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Edited Transcript of HOV earnings conference call or presentation 8-Mar-17 4:00pm GMT

Thomson Reuters StreetEvents

Q1 2017 Hovnanian Enterprises Inc Earnings Call

RED BANK Mar 8, 2017 (Thomson StreetEvents) -- Edited Transcript of Hovnanian Enterprises Inc earnings conference call or presentation Wednesday, March 8, 2017 at 4:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Jeff O'Keefe

Hovnanian Enterprises, Inc. - VP of IR

* Ara Hovnanian

Hovnanian Enterprises, Inc. - Chairman, President & CEO

* Larry Sorsby

Hovnanian Enterprises, Inc. - EVP & CFO

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Conference Call Participants

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* Tim Daley

Deutsche Bank - Analyst

* Ryan McKeveny

Zelman & Associates - Analyst

* Megan McGrath

MKM Partners - Analyst

* Sam McGovern

Credit Suisse - Analyst

* James Finnerty

Citi - Analyst

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Presentation

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Operator [1]

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Good morning and thank you for joining us today for Hovnanian Enterprises fiscal 2017 first-quarter earnings conference call. An archive of the webcast will be available after 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 first-quarter results and then open up 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 log into the website at this time.

Before we begin I would like to turn the call over to Jeff O'Keefe, Vice President, Investor Relations. Jeff, please go ahead.

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Jeff O'Keefe, Hovnanian Enterprises, Inc. - VP of IR [2]

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Thank you, Karen, and thank you all for participating in this morning's conference call to review the results for our first quarter which ended January 31, 2017. All statements in this conference call that are not historical facts should be considered as forward-looking statements within the meanings 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 with respect to its financial results for future financial periods.

Although we believe that our plans, intentions and expectations reflected in or suggested by such forward-looking statements are reasonable, we can give no assurance that such plans, intentions or expectations will be achieved. 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 are described in detail in the sections entitled risk factors and management's discussion and analysis, particularly the portion of the MD&A entitled Safe Harbor statement in our annual report on Form 10-K for the fiscal year ended October 31, 2016 and subsequent filings with the Securities and Exchange Commission. Except as otherwise 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 from the Company are Ara Hovnanian, Chairman, President and CEO; Larry Sorsby, Executive Vice President and CFO; Brad O'Connor, Vice President, Chief Accounting Officer and Controller; and David Bachstetter, Vice President, Finance and Treasurer.

I will now turn the call over to Ara. Ara, go ahead.

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Ara Hovnanian, Hovnanian Enterprises, Inc. - Chairman, President & CEO [3]

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Thanks, Jeff. I'm going to review our operating results for the first quarter and discuss the current sales environment. Larry is going to follow me with a little more detail and discuss other items including our liquidity position.

Our first-quarter results were in line with our previous guidance and I will discuss that more fully in a moment. However, I thought a review of our capital markets environment would be helpful.

Since late in fiscal 2015 the high-yield market for our credit rating has been difficult. We've faced challenging high-yield environments from time to time in our 35-year history of participating in high-yield markets.

Similar to what we've seen in the past, we expect the high-yield market to eventually reopen for us. The overall high-yield markets are clearly strengthening. But as a result of the difficult high-yield markets for us we had to temporarily reduce our land spend as we paid off $320 million of maturing public debt between October 2015 and May 2016.

Additionally, in the beginning of 2016 we announced that we were exiting four underperforming markets. These two factors led to a reduction in our land position and a 22% decline in our total community count. This clearly impacted a number of our operating results compared to last year, but again we were in line with our previous guidance.

Starting in the upper left-hand corner of slide 3 we show that for the first quarter of 2017 total revenues decreased slightly to $552 million from last year. A portion of this decline is a shift in deliveries from wholly-owned communities to joint venture communities. We don't report joint venture revenues in our consolidated results. If you include those revenues, our total revenues would have been up 4% on a year-over-year basis.

