advancing sales of Quick Move-In homes, and emphasizing a steady sales pace. At the same time, we're positioning ourselves to capitalize on new land opportunities that are expected to deliver improved margins and returns. Looking at the sales environment on slide 7, we're still using mortgage rate incentives to help boost sales. We had a reduction of only 35 contracts in a significantly slower delivery home environment. We think the drop would have been larger without the incentives we're offering. The decline mainly reflects ongoing market challenges and low consumer confidence. By offering incentives, we're able to ease some of these difficulties, and especially affordability, and keep sales activity steady. On the encouraging side, if you turn to slide 8, you'll see monthly traffic per community from August through January.

Speaker #3: Our approach remains focused on efficiently turning over existing inventory advancing sales of quick-moving homes and emphasizing a steady sales pace. At the same time, we're positioning ourselves to capitalize on new land opportunities that are expected to deliver improved margins and returns.

Speaker #3: Now, looking at the sales environment on slide seven, we're still using mortgage rate incentives to help boost sales; we had a reduction of only 35 contracts in a significantly slower delivery home environment.

Ara Hovnanian: We think the drop would have been larger without the incentives we're offering. The decline mainly reflects ongoing market challenges and low consumer confidence. By offering incentives, we're able to ease some of these difficulties, and especially affordability, and keep sales activity steady. On the encouraging side, if you turn to slide 8, you'll see monthly traffic per community from August through January.

Speaker #3: We think the drop would have been larger without the incentives we're offering. The decline mainly reflects ongoing market challenges and low consumer confidence. By offering incentives, we're able to ease some of these difficulties and especially affordability and keep sales activity steady.

Speaker #3: On the encouraging side, if you turn to slide eight, you'll see monthly traffic per community from August through January. Compared traffic increased significantly in five of the six months shown.

Ara Hovnanian: Compared to last year, traffic increased significantly in 5 of the 6 months shown. The percentage increases grew steadily over the last 4 months, with January showing the largest jump on the slide, an impressive 40% increase compared to the same month last year. The trend of increased traffic has continued in February. We're seeing encouraging sign of increased buyer engagement compared to last year. That said, continued economic and global uncertainties are causing some prospective buyers to remain cautious about committing to a purchase. As shown on Slide 9, contracts over the past 12 months have fluctuated from month to month, reflecting ongoing shifts in a volatile housing market and consumer confidence and sentiment. January's 11% gain stands out as the highest year-over-year increase on the slide, while 1 month does not make a trend, it's a promising sign.

Speaker #3: The percentage increases grew steadily over the last four months with January showing the largest jump on the slide and impressive 40% increase compared to the same month last year.

Speaker #3: The trend of increased traffic has continued in February. We're seeing encouraging signs of increased buyer engagement compared to last year. That said, continued economic and global uncertainties are causing some prospective buyers to remain cautious about committing to a purchase.

Speaker #3: As shown on slide nine, contracts over the past 12 months have fluctuated from month to month, reflecting ongoing shifts in a volatile housing market and consumer confidence and sentiment.

Ara Hovnanian: As shown on Slide 9, contracts over the past 12 months have fluctuated from month to month, reflecting ongoing shifts in a volatile housing market and consumer confidence and sentiment. January's 11% gain stands out as the highest year-over-year increase on the slide, while 1 month does not make a trend, it's a promising sign.

Speaker #3: January's 11% gain stands out as the highest year-over-year increase on the slide. And while one month does not make a trend, it's a promising sign.

Speaker #3: As of yesterday, our month-to-date contracts in February of '26, which is almost over, are up 13% over the prior year, gaining a little momentum.

Ara Hovnanian: As of yesterday, our month-to-date contracts in February 2026, which is almost over, are up 13% over the prior year, gaining a little momentum. On Slide 10, you can see that the Q1 contracts per community held fairly steady at about 9.5 contracts per community for the past three years. Notably, this year's Q1 was higher than the 1997 through 2002 levels that we consider a normal sales environment. On Slide 11, we provide a closer look at monthly contracts per community, comparing each month in the Q1 to the same month last year. For the first two months of the quarter, the sales pace was lower than the same month last year. The January 2026 sales pace was better than a year ago. We're off to a better start than a year ago.

Speaker #3: On slide 10, you can see that the first quarter contracts per community have had held fairly steady at about 9.5 contracts per community for the past three years.

Speaker #3: Notably, this year's first quarter was higher than the 97 through 02 levels that we consider a normal sales environment. On slide 11, we provide a closer look at monthly contracts per community comparing each month in the first quarter to the same month last year.

Speaker #3: For the first two months of the quarter, the sales pace was lower than the same month last year. But the January '26 sales pace was better than a year ago.

Speaker #3: So we're off to a better start than a year ago. This was the third metric for the month of January that showed significant improvements year-over-year giving us hope that the spring selling season this year could be better than last year.

Ara Hovnanian: This was the third metric for the month of January that showed significant improvements year-over-year, giving us hope that the spring selling season this year could be better than last year. Further, our contracts per community for February of 2026 are on track to be higher than the same month a year ago. As shown on Slide 12, the value of incentives and mortgage rate buydowns has increased significantly over the past four years. The most notable surge occurred in early 2023, when incentives rose sharply from 3.9% in the Q4 of 2022 to 7.4% in the very next quarter, the Q1 of 2023. Since then, incentives have continued to climb almost every quarter to the current level of 12.6% in this year's Q1.

Speaker #3: Further, our contracts per community for February of '26 are on track to be higher than the same month a year ago. As shown on slide 12, the value of incentives and mortgage rate buy-downs has increased significantly over the past four years; the most notable surge occurred in early '23, when incentives rose sharply from 3.9% in the fourth quarter of '22 to 7.4% in the very next quarter, the first quarter of '23.

Ara Hovnanian: As shown on Slide 12, the value of incentives and mortgage rate buydowns has increased significantly over the past four years. The most notable surge occurred in early 2023, when incentives rose sharply from 3.9% in the Q4 of 2022 to 7.4% in the very next quarter, the Q1 of 2023. Since then, incentives have continued to climb almost every quarter to the current level of 12.6% in this year's Q1.

Speaker #3: Since then, incentives have continued to climb almost every quarter to the current level of 12.6% in this year's first quarter. While these higher incentives have put short-term pressure on our margins, they've been essential for maintaining steady sales and moving inventory.

