Good morning, and thank you for joining us today for Hovnanian Enterprises Fiscal 2013 First Quarter Earnings Conference Call. An archive of this webcast will be available after the completion of the call and run for 12 months. This conference is being recorded for rebroadcast. [Operator Instructions] Management will make some opening remarks about the first quarter results and then open the line for questions. The company will also be webcasting a slide presentation, along with the opening comments from management. The slides are available on the investors page of the company's website at www.khov.com. Those listeners who would like to follow along should log on to 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.

Thank you very much. I'm going to read through our forward-looking statements very quickly. All statements during this conference that are not historical fact should be considered as forward-looking statements. 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. 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. Such risks, uncertainties and other factors include, but are not limited to, changes in general and local economic and industry and business conditions and impacts of the sustained homebuilding downturn; adverse weather and other environmental conditions and natural disasters; changes in market conditions and seasonality of the company's business; changes in home prices and sales activities in the markets where the company builds homes; government regulation, including regulations concerning development of land, the homebuilding, sales and customer financing processes; tax laws and the environment; fluctuations in interest rates and the availability of mortgage financing; shortages in and price fluctuations of raw materials and labor; the availability and cost of suitable land and improved lots; levels of competition; availability of financing to the company; utility shortages and outages or rate fluctuations; levels of indebtedness and restrictions on the company's operations and activities imposed by agreements governing the company's outstanding indebtedness; the company's sources of liquidity; changes in credit ratings; availability of net operating loss carryforwards; operations through joint ventures with third parties; product liability litigation, warranty claims and claims by mortgage investors; successful identification and integration of acquisition; significant influence of the company's controlling stockholders; changes in tax laws affecting the after-tax cost of owning a home; geopolitical risks, terrorist acts and other acts of war; and other factors described in detail on the company's annual report on Form 10-K for the year ended October 31, 2012. 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. Now I'd like to turn the call over to Ara Hovnanian, our Chairman, President and Chief Executive Officer.

Thanks, Jeff and thank you all for participating in this morning's call to review the results of our first quarter ended January 2013. Joining me today from the company are Larry Sorsby, Executive Vice President and CFO; Brad O'Connor, Vice President, Chief Accounting Officer and Corporate Controller; David Valiaveedan, Vice President of Finance and Treasurer and Jeff O'Keefe, Vice President of Investor Relations. Starting on the top left-hand corner of Slide 3, we show that our new order trends have continued the robust growth that we experienced last year with net contract dollars, including unconsolidated joint ventures, posting year-over-year increases of 42%. Moving across the top of the slide, our net contract increased 25% on a unit basis despite a slight drop in our active selling communities. That resulted in a 43% increase in net contracts per community, which we shown in the lower left-hand corner. The dollar value of our backlog increased by 40% during the first quarter to $812 million. Continuing with our first quarter performance, please turn to Slide 4. Here, we showed our total revenues increased 33%, which is shown on the top left-hand quadrant. On the upper right-hand side, you see that our gross margin expanded 50 basis points year-over-year during the first quarter. While we'll discuss this in more detail momentarily, I'm pleased to say we expect continued growth in gross margins in the later quarters of this year. As you can see in the lower left-hand quadrant, the increases in our total revenues allowed us to leverage our fixed costs. As such, both SG&A as a percentage of sales and total interest as a percentage of sales were significantly lower during the first quarter of 2013 compared to last year's first quarter. Finally, in the lower right-hand corner, loss before debt and land-related…

Thanks, Ara. We continue to look for new land deals in all of our markets. The left-hand side of Slide 14 shows that we have controlled 23,500 lots since January of 2009, including 1,600 new lots during the first quarter of 2013. The upper right-hand side of this slide shows that total gross additions during the first quarter were 1,800 lots. We also walked away from about 200 newly-identified lots. In recent quarters, walkaways typically occur during the initial due diligence period and our deposit is refunded. The net result for the first quarter was that our total lots purchased or controlled since January 2009 increased about 1,600 lots sequentially from the fourth quarter of 2012. For the third quarter in a row, we're replenishing our land faster than we are using it. Our consolidated owned and optioned lot position increased sequentially by 355 lots during the first quarter. Turning now to Slide 15, you'll see our owned and optioned land position broken out by our publicly reported segments. Based on our trailing 12-month deliveries, we own 3.5 years worth of land. However, if you exclude the 6,813 mothballed lots, we only own 2.1 years of land based on the delivery rate of the past 4 quarters. Having said that, we are more optimistic that the improving new home demand and pricing trends in our markets will translate to mothballed lots coming out of the storage room sooner than most people thought 1 year ago. At the end of the first quarter, 78% of our optioned lots are newly-identified lots. Excluding mothballed lots, 67% of our total lots are newly-identified lots. Our investment in land option deposits was $49.4 million at January 31, 2013, with $47.9 million in cash deposits and the other $1.5 million of deposits being held by…