In the upper right-hand portion of the slide you can see that our gross margin was 17.2% in the first quarter of 2017, up from 16.6% in last year's first quarter. Moving down to the lower left-hand quadrant, you can see that we continued to improve our SG&A ratio during the first quarter of this year, reducing it to 10.9% from 11.1% last year.

In the lower right-hand corner of the slide, we show that we had a pretax profit for the first quarter. It was only $300,000 but compared to a loss of $13 million in last year's first quarter it was good. And while the amount was small and it was helped with some bond repurchases that Larry will explain more fully, we are pleased with the direction, particularly given the drop in our community count that we previously discussed.

After taxes we had a small loss of $100,000 compared to last year's loss in the first quarter of $16 million. Although our bottom line was much better it is obviously not where it needs to be and we are very focused on further improving our operating results by replenishing our land supply, improving our gross margins, getting our new communities open and to the market soon and continuing to reduce our debt and interest costs over the longer term.

While our gross margin increased in the first quarter our gross margin is still below our 20% normalized level. We achieved 20% margins as recently as fiscal 2013 and 2014.

Three factors continue to be a headwind for more meaningful gross margin improvements: rising labor costs, increased use of incentives in certain communities and higher land costs. We've talked about these factors for a number of quarters. We've continued to burn through the higher cost land we purchased in 2013 and 2014 when market conditions were more favorable. The labor cost increases and a more aggressive competitive environment, however, continues to put pressure on our gross margin as well as the gross margin of the overall home-building industry.

Slide 4 shows the trailing 12-month gross margin for 14 of our peers plus our own. 11 of the 15 homebuilders reported a year-over-year decline in gross margin. We suspect the same combination of factors I just discussed that are negatively impacting our margins also had an adverse impact on our peers' gross margins.

If you turn to slide 5 you can see the impact of exiting four markets, reducing our land spend and paying off $320 million of maturing debt. Our consolidated community count decreased sequentially each quarter throughout fiscal 2016 and into the first quarter of fiscal 2017.

Since we announced the decision to exit four markets our community count in those markets is down from 23 at the end of last year's first quarter to two communities at the end of this year's first quarter. That represents almost half of the year-over-year decline in our total community count.

In light of the capital markets being unavailable to us last year we took appropriate steps to increase our liquidity so that we are able to pay off a substantial amount of debt maturities. However, the resulting reduction in our community count makes for challenging 2017 year-over-year comparisons. Given the 22% decline in our community count it's not surprising that we experienced an 18% decline in our first-quarter net contracts.

After paying off debt maturities that I just described, we ended it last year and began this year and quarter with $347 million of cash and liquidity. This allowed us to invest $190 million in land and land development in the first quarter, our largest land spend in five quarters.

Many of the new lots we are controlling are entitled but unimproved. It takes more time to get those communities developed and open for sale compared to finished lots which were more available in the past. Therefore, there will be some time lag before our community count begins to rebound but we do expect it to rebound.

On slide 6 we show that our consolidated contracts per community increased from 7.1 to 7.5 this quarter. This obviously helped mitigate some of the effect of the declining community count.

Improvements in contracts per community like we had in the first quarter of 2017 allow us to receive the benefit of those extra deliveries from existing communities without having to add much, if any, additional SG&A costs. That certainly is a positive step toward improving both our operating efficiencies and profitability. While our sales absorption is continued to increase we, as well as the entire industry, remain below historical normal sales pace per community.

Slide 7 shows our consolidated contracts per community on a monthly basis. Here we show the most recent month in blue and the same month a year ago in gray. For 10 of the past 12 months contracts per community were equal to or better than the same month of the prior year.

The spring selling season is officially underway. Our February results in contracts per community increased from 2.9 last year to 3.3 this year and indicate we are off to a strong selling season.

As a matter of fact, the 3.3 contracts per community in February was the highest contracts per community for any month in the past three years. The early results are positive and based on the strong traffic levels we are optimistic that the balance of the spring selling season will be strong.