Ara Hovnanian: While these higher incentives have put short-term pressure on our margins, they've been essential for maintaining steady sales and moving inventory. As I said earlier, happily, the amount of incentives seems to be reducing from quarter to quarter in the recent months. To further support buyers, we continue to offer a strong selection of quick move-in homes, or QMIs, as we call them. This approach allows buyers to take advantage of available incentives and purchase homes quickly and affordably. It's important to note that our new land acquisitions build in these levels of incentives and still meet our return requirements. This should lead to much better margins in the future as these new communities begin delivering. On Slide three, we show that at the end of Q1, we had 5.7 QMIs per quarter.

Speaker #3: As I said earlier, happily, the amount of incentives seems to be reducing from quarter to quarter in the recent months. To further support buyers, we continue to offer a strong selection of quick-moving homes or QMIs as we call them.

Speaker #3: This approach allows buyers to take advantage of available incentives and purchase homes quickly and affordably. It's important to note that our new land acquisitions build in these levels of incentives and still meet our return requirements.

Ara Hovnanian: This approach allows buyers to take advantage of available incentives and purchase homes quickly and affordably. It's important to note that our new land acquisitions build in these levels of incentives and still meet our return requirements. This should lead to much better margins in the future as these new communities begin delivering. On Slide three, we show that at the end of Q1, we had 5.7 QMIs per quarter.

Speaker #3: This should lead to much better margins in the future as these new communities begin delivering. On slide three, we show that at the end of the first quarter, we had 5.7 QMIs per quarter.

Speaker #3: This marks the fourth quarter in a row where the number of QMIs per community has gone down, reflecting our ability to align starts with sales pace and optimize inventory levels.

Ara Hovnanian: This marks the Q4 in a row where the number of QMIs per community has gone down, reflecting our ability to align starts with sales pace and optimize inventory levels. QMIs are homes that we've started framing but have not yet sold. As shown on Slide 14, the number of QMIs fell from 1,163 at the end of January 2025, to 742 at the end of January 2026. That represents a 30% decrease in one year. In the Q1, QMI sales comprised 71% of our total sales, down from a record 79% in prior quarters, but still well above our historical norms of about 40%. The corollary is that our to-be-built home sales, homes that are built to customers' orders, increased from 21% to 29%.

Speaker #3: QMIs are homes that we've started framing but have not yet sold. As shown on slide 14, the number of QMIs fell from 1,163 at the end of January '25 to 742 at the end of January '26.

Speaker #3: That represents a 30% decrease in one year. In the first quarter, QMI sales comprised 71% of our total sales, down from a record 79% in prior quarters, but still well above our historical norms of about 40%.

Ara Hovnanian: That represents a 30% decrease in one year. In the Q1, QMI sales comprised 71% of our total sales, down from a record 79% in prior quarters, but still well above our historical norms of about 40%. The corollary is that our to-be-built home sales, homes that are built to customers' orders, increased from 21% to 29%.

Speaker #3: The corollary is that our to-be-built sales—homes that are built to customers' orders—increased from 21% to 29%. Assuming these trends continue, our percentage of to-be-built deliveries will be higher in the second half of '26.

Ara Hovnanian: Assuming these trends continue, our percentage of to-be-built deliveries will be higher in the second half of 2026. To-be-built margins in communities that had both to-be-built and QMI deliveries in Q1 were 780 basis points higher than QMI margins. Having more to-be-built deliveries in the second half of the year will be beneficial to our gross margins and overall profitability. We feel we can meet that we can meet the current level of demand with the 742 QMIs that we have. We'll make appropriate adjustments up or down to our starts to ensure that we have enough QMIs to satisfy demand and not get ahead of ourselves at the same time. By focusing on QMIs, we sign and deliver more contracts within the same quarter.

Speaker #3: To-be-built margins in communities that had both to-be-builts and QMI deliveries in the first quarter were 780 basis points higher than QMI margins. Having more to-be-built deliveries in the second half of the year will be beneficial to our gross margins and overall profitability.

Speaker #3: We feel we can meet that we can meet the current level of demand with the 742 QMIs that we have. We'll make appropriate adjustments up or down to our starts to ensure that we have enough QMIs to satisfy demand and not get ahead of ourselves at the same time.

Ara Hovnanian: We feel we can meet that we can meet the current level of demand with the 742 QMIs that we have. We'll make appropriate adjustments up or down to our starts to ensure that we have enough QMIs to satisfy demand and not get ahead of ourselves at the same time. By focusing on QMIs, we sign and deliver more contracts within the same quarter.

Speaker #3: By focusing on QMIs, we sign and deliver more contracts within the same quarter. This approach means that we have fewer homes in backlog at the end of each quarter but a higher rate of converting backlog to deliveries.

Ara Hovnanian: This approach means that we have fewer homes in backlog at the end of each quarter, but a higher rate of converting backlog to deliveries. In Q1 2026, 41% of the homes we delivered were both sold and closed within the same quarter, the highest percentage we've recorded since we began tracking this metric in 2023. While this makes it a bit harder to predict next quarter's results, it led to a backlog conversion ratio of 88%, much higher than our historical average of 56% for Q1 since 1998. We continue to closely manage our QMIs for each community, making sure the rate at which we start these homes matches the rate at which we sell them. Try to sell the QMIs before they are finished.

Speaker #3: In the first quarter of '26, 41% of the homes we delivered were both sold and closed within the same quarter; the highest percentage we've recorded since we began tracking this metric in '23.

Speaker #3: While this makes it a bit harder to predict next quarter's results, it led to a backlog conversion ratio of 88%—much higher than our historical average of 56% for the first quarters since '98.

Ara Hovnanian: While this makes it a bit harder to predict next quarter's results, it led to a backlog conversion ratio of 88%, much higher than our historical average of 56% for Q1 since 1998. We continue to closely manage our QMIs for each community, making sure the rate at which we start these homes matches the rate at which we sell them. Try to sell the QMIs before they are finished.

Speaker #3: We continue to closely manage our QMIs for each community, making sure the rate at which we start these homes matches the rate at which we sell them.

Speaker #3: Try to sell the QMIs before they are finished. Over the past year, our finished QMIs decreased 22% from 319 at the end of last year's first quarter to 248 finished QMIs at the end of the first quarter of '26.