Thanks, Larry. We're thrilled that our traffic and sales remain strong. As is often the case in margins and volume, our first quarter is always a seasonally weak quarter for us. However, we feel that we're well set up to deliver the growth throughout the remainder of 2013. With the expected growth in revenues in the coming quarter, we should be able to leverage our fixed costs, which should lead to improvements in gross margin, as well as SG&A and interest as a percentage of revenues. We are excited to project full year profitability for fiscal '13. It's been a long time coming but the steps we've taken throughout the downturn have positioned us well for the long-awaited recovery in the housing market. This concludes our formal remarks and we'll be prepared to open it up for Q&A.

[Operator Instructions] Your first question comes from the line of Michael Rehaut representing JPMorgan.

It's actually Will Wong on for Mike. I had a quick question on pricing. You said that pricing has been increasing in about 65% of your communities. On average, what's sort of the percentage increase in those communities that you guys have been able to raise price, obviously a big range, but if you guys can just give us an average for the company, that would be great.

I don't think we've tracked it -- on one of the slides we showed you the wide range in those communities. It's just not a number we track. If I did, I guess -- if we did, I guess, I could easily given the breakout of our 18% increase per quarter of what was mix and what was price increase, but it's just not a number we track.

I mean, in some communities, it's $500 or $1000; in other communities, it's been tens of thousands of dollars, as evidenced by Slide 18. So -- or not 18, 17, I guess, is the slide. So they are a wide range and we just don't have an average to provide you.

Okay, that's fair. And then in terms of gross margin and backlog, you mentioned that, that gives you confidence in terms of achieving growth on a year-over-year basis. In 2013, would you be able to share with us sort of what those margins look like at this time?

They look better than they did in 2012 and that gives us confidence to project an increase but, no, we're not going to provide you with the specifics of what's in backlog.

Okay. And then just last question, if I could. In terms of credit, I know you noticed -- you noted that the FHA and government loans are kind of decreasing as a percentage of your overall portfolio. Can you speak to sort of mortgage credit, do think that's just on the margin, maybe loosening just a little bit?

I don't think we've seen any indication of it loosening, in terms of underwriting criteria. I think it's relatively stable on that front. It's still frustrating, the amount of documentation that our consumers have to put together. It seems like every file's 4 to 6 inches thick when we're done with and -- but I don't think the underwriting guidelines of FHA, VA or Conventional have changed to loosen anything in the last quarter or 2.

By the way, on the whole, we're still -- definitely stricter guidelines than we were pre-subprime problems, which is unfortunate because there are people that, for decades, have been able to qualify reasonable, sound credit, just not as pristine as those that easily qualify. They're being denied today. Eventually, the pendulum, which has swung to the overcorrection mode, in terms of difficult qualification because of what happened with subprime, that pendulum will come back to the middle and that should add a further boost to the housing recovery a little later in the cycle.

Your next question comes from the line of David Goldberg, representing UBS.

I wanted to delve actually, Ara, into your comment that you just made in response to credit underwriting and the people that aren't able to get credit today who, maybe before this sub-prime boom that happened, could get credit. And what I want to get a little more granularity is, is the issue is the credit score issue, or is it a blemish in the credit history? Because it seems like a 640 or 650 FICO, which is about what you're doing on FHAs, generally speaking, is still -- with a good credit background, is able to get a mortgage. So I was wondering if you could give us some more clarity about the comments and who's not able to qualify today that you think will be able to qualify at some point in the future?