On slide 8 we show on the left-hand side the dollar amount of our contract backlog decreased to $1.2 billion from $1.4 billion. Despite the decline in community count our backlog is still respectable and positions us for solid results in future quarters.

I will now turn it over to Larry Sorsby, our Executive Vice President and Chief Financial Officer.

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Larry Sorsby, Hovnanian Enterprises, Inc. - EVP & CFO [4]

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Thanks, Ara. On slide 9 we provide an update on Houston. Despite the fact that we have had over two years of significantly lower oil prices our Houston operations continued to post solid results.

During the first quarter of 2017 we saw the absolute number of net contracts in Houston increase by 2% year over year and net contracts per community increased 12% year over year from 5.6 to 5. From 5, excuse me.

As I have said in prior calls, there are three things that set are Houston operations apart from many of the builders we compete against in that market. Number one, we focus on a lower average price point. Our average home price on homes delivered for the first quarter of 2017 in Houston was approximately $290,000 which is even lower than it has been in recent quarters.

Number two, we do not build in any of the highly competitive master-planned communities. And number three we have less exposure to communities in the energy corridor in Houston than our peers. We commend our local Houston management team who have worked diligently to successfully [deliver] extremely difficult local market conditions.

Despite continued success for our Houston operations, we will keep a close eye on the market and we are prepared to take appropriate action should circumstances change. As a side note, our Texas operations, both Houston and Dallas, remain amongst our strongest markets.

Turning to slide 10 you will see our owned and optioned land position broken out by our publicly reported market segments. Our investment in land option deposits was $53 million as of January 1, 2017.

Additionally, we have another $11 million invested in pre-development expenses. In November after improving our liquidity position we started more aggressively seeking land parcels again. As a result, we are now beginning to review a greater number of land deals at our corporate land committee and remain on reloading our left position.

As shown on slide 11, as a direct result of our increased land spend during the first quarter both our owned lots and unconsolidated joint ventures and our consolidated owned lots, excluding mothballed lots, increased sequentially from the fourth quarter of 2016 to the first quarter of 2017. The $190 million we spent on land and land development in the first quarter of 2017 was more than we spent in any quarter last year. Furthermore, it was more than last year's average of $142 million of land and land development spend per quarter or the $164 million we averaged in fiscal 2015, a period of time when we did not have pressure from bond maturities. Looking at all of our consolidated communities in the aggregate, including mothballed communities and the $172 million of inventory not owned, we have an inventory book value of $1.3 billion net of $416 million of impairments.

One of our key operating metrics is return on investment. On slide 12 we show trailing 12-months homebuilding EBIT to inventory for us and our peers. This ROI metric measures pure operating performance before interest expense and compared to our peers we stack up well.

We and the entire industry are still not at normal ROI levels yet but this will improve as we get further into the recovery. We realize that even after paying off $320 million of debt maturities between October 2015 and May 2016 our leverage and interest expense levels remain high and we are committed to lowering both over time. The combination of deleveraging along with a return to a more normalized EBIT to inventory levels will improve our future pretax results dramatically.

One important component of return on investment is inventory turnover. On slide 13 you can see that we have the second highest inventory turnovers over the trailing 12 months compared to our peers. Given our liquidity constraints achieving a high inventory turnover will continue to be a focus for us going forward.

Another area for discussion for the quarter is related to our deferred tax asset valuation allowance. During the fourth quarter of fiscal 2014 we reversed $285 million of our deferred tax asset valuation allowance. We should reverse the remaining valuation allowance when we begin generating sustained profitability levels higher than recent years.

The end of the first quarter of fiscal 2017 our valuation allowance in the aggregate was $628 million. The remaining valuation allowance is a very significant asset not currently reflected on our balance sheet and we've taken numerous steps to protect it. We will not have to pay cash federal income taxes on approximately $2 billion of future pretax earnings.