Ara Hovnanian: Over the past year, our finished QMIs decreased 22% from 319 at the end of last year's Q1 to 248 finished QMIs at the end of the Q1 of 2026. You'll see that despite higher mortgage rates and a slower sales pace nationwide, we managed to increase net prices in 32% of our communities during the Q1. More than half of these price increases happened in Delaware, Maryland, New Jersey, South Carolina, Virginia, and West Virginia, some of our stronger markets. In summary, our strategy continues to prioritize the swift turnover of inventory, maintaining robust sales of Quick Move-In homes, ensuring a consistent sales pace, and burning through our lower margin land.

Speaker #3: If you look at slide 15, you'll see that despite higher mortgage rates, and a slower sales pace nationwide, we managed to increase net prices in 32% of our communities during the first quarter.

Ara Hovnanian: More than half of these price increases happened in Delaware, Maryland, New Jersey, South Carolina, Virginia, and West Virginia, some of our stronger markets. In summary, our strategy continues to prioritize the swift turnover of inventory, maintaining robust sales of Quick Move-In homes, ensuring a consistent sales pace, and burning through our lower margin land.

Speaker #3: More than half of these price increases happened in Delaware, Maryland, New Jersey, North Carolina, Virginia, and West Virginia—some of our stronger markets. In summary, our strategy continues to prioritize the swift turnover of inventory—maintaining robust sales of quick-moving homes—ensuring a consistent sales pace, and burning through our lower-margin land.

Speaker #3: At the same time, we're preparing to take advantage of emerging land opportunities that should result in stronger margins and returns. In addition, we've shifted our focus on new land acquisitions away from lower-margin entry-level homes on the periphery to more move-up homes in the A and B locations as well as focusing on more active adult communities.

Ara Hovnanian: At the same time, we're preparing to take advantage of emerging land opportunities that should result in stronger margins and returns. In addition, we've shifted our focus on new land acquisitions away from lower margin, entry-level homes on the periphery to more move-up homes in the A and B locations, as well as focusing on more active adult communities. By staying disciplined in these areas, we're well positioned to adapt to market shifts and drive substantial growth in the future. I'll now turn it over to Brad O'Connor, our Chief Financial Officer.

Speaker #3: By staying disciplined in these areas, we're well positioned to adapt to market shifts and drive substantial growth in the future. I'll now turn it over to Brad O'Connor, our Chief Financial Officer.

Speaker #2: Thank you, Aaron. Before I get to the next slide, I want to comment on the other income line on our income statement. In the first quarter of fiscal '26, we took full control of two joint ventures that were previously not consolidated.

Brad O'Connor: Thank you, Ira. Before I get to the next slide, I want to comment on the other income line on our income statement. In Q1 of fiscal 2026, we took full control of 2 joint ventures that were previously not consolidated. For 1 of these joint ventures, this happened after our partners received their final cash distributions, which met their preferred return goals slightly earlier than anticipated because of the solid performance of the communities. For the other, it happened when we acquired a controlling interest in a previously unconsolidated joint venture in the Kingdom of Saudi Arabia. We added the remaining assets and liabilities of both of these joint ventures to our balance sheet at fair value, resulting in a gain of $27 million recorded as other income.

Speaker #2: For one of these joint ventures, this happened after our partners received their final cash distributions, which met their preferred return goals slightly earlier than anticipated because of the solid performance of the communities.

Speaker #2: For the other, it happened when we acquired a controlling interest in a previously unconsolidated joint venture in the Kingdom of Saudi Arabia. We then added the remaining assets and liabilities of both of these joint ventures to our balance sheet at fair value, resulting in a gain of 27 million dollars recorded as other income.

Brad O'Connor: For the other, it happened when we acquired a controlling interest in a previously unconsolidated joint venture in the Kingdom of Saudi Arabia. We added the remaining assets and liabilities of both of these joint ventures to our balance sheet at fair value, resulting in a gain of $27 million recorded as other income.

Speaker #2: Importantly, the individual communities from these joint ventures continue to meet our standard return metrics even after the step-up to fair value and after current incentives.

Brad O'Connor: Importantly, the individual communities from these joint ventures continue to meet our standard return metrics even after the step-up to fair value and after current incentives. 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 five times in the past 11 quarters. Before commenting further on our US results, I want to briefly touch on our international operations. Although our operations in the Kingdom of Saudi Arabia are not expected to contribute materially in the near term, the country's growing need for housing and the scale of the opportunity reinforces our confidence in the long-term prospects of this market. For fiscal 2026, we only expect about 300 deliveries from the Kingdom of Saudi Arabia, demonstrating the minor impact it will have on operations this year.

Speaker #2: 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 five times in the past 11 quarters.

Speaker #2: Before commenting further on our US results, I want to briefly touch on our international operations. Although our operations in the Kingdom of Saudi Arabia are not expected to contribute materially in the near term, the country's growing need for housing and the scale of the opportunity reinforces our confidence in the long-term prospects of this market.

Brad O'Connor: Although our operations in the Kingdom of Saudi Arabia are not expected to contribute materially in the near term, the country's growing need for housing and the scale of the opportunity reinforces our confidence in the long-term prospects of this market. For fiscal 2026, we only expect about 300 deliveries from the Kingdom of Saudi Arabia, demonstrating the minor impact it will have on operations this year.

Speaker #2: For fiscal '26, we only expect about 300 deliveries from the Kingdom of Saudi Arabia, demonstrating the minor impact it will have on operations this year.

Speaker #2: Turning to slide 16, we finished the quarter with 151 communities open for sale, up slightly compared to a year ago. We continue to see steady progress in increasing our community count as we focus on growing revenue.

Brad O'Connor: Turning to Slide 16, we finished the quarter with 151 communities open for sale, up slightly compared to a year ago. We continue to see steady progress in increasing our community count as we focus on growing revenue. While challenging market conditions remain a hurdle, our expanding number of communities is helping us maintain overall home delivery levels. Looking ahead, we believe our newer communities are well positioned to deliver stronger results than older ones, supporting our ongoing growth plans. Slide 17 details our land position. We ended the Q1 with 35,560 domestic controlled lots, equivalent to a 6.7 year supply. Including joint ventures, we now control 38,764 lots.