Let me give you a couple of examples of what's happened. And I believe the reason for this is related to the repurchase and make whole request that the industry is faced with, not just builder-owned mortgage companies but all mortgage companies are faced with that risk and therefore, they're being very conservative. What we're seeing on the repurchase and make whole request are second-guessing underwriting decisions that the industry made 3 to 5 years ago, and back then we might have made a loan to where somebody was putting 30% or 40% down on a loan down payment instead of a 5% and 10% down payment and we said that offset the risk of he missed making his mortgage payment on time for 30 or 60 days a couple of times and we said, well because he's put in a larger down payment that offsets that risk and it's a good loan and I still, today, believe it's a good loan. Today, we wouldn't make that loan. And the reason we wouldn't make that loan is those loans that we made exactly like that 3 or 5 years ago, if the guy loses his job, 3 years after making his mortgage payment consistently on time for the previous 36 months and then he loses his job, totally unrelated to that mortgage decision to where we said because he put a 40% down payment, we're going to ignore a -- or it was a compensating factor for that slight credit blemish, the loan comes back to us and we say -- they say repurchase it, it's just bad underwriting. So we're not motivated to make rational credit decisions that are slightly out-of-the-box of the guidelines with strong compensating factors, such as substantially increased down payments. That is what, in my opinion, has led to our inability to qualify people today that, for the last 30 years, we would have approved because of compensating factors. We've thrown out the rational underwriting of a human being. Right now it's either in-the-box of the criteria or it's not. No matter what the compensating factors are.

I was just wondering if we could talk a little bit about kind of on a go-forward basis -- and I'm not asking for guidance or anything like that, but I'm just trying to think about land costs and I totally understand that you guys are finding deals that pencil at the margins, but I'm trying to understand land costs as a percent of home price given that, in a lot of markets, land costs are going up very quickly. So as you look forward in the next 3 months, 6 months, 9 months, whatever, 12 months, whatever, do you see land costs staying pretty consistent as a percentage of the home price? Do you see them going up? Do you see them going down? And how is that going to influence -- and obviously price has something to do with it, but just where you're looking for -- at land costs, are they going up faster than home prices in a lot of cases? And how do you see that relative to the gross margin expansion potential?

Well first of all, it's an interesting phenomenon since the developed lot cost vary as a percentage of new home sales price, varies dramatically from market-to-market and particularly, the price point. So it may vary from a low of 15% to 17% of sales price, let's say, in an area of North Carolina to 52% of sales price in Orange County in a prime location. In general, I'd say -- I haven't focused on the numbers, but I would not be surprised as home pricing moves up to see that the land component, as a percentage of sales price in all geographies creeps up just a little bit as well. But as it does that, we still typically have the abilities to get gross margin expansion. I mean, we're really driven by IRR even more than gross margin and we're very, very flexible in how we'll pursue a transaction. We are happy if it's a rolling lot transaction with the developer finishing lots and we're taking it down on an as-needed basis. We'll take a lower gross margin because we know the inventory turnovers will compensate for that. So that's one way to achieve the IRR. It's our favorite way, if we can do it, but not all markets have the availability of developers to feed you lots that way. In other cases, where we have to buy the land in bulk and perhaps, take on the land development task, both the timing and the risk, we typically need higher gross margins because the inventory turn is slower and therefore, to get to the same IRR, we'll need the higher margins. So the short answer is, it varies dramatically from market-to-market and price point-to-price point, but I would say that we'll be trending up a little bit in terms of developed land cost as a percentage of home price.

Your next question comes from the line of Adam Rudiger representing Wells Fargo Securities.

This is Joey Matthews on for Adam. I have a question somewhat related to on your IRR discussion. With your backlog up 41%, do you think you'll focus more on margins going forward or volume to cover your fixed costs?

Neither, exactly. We're focused on IRR. And it's a little bit of both. It's a little bit of volume play and margin play and the trade-offs. So IRR is absolutely our driving force.

And I have a question on your SG&A this quarter. It looks like home sales revenue declined about $135 million sequentially, of course that's seasonal, but your SG&A was relatively flat. I was wondering if there was anything special in there and then going forward, what you see for SG&A operating leverage for the rest of the year -- quarters this year?