On slide 14, we show that we ended the first quarter with the total shareholder's deficit of $128 million. You add back the remaining valuation allowance as we've done on this slide then our shareholder's equity would be a positive $500 million. If you look at this on a per share basis, it's $3.39 per share, which means that yesterday's closing stock price of $2.42 per share, our stock price is trading at a 29% to our adjusted book value per share. Over time we believe that we can repair our balance sheet and have no current intentions of issuing equity any time soon.

Highlighted on slide 15, we continued to show improvement in some of our credit statistics. On the left-hand portion of the slide we show that our adjusted EBITDA increased slightly during the first quarter to $39.5 million compared to $38.8 million in last year's first quarter. In the middle of this slide you can see our interest incurred declined by 8% to $39 million in the first quarter of 2017.

Our interest incurred metric declined due to us paying off at maturity $320 million of debt between October 2015 and May 2016. This was partially offset by our increased use of land banks for previously owned land where the carry cost is recorded as interest.

As a reminder, a typical land bank where we do not own the land prior to land bank's purchase of the land account for the carry we pay as an increased land cost rather than interest. And therefore hits gross margin rather than interest expense.

On the right-hand side of the slide we show that our adjusted EBITDA to interest incurred also increased to about 1.02 times compared to 0.9 in last year's first quarter. Despite the reduction in interest incurred, our interest expense ratio was higher in the first quarter this year as compared to last year as shown on slide 16. A higher interest expense ratio in the first quarter of 2017 was primarily due to two reasons: first, there was $1.7 million of land and lot sale interest associated with the sale of a previously mothballed community in Southern California; and second, we had a $24 million reduction in our total revenues.

On slide 17 we show our maturity ladder. Our first significant maturities due not come due until January 2019.

We repurchased a $39 million face amount of unsecured notes during the first quarter of fiscal 2017 at a discount. As a result, we booked a $8 million gain on extinguishment of debt. This was effectively an early retirement of $32 million of face value of our two different unsecured 2019 bonds consisting of $17.5 million of our 7% notes due in 2019 and $14 million of our 8% notes due in 2019 as well as a $7 million face value of our December note units.

Although we can constantly review the capital markets for refinancing opportunities we are running the business as if we will have to pay off the $56 million of notes due December 17 and the $52 million revolver due June 2018 with cash. While the high-yield market continues to be challenging for us we have strong relationships and continue to develop new relationships with alternative capital sources including land banking, project-specific non-recourse debt, joint ventures and model sale-leaseback financings. As we look beyond the earlier dated maturities we expect our operating performance and credit statistics to improve further and anticipate tapping the capital markets to refinance both our later dated 2018, 2019 and 2020 maturities.

As seen on slide 18 after using $31 million to repurchase debt and spending $190 million on land and land development in the first quarter, we ended the first quarter with a liquidity position of $205 million, which is within our liquidity target between $170 million and $245 million. Assuming no changes in market conditions and excluding the impact of land-related charges and gains and losses or extinguishment of debt, as we said on our year-end conference call, we continue to expect total deliveries, including deliveries from unconsolidated joint ventures for fiscal 2017, to be down approximately 10% compared to fiscal 2016 total deliveries which also includes deliveries from unconsolidated joint ventures.

Looking ahead to fiscal 2018, we expect our total deliveries to grow again. Additionally, we expect our gross margin for all of fiscal 2017 to be similar to what it was for all of fiscal 2016, and we expect to be able to keep our SG&A ratio around our normalized 10% level. While we expect lower interest expense dollars in fiscal 2017 because we anticipate a decline in consolidated revenue in 2017, we do not expect to make progress in reducing our interest expense as a percentage of total revenues during this year. However, in 2018 we would expect to see this ratio continue to improve again as it has been doing for the last five years.

We expect our consolidated revenues to be down in the second quarter of fiscal 2017 compared to last year's second quarter. Keep in mind that some of the communities that we transfer to an unconsolidated joint venture will be delivering homes. Had these remained consolidated deliveries the consolidated revenue decline would have been less.