Speaker #2: While challenging market conditions remain a hurdle, our expanding number of communities is helping us maintain overall home delivery levels. Looking ahead, we believe our newer communities are well positioned to deliver stronger results than older ones, supporting our ongoing growth plans.

Brad O'Connor: Looking ahead, we believe our newer communities are well positioned to deliver stronger results than older ones, supporting our ongoing growth plans. Slide 17 details our land position. We ended the Q1 with 35,560 domestic controlled lots, equivalent to a 6.7 year supply. Including joint ventures, we now control 38,764 lots.

Speaker #2: Slide 17 details our land position. We ended the first quarter with 35,560 domestic-controlled lots, equivalent to a 6.7-year supply. Including joint ventures, we now control 38,764 lots.

Speaker #2: Our consolidated domestic lot count decreased 18% year over year, reflecting disciplined land acquisition and a willingness to walk away from or postpone less attractive opportunities.

Brad O'Connor: Our consolidated domestic lot count decreased 18% year-over-year, reflecting disciplined land acquisition and a willingness to walk away from or postpone less attractive opportunities. You can see our land control position has begun to stop the steep decline and flatten as land sellers are getting more realistic on values in many markets, we were able to replace our deliveries and walkaways with new acquisitions that meet our return criteria, even with today's incentives. Also of note on this slide is the steady decline in owned lots. It has decreased sequentially in almost all of the quarters shown in alignment with our land light strategy. Slide 18 shows the age of our lot position, both owned and optioned, broken down by the year each lot was controlled. The number in each bar represents the total lots that were controlled in that year.

Speaker #2: You can see our land control position has begun to stop the steep decline and flatten as land sellers are getting more realistic on values in many markets, and we were able to replace our deliveries and walkaways with new acquisitions that meet our return criteria even with today's incentives.

Brad O'Connor: Also of note on this slide is the steady decline in owned lots. It has decreased sequentially in almost all of the quarters shown in alignment with our land light strategy. Slide 18 shows the age of our lot position, both owned and optioned, broken down by the year each lot was controlled. The number in each bar represents the total lots that were controlled in that year.

Speaker #2: Also of note on this slide is the steady decline in owned lots. It has decreased sequentially in almost all of the quarters shown, in alignment with our land-light strategy.

Speaker #2: Slide 18 shows the age of our lot position, both owned and optioned, broken down by the year each lot was controlled. The number in each bar represents the total lots that were controlled in that year.

Speaker #2: The number below each bar indicates the percentage of incentives used on homes delivered during that year. This slide illustrates that by the first quarter of '26, almost 23,000 of our owned or optioned lots were initially controlled in either fiscal '24, '25, or '26.

Brad O'Connor: The number below each bar indicates the percentage of incentives used on homes delivered during that year. This slide illustrates that by Q1 2026, almost 23,000 of our owned or optioned lots were initially controlled in either fiscal 2024, 2025, or 2026, by which time we were assuming more significant incentives in our underwriting of land acquisitions. In Q1, a majority of our home deliveries came from lots acquired in 2023 or earlier. These older lots present more margin challenges since they were originally purchased with much lower incentives than we're currently offering. As we move forward, we're steadily transitioning away from these less profitable lots to newer land that aligns better with today's incentive environment, though the shift is gradual.

Speaker #2: By that time, we were assuming more significant incentives in our underwriting of land acquisitions. In the first quarter, a majority of our home deliveries came from lots acquired in 2023 or earlier.

Brad O'Connor: In Q1, a majority of our home deliveries came from lots acquired in 2023 or earlier. These older lots present more margin challenges since they were originally purchased with much lower incentives than we're currently offering. As we move forward, we're steadily transitioning away from these less profitable lots to newer land that aligns better with today's incentive environment, though the shift is gradual.

Speaker #2: These older lots present more margin challenges, since they were originally purchased with much lower incentives than we're currently offering. As we move forward, we're steadily transitioning away from these less profitable lots to newer land that aligns better with today's incentive environment.

Speaker #2: Though the shift is gradual, at the same time, we're collaborating with some land sellers under option agreements to find solutions that help us share the market challenges and ease the impact.

Brad O'Connor: At the same time, we're collaborating with some land sellers under option agreements to find solutions that help us share the market challenges and ease the impact. Our strategy remains clear. We're intentionally selling through lower margin lots to free up capacity for new acquisitions that support our margin and IRR goals. The good news is, we're still finding new land opportunities that meet our underwriting criteria, even with current high incentives and the current sales pace. On Slide 19, we show our land and land development spend for each of the past five quarters and the quarterly average for all of 2024. Land and development spend has decreased in response to market conditions, reflecting disciplined capital allocation and rigorous evaluation of every acquisition, factoring in current prices, incentive levels, construction costs, and sales pace.

Speaker #2: Our strategy remains clear. We're intentionally selling through lower-margin lots to free up capacity for new acquisitions that support our margin and IRR goals. The good news is we're still finding new land opportunities that meet our underwriting criteria even with current high incentives, and the current sales pace.

Brad O'Connor: On Slide 19, we show our land and land development spend for each of the past five quarters and the quarterly average for all of 2024. Land and development spend has decreased in response to market conditions, reflecting disciplined capital allocation and rigorous evaluation of every acquisition, factoring in current prices, incentive levels, construction costs, and sales pace.

Speaker #2: On slide 19, we show our land and land development spend for each of the past five quarters and the quarterly average for all of 2024.

Speaker #2: Land and development spend has decreased in response to market conditions reflecting discipline at capital allocation and rigorous evaluation of every acquisition, factoring in current prices, incentive levels, construction costs, and sales pace.

Speaker #2: We continued identifying compelling opportunities in our markets and remain laser-focused on revenue and profit growth for the long term. Our commitment to disciplined underwriting and strategic investment will drive continued success.

Brad O'Connor: We continue to identify compelling opportunities in our markets and remain laser-focused on revenue and profit growth for the long term. Our commitment to disciplined underwriting and strategic investment will drive continued success. In line with our evolving strategy, we're prioritizing the acquisition of land for move-up homes in prime A and B locations and expanding our focus on active adult communities, moving away from lower-margin, entry-level developments on the outskirts. Turning to Slide 20, we ended the Q1 with $471 million in liquidity, well above our target range, even after spending $181 million on land and land development and $9 million on stock repurchases. Usually, our liquidity decreases sequentially during the Q1. However, thanks to our disciplined approach to land management, we saw the opposite.

Speaker #2: In line with our evolving strategy, we're prioritizing the acquisition of land for move-up homes in prime A and B locations and expanding our focus on active adult communities.

Speaker #2: Moving away from lower-margin entry-level developments on the outskirts. Turning to slide 20, we ended the first quarter with 471 million dollars in liquidity. Well above our target range, even after spending 181 million dollars on land and land development and 9 million on stock repurchases.

Brad O'Connor: Turning to Slide 20, we ended the Q1 with $471 million in liquidity, well above our target range, even after spending $181 million on land and land development and $9 million on stock repurchases. Usually, our liquidity decreases sequentially during the Q1. However, thanks to our disciplined approach to land management, we saw the opposite.

Speaker #2: Usually, our liquidity decreases sequentially during the first quarter. However, thanks to our disciplined approach to land management, we saw the opposite. Liquidity actually increased in the first quarter of '26 compared to the fourth quarter of '25.

Brad O'Connor: Liquidity actually increased in Q1 2026 compared to Q4 2025. As a matter of fact, it is the 2nd highest liquidity for any quarter on the slide. Slide 21 shows our current maturity ladder as of 31 January 2026. This reflects the refinancing we completed last fall. For the 1st time since 2008, all of our debt, aside from our revolving credit facility, is now unsecured. This shift enhances our overall financial strength by increasing our flexibility, lowering our risk profile, and positioning us well for long-term expansion. This refinancing is the most recent step in a decade-long process that illustrates our disciplined financial management and reinforces our ongoing commitment to a robust, stable capital structure. On Slide 22, we highlight how we've successfully increased our equity and reduced our debt over the past few years.

Speaker #2: As a matter of fact, it is the second highest liquidity for any quarter on the slide. Slide 21 shows our current maturity ladder as of January 31st, 2026.

Speaker #2: This reflects the refinancing we completed last fall. For the first time since 2008, all of our debt, aside from our revolving credit facility, is now unsecured.

Speaker #2: This shift enhances our overall financial strength by increasing our flexibility, lowering our risk profile, and positioning us well for long-term expansion. This refinancing is the most recent step in a decade-long process that illustrates our disciplined financial management and reinforces our ongoing commitment to a robust, stable capital structure.

Brad O'Connor: This refinancing is the most recent step in a decade-long process that illustrates our disciplined financial management and reinforces our ongoing commitment to a robust, stable capital structure. On Slide 22, we highlight how we've successfully increased our equity and reduced our debt over the past few years.

Speaker #2: On slide 22, we highlight how we successfully increased our equity and reduced our debt over the past few years. Over that time, equity has grown by $1.3 billion, and the debt has been reduced by $754 million.

Brad O'Connor: Over that time, equity has grown by $1.3 billion. The debt has been reduced by $754 million. Net debt to capital is now 41.4%, a substantial improvement from 146.2% at the start of fiscal 2020. While we still have work to do, we remain on track toward our target 30% net debt to cap target. With $223 million in deferred tax assets, we will not pay federal income taxes on approximately $700 million of future pre-tax earnings, enhancing cash flow and supporting growth. Given the current volatility and challenges with predicting margins, we are only providing financial guidance for the next quarter.

Speaker #2: Net debt to capital is now 41.4%, a substantial improvement from 146.2% at the start of fiscal 2020. While we still have work to do, we remain on track toward our 30% net debt to cap target.

Speaker #2: With 223 million dollars in deferred tax assets, we will not pay federal income taxes on approximately 700 million dollars of future pre-tax earnings, enhancing cash flow and supporting growth.

Brad O'Connor: With $223 million in deferred tax assets, we will not pay federal income taxes on approximately $700 million of future pre-tax earnings, enhancing cash flow and supporting growth. Given the current volatility and challenges with predicting margins, we are only providing financial guidance for the next quarter.

Speaker #2: Given the current volatility and challenges with predicting margins, we are only providing financial guidance for the next quarter. Our outlook assumes that marketing conditions remain stable with no major increases in mortgage rates, tariffs, inflation, cancellation rates, or construction cycle times.

Brad O'Connor: Our outlook assumes that marketing conditions remain stable, with no major increases in mortgage rates, tariffs, inflation, cancellation rates, or construction cycle times. As we rely more on QMI sales forecast, QMI sales, forecasting profit is tougher. While we performed at the top of our guidance for many quarters, our goal is to provide realistic guidance that we can meet or beat if conditions are favorable. Our forecast includes ongoing use of mortgage rate buydown and similar incentives, but it does not include any changes to SG&A expense from phantom stock cost tied to stock price changes from the $112.65 closing price at the end of the Q1 of fiscal 2026. Slide 23 shows our guidance for the Q2 of fiscal 2026.

Speaker #2: As we rely more on QMI sales forecasting profit, it's tougher. While we performed at the top of our guidance for many quarters, our goal is to provide realistic guidance that we can meet or beat if conditions are favorable.

Speaker #2: Our forecast includes ongoing use of mortgage rate buy-downs and similar incentives, but it does not include any changes to SG&A expense from phantom stock cost tied to stock price changes from the $112.65 closing price at the end of the first quarter of fiscal '26.

Brad O'Connor: Our forecast includes ongoing use of mortgage rate buydown and similar incentives, but it does not include any changes to SG&A expense from phantom stock cost tied to stock price changes from the $112.65 closing price at the end of the Q1 of fiscal 2026. Slide 23 shows our guidance for the Q2 of fiscal 2026.

Speaker #2: Slide 23 shows our guidance for the second quarter of fiscal '26. Our expectation for total revenues for the second quarter is between 625 million and 725 million dollars.

Brad O'Connor: Our expectation for total revenues for Q2 is between $625 million and 725 million. Adjusted gross margin is expected to be in the range of 13% to 14%. We expect the range of our SG&A as a percentage of total revenues to be between 12.5% and 13.5%, which is still higher than usual. One of the reasons the SG&A ratio is running a little high is that we are making significant investments to improve processes and technology in many areas to significantly increase our efficiency in future years. We expect income from joint ventures to be between breakeven and $10 million, and our guidance for adjusted EBITDA is between $30 million and 40 million.