Further, we expect our gross margin for the second quarter to be similar to the gross margin in the same quarter of the previous year. We expect our SG&A ratio will improve in the second quarter compared to last year and that will offset some of the impact of the decline in our revenues. The end result is we expect our pretax profit for the 2017 second quarter to be similar to last year's second quarter.

I will now turn it back to Ara for brief concluding comments.

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Ara Hovnanian, Hovnanian Enterprises, Inc. - Chairman, President & CEO [5]

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Thanks, Larry. After deleveraging in fiscal 2016 we are now focused on identifying new land parcels so that we can grow our deliveries in 2018 and beyond.

As Larry pointed out, we made progress this quarter and we increased our owned lot position. We are very focused on high inventory turnover to leverage our operating capabilities. We began this year with about $350 million in excess cash and liquidity that we have since put to work, both buying back some of our debt and through purchasing and optioning land for future communities.

The faster we can get these new communities opened, the faster we can get back to healthier levels of profitability. And it's something we are very focused on. We are confident that the steps we have taken are positioning is properly for the continued market recovery.

That concludes our formal remarks. And we'd like to turn it over for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Nishu Sood, Deutsche Bank.

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Tim Daley, Deutsche Bank - Analyst [2]

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Hey, this is actually Tim on for Nishu Sood. Thank you for taking my question.

My first question is actually regarding the gross margin. With all the progress year over year you mentioned some headwinds as well some tailwinds including the labor, land incentives as well as working your way through some of the higher-priced inventories or land that you purchased back in the mini bubble. I was just wondering, could you walk us through each of these moving parts, as well what you expect for them next year?

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Ara Hovnanian, Hovnanian Enterprises, Inc. - Chairman, President & CEO [3]

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I can't say that we could be very specific because it's so situational. But overall as I think we pointed out our guidance is that our full-year gross margins will be similar. In terms of full year for 2017 will be similar to last year's full year.

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Larry Sorsby, Hovnanian Enterprises, Inc. - EVP & CFO [4]

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And clearly as time goes by there is less and less overhang from the lots that we purchased in what you referred to as the mini bubble. So that headwind should diminish in future years.

It's hard to answer the labor question. I think we as well as the entire industry have seen labor cost increases that have caused margin declines for the entire industry. As we project forward we assume no changes in cost, no changes in home prices, no changes in absorption pace.

Historically we and the industry have been able to offset any cost increases by raising home prices. This particular cycle we have it's very unusual to see labor cost increases outstrip our ability to raise prices. Hard to say what may or may not happen in the future.

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Tim Daley, Deutsche Bank - Analyst [5]

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All right. And just a follow-up on that. It seems just looking at the backlog on a wholly-owned versus JV basis it seems that California is contributing a substantially higher amount, well, higher amount of deliveries in 4Q than 4Q 2015 and now a higher amount of backlog dollars, as well.

Is your California gross margins a bit higher than they are in the rest of the country as is the case with some other builders? I'm just trying to figure out the mix shift there as the total bucket shrinks.

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Larry Sorsby, Hovnanian Enterprises, Inc. - EVP & CFO [6]

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As a general statement in highly regulated markets where you have expensive land we have a higher gross margin than we do in markets to where we are able to option finished lots such as Houston, we get a higher inventory turn in Houston kind of offset slightly lower margins and in California we have to have higher margins to offset the lower inventory turns. So I think as a generic comment the California gross margins are higher on average than in many parts of our Company.

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Operator [7]

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Ryan McKeveny, Zelman Industries.

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Ryan McKeveny, Zelman & Associates - Analyst [8]

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Hi, thank you. One more on the gross margin specific to the 2Q guidance. I believe you said it will be similar to 2Q of last year which on an adjusted excluding capitalized interest basis we see as a 16.1%.

So when I think about that I guess first is that the right number that you are comparing to? And then secondly, regarding the 1Q 2017 results, which were 17.2%, implies somewhere around 100 bps of decline sequentially. So just curious of the factors you've talked about pressuring margins, is there anything specific to call out on why that 2Q would be down that amount relative to what you just reported for 1Q?