Speaker #2: Adjusted gross margin is expected to be in the range of 13% to 14%. We expect the range of our SG&A as a percentage of total revenues to be between 12 and a half and 13 and a half percent.

Speaker #2: Which is still higher than usual. One of the reasons the SG&A ratio is running a little high is that we are making significant investments to improve processes and technology in many areas to significantly increase our efficiency in future years.

Brad O'Connor: One of the reasons the SG&A ratio is running a little high is that we are making significant investments to improve processes and technology in many areas to significantly increase our efficiency in future years. We expect income from joint ventures to be between breakeven and $10 million, and our guidance for adjusted EBITDA is between $30 million and 40 million.

Speaker #2: We expect income from joint ventures to be between break-even and $10 million, and our guidance for adjusted EBITDA is between $30 million and $40 million.

Speaker #2: Our expectation for adjusted pre-tax income for the second quarter is between break-even and $10 million. Our second quarter guidance includes proceeds from a land sale that has already closed in the second quarter.

Brad O'Connor: Our expectation for adjusted pre-tax income for Q2 is between breakeven and $10 million. Our Q2 guidance includes proceeds from a land sale that has already closed in Q2. While our Q2 profit outlook remains modest, we anticipate a rebound in adjusted pre-tax income during the latter half of fiscal 2026. Historically, our earnings have shown a tendency to strengthen as the year progresses, and recent trends, including improved contract activity in January and February, support this expectation. Additionally, the upcoming delivery of homes from our newer, higher-margin communities should further enhance results, primarily in Q4. On Slide 24, we show 86% of our lots controlled via option, up from 44% in fiscal 2015, reflecting our strategic focus on land light. Looking at Slide 25, we remain strong compared to our peers in controlling land through options.

Speaker #2: While our second quarter profit outlook remains modest, we anticipate a rebound in adjusted pre-tax income during the latter half of fiscal 2026. Historically, our earnings have shown a tendency to strengthen as the year progresses, and recent trends, including improved contract activity in January and February, support this expectation.

Speaker #2: Additionally, the upcoming delivery of homes from our newer, higher-margin communities should further enhance results primarily in the fourth quarter. On slide 24, we show 86% of our lots controlled via option, up from 44% in fiscal 2015, reflecting our strategic focus on landlight.

Brad O'Connor: Additionally, the upcoming delivery of homes from our newer, higher-margin communities should further enhance results, primarily in Q4. On Slide 24, we show 86% of our lots controlled via option, up from 44% in fiscal 2015, reflecting our strategic focus on land light. Looking at Slide 25, we remain strong compared to our peers in controlling land through options.

Speaker #2: Looking at slide 25, we remain strong compared to our peers in controlling land through options. In fact, we have the fourth-highest percentage of option lots.

Brad O'Connor: In fact, we have the fourth highest percentage of option lots, placing us well above the industry median of 57%. On slide 26, we have the second highest inventory turnover rate among our peers. This is an important part of our strategy because it means we sell and replace our inventory more quickly than most competitors, demonstrating a more efficient use of our capital. This reflects many other factors in addition to land light. We see more opportunities to use land options, as well as reduce lot purchase to construction start and construction start to completion cycle times, which would further help us improve our inventory turnover. On slide 27, we show that compared to our mid-size peers, we have the second highest adjusted EBIT return on investment at 17.2%. On slide 28, we show our price to book value compared to our peers.

Speaker #2: Placing us well above the industry median of 57%. On slide 26, we have the second-highest inventory turnover rate among our peers. This is an important part of our strategy because it means we sell and replace our inventory more quickly than most competitors, demonstrating a more efficient use of our capital.

Speaker #2: This reflects many other factors in addition to landlight. We see more opportunities to use land options as well as reduce lot purchase to construction start and construction start to completion cycle times.

Brad O'Connor: This reflects many other factors in addition to land light. We see more opportunities to use land options, as well as reduce lot purchase to construction start and construction start to completion cycle times, which would further help us improve our inventory turnover. On slide 27, we show that compared to our mid-size peers, we have the second highest adjusted EBIT return on investment at 17.2%. On slide 28, we show our price to book value compared to our peers.

Speaker #2: Which would further help us improve our inventory turnover. On slide 27, we show that compared to our mid-sized peers, we have the second highest adjusted EBIT return on investment at 17.2%.

Speaker #2: On slide 28, we show our price-to-book value compared to our peers. We are trading slightly above book value, and right at the median for all the peers shown on the slide.

Brad O'Connor: We are trading slightly above book value on the right at the median for all the peers shown on the slide. Given our high return on investment, combined with our rapidly improving balance sheet, we believe our stock continues to be undervalued. I'll now turn it back to Ara for some brief closing comments.

Speaker #2: Given our high return on investment combined with our rapidly improving balance sheet, we believe our stock continues to be undervalued. I'll now turn it back to Aaron for some brief closing comments.

Speaker #1: Thanks, Brad. Despite a challenging housing environment, marked by affordability pressures and continued economic uncertainty, we delivered a first quarter that met or exceeded our guidance.

Ara Hovnanian: Thanks, Brad. Despite a challenging housing environment marked by affordability pressures and continued economic uncertainty, we delivered a Q1 that met or exceeded our guidance. While profitability declined year-over-year, primarily due to higher incentive to support our sales in a very tough market, our focus on steady sales pace and efficient inventory turnover is paying off. We continue to prioritize sales pace over price, utilizing mortgage rate buydowns and other incentives to help drive demand and help more buyers overcome affordability challenges. Although our recent to-be-built contracts are yielding higher margins, and they've begun to increase as a percentage of our total sales. On the topic of affordability, we appreciate any support from the federal government that could make homes more affordable and encourage more buyers to enter the market.

Speaker #1: While profitability declined year over year, primarily due to higher incentives to support our sales, in a very tough market, our focus on steady sales pace and efficient inventory turnover is paying off.

Speaker #1: We continue to prioritize sales pace over price, utilizing mortgage rate buy-downs and other incentives to help drive demand and help more buyers overcome affordability challenges, although our recently to-be-built contracts are yielding higher margins and they've begun to increase as a percentage of our total sales.

Ara Hovnanian: We continue to prioritize sales pace over price, utilizing mortgage rate buydowns and other incentives to help drive demand and help more buyers overcome affordability challenges. Although our recent to-be-built contracts are yielding higher margins, and they've begun to increase as a percentage of our total sales. On the topic of affordability, we appreciate any support from the federal government that could make homes more affordable and encourage more buyers to enter the market.

Speaker #1: On the topic of affordability, we appreciate any support from the federal government that could make homes more affordable and encourage more buyers to enter the market.

Speaker #1: Our strategy, while pressuring near-term margins, enables us to clear older, lower-margin lots and position us for improved profitability as newer, higher-margin communities come online.

Ara Hovnanian: Our strategy, while pressuring near-term margins, enables us to clear older, lower-margin lots and position us for improved profitability as newer communities come online, communities that were already underwritten with today's higher incentive environment in mind. As we look ahead, we expect adjusted pretax income to improve in the latter half of 2026, supported by stronger contract activity in the early months of the year, more higher-margin, to-be-built homes, and the anticipated contribution from our newer communities. While Q2 profits may be muted, we remain confident in our trajectory. We believe the delivery of higher-margin homes will bolster results as we transition to the back half of the year and grow our home deliveries and revenues. Operationally, we've made significant progress in aligning our inventory with current demand.

Speaker #1: Communities that were already underwritten with today's higher incentive environment in mind. As we look ahead, we expect adjusted pre-tax income to improve in the latter half of '26, supported by stronger contract activity in the early months of the year, more higher-margin to-be-built homes, and the anticipated contribution from our newer communities.

Speaker #1: While second quarter profits may be muted, we remain confident in our trajectory. We believe the delivery of higher-margin homes will bolster results as we transition to the back half of the year and grow our home deliveries and revenues.

Ara Hovnanian: While Q2 profits may be muted, we remain confident in our trajectory. We believe the delivery of higher-margin homes will bolster results as we transition to the back half of the year and grow our home deliveries and revenues. Operationally, we've made significant progress in aligning our inventory with current demand.

Speaker #1: Operationally, we've made significant progress in aligning our inventory with current demand. The number of quick-moving homes per community has declined for four straight quarters, demonstrating our ability and agility and strong execution.

Ara Hovnanian: The number of Quick Move-In homes per community has declined for four straight quarters, demonstrating our ability and agility and strong execution. Our backlog conversion ratio hit 88%, well above historical averages for Q1. We remain confident in our ability to meet homebuyer demand going forward. We feel like we're making great progress in burning through some of our lower-margin land and older QMIs, setting us up for a solid future. On the land side, we exercise discipline by walking away from less attractive properties, primarily during the entitlement process, and reducing our lot count by 18% year-over-year. We continue to secure new opportunities that meet our margin and return targets.

Speaker #1: Our backlog conversion ratio hit 88%, well above historical averages for the first quarter, and we remain confident in our ability to meet homebuyer demand going forward.

Speaker #1: We feel like we're making great progress in burning through some of our lower-margin land and older QMIs setting us up for a solid future.

Ara Hovnanian: We feel like we're making great progress in burning through some of our lower-margin land and older QMIs, setting us up for a solid future. On the land side, we exercise discipline by walking away from less attractive properties, primarily during the entitlement process, and reducing our lot count by 18% year-over-year. We continue to secure new opportunities that meet our margin and return targets.

Speaker #1: On the land side, we're we exercise discipline by walking away from less attractive properties primarily during the entitlement process and reducing our lot count by 18% year over year.

Speaker #1: We continue to secure new opportunities that meet our margin and return targets. Our landlight strategy with 86% of our lots controlled via options combined with one of the highest inventory turnover rates in the industry ensures that we remain nimble and capital efficient.

Ara Hovnanian: Our land light strategy, with 86% of our lots controlled via options, combined with one of the highest inventory turnover rates in the industry, ensures that we remain nimble and capital efficient. We remain confident that we have sufficient land controlled to produce solid growth as the housing market returns to normal. Financially, our balance sheet and liquidity are strong. We ended the quarter with $471 million in liquidity, increased equity, and further reduced net debt. With a net debt to capital ratio that has improved dramatically over the past few years, we're well positioned for long-term growth. Our recent refinancing moves have enhanced our flexibility and lowered our risk profile. Looking ahead, we expect that gross margins in the second half of 2026 will gradually improve as we transition to newer, higher-margin communities.

Speaker #1: We remain confident that we have sufficient land control to produce solid growth as the housing market returns to normal. Financially, our balance sheet and liquidity are strong. We ended the quarter with $471 million increased equity, and further reduced net debt.

Ara Hovnanian: We ended the quarter with $471 million in liquidity, increased equity, and further reduced net debt. With a net debt to capital ratio that has improved dramatically over the past few years, we're well positioned for long-term growth. Our recent refinancing moves have enhanced our flexibility and lowered our risk profile. Looking ahead, we expect that gross margins in the second half of 2026 will gradually improve as we transition to newer, higher-margin communities.

Speaker #1: With a net debt-to-capital ratio that has improved dramatically over the past few years, we're well positioned for long-term growth. Our recent refinancing moves have enhanced our flexibility and lowered our risk profile.

Speaker #1: Looking ahead, we expect that gross margins in the second half of '26 will gradually improve as we transition to newer, higher-margin communities. Our guidance for the second quarter assumes a steady market and continued focus on sales pace with prudent expense management and ongoing investment in process and technology improvements.

Ara Hovnanian: Our guidance for Q2 assumes a steady market and continued focus on sales pace, with prudent expense management and ongoing investment in process and technology improvements. Finally, as we've seen in the past, we expect significant volume in the latter half of the year. In summary, we're navigating a tough market with discipline and agility and a strategic focus on sales pace, inventory efficiency, and land light operations that should deliver tangible results. We remain committed to sustainable growth and value for our shareholders as the market conditions evolve. That concludes our formal comments, and I'll be happy to turn it over to any questions.

Speaker #1: Finally, as we've seen in the past, we expect significant volume in the latter half of the year. In summary, we're navigating a tough market with discipline and agility, and a strategic focus on sales pace, inventory efficiency, and land-light operations that should deliver tangible results.

Ara Hovnanian: In summary, we're navigating a tough market with discipline and agility and a strategic focus on sales pace, inventory efficiency, and land light operations that should deliver tangible results. We remain committed to sustainable growth and value for our shareholders as the market conditions evolve. That concludes our formal comments, and I'll be happy to turn it over to any questions.