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Larry Sorsby, Hovnanian Enterprises, Inc. - EVP & CFO [9]

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I think the first part of the answer is yes, the 16.1% or 16.2% that you cited is the right number that we are comparing it to. And the reason I think is just kind of mix of where the deliveries are coming from across the country and community by community. So that's the simple answer.

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Ryan McKeveny, Zelman & Associates - Analyst [10]

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Got it. Okay. Then one, a bit random one here but we saw a press release yesterday about a JV you guys have in Saudi Arabia, and we are just wondering if you could maybe elaborate a bit on the economics of that for the Company and whether this is a type of growth opportunity potentially going forward. Thank you.

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Ara Hovnanian, Hovnanian Enterprises, Inc. - Chairman, President & CEO [11]

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Sure. Well, first of all, at the moment it's a small joint venture that we actually established a few years ago. It's a small amount of investment for us, although we do have the option to increase our contribution.

The venture is with a large land owner there and, frankly, it was random that the opportunity came about. The announcement yesterday was that our venture signed a joint venture agreement with the Saudi government's Ministry of Housing to provide housing that they are subsidizing for their citizens.

At this point I don't think it's anything material, but it does have the opportunity to become a little more meaningful and if it does become more meaningful we will certainly report on that in a little more detail in the future.

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Larry Sorsby, Hovnanian Enterprises, Inc. - EVP & CFO [12]

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Yes, the joint venture that was announced yesterday is actually a joint venture between our Saudi joint venture with this large landowner and the Ministry of Housing. So it's kind of a joint venture on a joint venture. That has tremendous potential, but only time will tell whether it's realized.

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Operator [13]

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Megan McGrath, MKM Partners.

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Megan McGrath, MKM Partners - Analyst [14]

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Good morning. I wanted to follow up on some demand environment comments.

You talked about both a nice increase in absorptions in recent months but also an increase in incentives that were impacting your gross margin. So I realize a lot of this is localized, so maybe you could talk us through big picture your sense on the demand environment and where you're seeing increased incentives and does that coincide with where you are seeing increased absorptions, as well?

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Ara Hovnanian, Hovnanian Enterprises, Inc. - Chairman, President & CEO [15]

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Sure. Just overall, the macro perspective we definitely are feeling a little strengthening in the marketplace and I think our sales per community, our contracts per community are certainly an indication of that. If I look around the country I'd say we are feeling some strengthening, certainly in Northern California and Sacramento area that has been strong.

We are continuing to see a strong Texas market. The Arizona market, we are only in Phoenix, that has been strengthening, as well.

On the other side we are seeing a little more challenge in the Chicago market which has historically done very well for us and our Southeast coastal markets have had more of a headwind in terms of incentives. That would include the Hilton, primarily the Hilton Head and Savannah markets in the South.

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Megan McGrath, MKM Partners - Analyst [16]

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Okay great. That's helpful.

Then to switch gears a little and talk about your increased land spend, similarly can you give us any detail there on were there any particular regions or product types where you saw yourself spending more money this quarter?

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Ara Hovnanian, Hovnanian Enterprises, Inc. - Chairman, President & CEO [17]

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No, I would say nothing sticks out in my mind. We shrunk the number of divisions by four as we've said during the call and our intent and plan is to be larger in the 15-plus markets that we are in, and that's part of our strategy.

So our plan is to increase and spread that in many of our markets. It just depends on where we find the best opportunities at any given moment.

I forgot to mention in the DC market, by the way, we've seen a little strengthening in the Virginia, Northern Virginia segment recently. And perhaps that comes from people's faith that the defense industry may see more dollars spent and that certainly helps employment in that area.

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Megan McGrath, MKM Partners - Analyst [18]

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Great, thank you.

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Operator [19]

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Sam McGovern, Credit Suisse.

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Sam McGovern, Credit Suisse - Analyst [20]

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Hey guys, thanks for taking my question. Just on the bond buybacks, can you walk us through how you guys think about the IRR on the bonds you repurchased versus using the cash to reinvest in the business for the next two years and also whether you guys have repurchased any bonds after quarter-end?

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Larry Sorsby, Hovnanian Enterprises, Inc. - EVP & CFO [21]

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We typically have plugged bonds back when thought we got a higher yield by buying bonds back than we could achieve by investing in a new deal. In other words, the yield was of equal to or higher than what our underwriting hurdle rates were for an equal land deal.

In that particular quarter, the first quarter, we obviously ended the fourth with a lot of cash that we couldn't immediately put to use. So it was even easier to make that decision. The hurdle rates, again, remained higher than we were able to achieve on our typical land deal, but we just couldn't put the money to work.

So the actual spread was even a greater spread because it was earning virtually nothing sitting in the bank. But we know that that debt is coming due in a couple of years anyway. So it was something that we reflected on and felt it was the best decision at this point in time. And I don't believe there's any subsequent (technical difficulty) we'll be announcing in the 10-Q with respect to subsequent bond purchases.

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Sam McGovern, Credit Suisse - Analyst [22]

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Got it. And what capacity do you guys have to repurchase bonds and what covenants are being used to repurchase the junior debt?

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Larry Sorsby, Hovnanian Enterprises, Inc. - EVP & CFO [23]

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I don't believe we are currently restricted by covenants buying back that debt. So there are no financial covenants that causes us to be restricted.

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Sam McGovern, Credit Suisse - Analyst [24]

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Okay, great. Thanks. I will pass it along.

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Operator [25]

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(Operator Instructions) James Finnerty, Citi.

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James Finnerty, Citi - Analyst [26]

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Hi, good morning. Just going back to I think the prior commentary on 2018 deliveries being similar to 2016. I apologize if I missed that, did you reiterate that today in terms of consolidated plus joint venture deliveries?

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Larry Sorsby, Hovnanian Enterprises, Inc. - EVP & CFO [27]

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I don't believe that we used those exact words. I believe what we said was 2018 we expect to grow again, including unconsolidated joint ventures.

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James Finnerty, Citi - Analyst [28]

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So grow again relative to 2017?

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Larry Sorsby, Hovnanian Enterprises, Inc. - EVP & CFO [29]

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Yes.

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James Finnerty, Citi - Analyst [30]

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In terms of 2017 land spend you spent $190 in your first quarter. Can you give us any idea for the full-year 2017 versus 2016?

2016 you spent I believe $567 million. How should we think about that?

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Larry Sorsby, Hovnanian Enterprises, Inc. - EVP & CFO [31]

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I think you should expect us to spend more on in the aggregate in 2017 than we did in 2016.

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James Finnerty, Citi - Analyst [32]

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Okay, great. Then last, just on the bond repurchases, were those bonds retired?

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Larry Sorsby, Hovnanian Enterprises, Inc. - EVP & CFO [33]

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Yes.

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James Finnerty, Citi - Analyst [34]

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Okay, great. Thank you.

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Operator [35]

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That concludes our question-and-answer session for today. I would like to turn the conference back over to Ara Hovnanian for any closing comments.

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Ara Hovnanian, Hovnanian Enterprises, Inc. - Chairman, President & CEO [36]

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Great, well, thank you very much. We continue to make progress.

As Larry shared earlier from the pure operations standpoint which we measure by EBITDA and inventory we continue to perform very well compared to our peers but all of us are suffering from a challenging EBIT inventory environment. That will improve as it does every cycle.

We've certainly seen it over the last 60 years of our history. And when we combine that with getting our revenue growth back again as our new communities open, we are confident that we will see continued improving results over the long term.

Thanks very much and we will look forward to giving you more updates each quarter that are positive. Thank you.

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Operator [37]

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Thank you. This concludes our conference call for today.

Thank you all for participating and have a nice day. All parties may now disconnect.