Speaker #1: We remain committed to sustainable growth and value for our shareholders as the market conditions evolve. That concludes our formal comments, and I'll be happy to turn it over to any questions.

Speaker #2: Thank you, the company will now answer questions so that everyone has an opportunity to ask questions. Participants will be limited to four questions and a follow-up, after which they will have to get back into the queue to ask another question.

Operator: Thank you. The company will now answer questions. That everyone has an opportunity to ask questions, participants will be limited to four questions and a follow-up, after which they will have to get back into the queue to ask another question. We will now open to questions, to ask a question, please press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. Again, to ask a question, please press star one one on your telephone. Our first question is going to come from Alex Barron with Housing Research Center. Your line is now open.

Speaker #2: We will now open to questions and to ask a question, please press star 11 on your telephone. And wait for your name to be announced and to withdraw your question, please press star 11 again.

Operator: To withdraw your question, please press star one one again. Again, to ask a question, please press star one one on your telephone. Our first question is going to come from Alex Barron with Housing Research Center. Your line is now open.

Speaker #2: Again, to ask a question, please press star 11 on your telephone. And our first question is going to come from Alex Barron with Housing Research Center.

Speaker #2: Your line is now open.

Speaker #3: Hey, good morning, everyone. Yeah, I guess on the topic of incentives and their pressure on margins, I'm kind of wondering if you guys feel there's going to be an opportunity this year to—or is it worth the trade-off to maybe offer less incentives and maybe get a slightly lower sales pace, but higher margins?

Alex Barron: Hey, good morning, everyone. Yeah, I guess on the topic of incentives and their pressure on margins, I'm kind of wondering if you guys feel there's going to be an opportunity this year to. Is it worth the trade-off to maybe offer less incentives and maybe get slightly, you know, lower sales pace, but higher margins? How are you guys thinking or navigating through that right now?

Speaker #3: How are you guys thinking or navigating through that right now?

Speaker #1: Well, Alex, that's a good question, and it's certainly one that all homebuilders are looking at. Some of our peers have clearly made the decision to offer less incentives and seek higher gross margins, even with the slower volume that it usually translates to.

Ara Hovnanian: Well, Alex, that's a good question. It's certainly one that all home builders are looking at. Some of our peers have clearly made the decision to offer less incentives, seek higher gross margins, even with the slower volume that it usually translates to. In our case, we'd rather focus on pace versus price. We'll keep up the incentives. We really want to burn through some of our lower-margin land. You can't do that if you're trying to squeeze every last dollar of profit.

Speaker #1: In our case, we'd rather focus on pace versus price. So we'll keep up the incentives. We really want to burn through some of our lower-margin land and you can't do that if you're trying to squeeze every last dollar of profit the market has shifted since we contracted for some of the land parcels years ago.

Ara Hovnanian: The market has shifted since we contracted for some of the land parcels years ago, so we just want to burn through those, clear our balance sheet as we've been doing, drive liquidity, we're at the second highest we've been in many, many years, most of it just sitting in cash, and prepare ourselves for the land opportunities that are clearly showing up now as land sellers are becoming a little more realistic, given the incentives that most are offering.

Speaker #1: So we just want to burn through those clear our balance sheet as we've been doing drive liquidity where the second highest we've been in many, many years most of it just sitting in cash and prepare ourselves for the land opportunities that are clearly showing up now as land sellers are becoming a little more realistic given the incentives that most are offering.

Speaker #3: Got it. And in terms of your percentage of specs, QMIs versus built-to-order, I know in the last few years you guys have shifted more towards specs.

Alex Barron: Got it. In terms of your percentage of specs, QMIs versus built to order, I know in the last few years, you guys have shifted more towards specs. What percentage are you doing of each, and are you thinking of, you know, doing something more balanced?

Speaker #3: What percentage are you doing of each, and are you thinking of doing something more balanced?

Speaker #1: Oh, well, as we mentioned in the call, QMI sales actually dropped from 79% to 71%. That wasn't actually part of a conscious strategy to do that.

Ara Hovnanian: Well, as we mentioned in the call, QMI sales actually dropped from 79% to 71%. That wasn't actually part of a conscious strategy to do that. It just so happens that some of our offerings, we often offer both QMIs and to-be-builts, and it just so happens that the demand for to-be-builts in our markets has been growing recently. Again, not through a specific strategy, but it's just the markets of the reality. The good news is they have significantly higher profit margins and less incentives. You know, customers that want what they want are willing to pay for what they want, so that's been a beneficial trend.

Speaker #1: It just so happens that some of our offerings really drove we often offer both QMIs and to be built and it just so happens that the demand for to be built in our markets has been growing recently.

Speaker #1: Again, not through a specific strategy, but it's just the realities of the markets. And the good news is they have significantly higher profit margins and less incentives.

Ara Hovnanian: Again, not through a specific strategy, but it's just the markets of the reality. The good news is they have significantly higher profit margins and less incentives. You know, customers that want what they want are willing to pay for what they want, so that's been a beneficial trend.

Speaker #1: Customers that want what they want are willing to pay for what they want. So that's been a beneficial trend.

Alex Barron: Got it. Well, best of luck. Thank you.

Speaker #3: Got it. Well, best of luck. Thank you.

Ara Hovnanian: Mm-hmm.

Speaker #4: Thank you.

Alex Barron: Thank you.

Speaker #2: And again, to ask a question, please press star 11 on your telephone. I am showing no further questions. At this time, I would now like to turn the call back to Aria for closing remarks.

Operator: Again, to ask a question, please press star one one on your telephone. I am showing no further questions at this time. I would now like to turn the call back to Aria for closing remarks.

Speaker #1: Thanks so much. We're satisfied with our results. Meeting and exceeding our guidance is not easy in this environment. So we look forward to giving even better results in the following quarters.

Ara Hovnanian: Thanks so much. you know, we're satisfied with our results. you know, meeting and exceeding our guidance is not easy in this environment. We look forward to giving better results yet in the following quarters, in the remainder of the year. Thank you so much.

Speaker #1: In the remainder of the year. Thank you so much.

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

Q1 2026 Hovnanian Enterprises Inc Earnings Call

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