Kind of in normal times, SG&A as a percent of revenue is around 10%. For all of 2012, we were at 12.8% and although, on a year-over-year basis, we saw that SG&A percent fall in the first quarter of '13 compared to '12 because it was our seasonably low period, we didn't get quite the operating leverage that we expected to for the full year. For the full year, I'm very confident that as a percent of revenues, you're going to see our SG&A as a percent of revenues decline from what you've seen in 2012 and will gradually migrate towards a 10% number over time.

In terms of dollars spend, I think we show on the slide, it's about $49 -- $49 million in the first quarter. I mean, it will hold relatively stable, creeping up just a bit, nowhere near the expansion of revenues that we project and SG&A by its nature is somewhat fixed and that works to our benefit in later quarters as our revenues expand quite a bit.

Sure. And if I could squeak in a macro question. What do you think the capacity of the industry is right now? And what do you think you can handle this year? What kind of max growth do you see this year?

Well we certainly are comfortable achieving the kinds of growth that we're contracting for. First quarter was a big growth quarter, 42%. I'd say the industry is preparing for that kind of growth. I don't think it's a simple one. And we're all challenged by it. Frankly, I think if there's much more growth than that, I think most builders will resort to raising prices a bit till the infrastructure, in terms of the building ability, can catch up. And that's not a terrible thing either. But there have been some out there that have been projecting some fairly substantial growth. I was listening to Mark Zandi at Moody's recently, that actually projected 2014 starts of about 1.7 million, which is about double this last year. The industry would probably have a pretty tough time getting to that kind of growth and my guess would -- and by the way, he's not alone and I hear and understand and believe that the demand side could be pulling us toward that number. The supply side will have a challenge and I think the result will be a little bit less than that, but more price appreciation than anyone is counting on right now.

Your next question comes from the line of Joel Locker representing FBN Securities.

Just on your backlog conversion going forward. I guess, you dropped out around 56% on a consolidated basis versus 64% a year ago. So a little over 12% drop or somewhere around there and just wondering if you look at the second or third quarter, would you see a similar year-over-year drop on the conversion rates with...

Joel, that's just not a number that we track. I mean, we have community-by-community budgets for sales and for deliveries and contract backlog conversion just isn't on our radar screen. We were very pleased with our sales pace and we're very pleased with the deliveries that we had. It was both above our expectations from a budgeting perspective. But we just don't really follow -- I mean, you don't have a better metric to follow, I understand that, sitting in your chair than backlog conversion, but I can't really give you any color on it because it's not something we pay attention to.

What we focus on is the cancellation rate. That's probably the closest metric to key what you're trying to achieve, and I'd say cancellation rates are at historically very normal levels. If anything, they've been trending down. They're typically plus or minus 20%. Jeff, I don't know if you have the number handy for the last quarter? I think it was slightly down from that, but it's pretty much in the normal...

17% in the most recent quarter.

17% in the recent quarter. I think it was down from where it was 1 year ago, which is a positive thing in spite of the calc you did and some do on backlog conversion. It's just not the way we look at it.

Right. And then what about on your gross margins? Obviously, you're going to get some leverage on your indirect overhead and commissions, even, are coming down a little bit, financing concessions, but if you just single out that housing, land and development cost number of the 71.3%, where do you see that in the second, third, and fourth quarter based on the increased material prices offset by obviously increase in home prices.

As you know, we're not giving very specific guidance. I don't think most builders try to do that in this environment, but suffice it to say, we continue to expect home prices to outpace construction costs and therefore, all parts of the -- we expect gross margin on the whole to improve and I think that component should as well.

Your next question comes from the line of Dan Oppenheimer representing Credit Suisse. Michael Dahl - Crédit Suisse AG, Research Division: This is Mike Dahl on for Dan. I was hoping you guys could provide a little bit of regional color. Total order growth seemed to actually pick up a little bit relative to last quarter, but if we look at regional, it seems like acceleration in the Southwest and Mid-Atlantic versus maybe some slowing in the Southeast and Midwest. Could you talk about kind of what you're seeing there, whether it's market-related, community count or intentionally kind of managing pace.

Yes, we're -- it really is related to where we were able to get communities online faster generally. I'd say, most of the markets are showing pretty robust health. I'd say the only one that maybe is lagging just a bit might be the New Jersey -- the Central New Jersey market has been a little late to the ball, but that's okay. Different markets have different timing. It will get there. We're probably seeing less expansion in the Central Jersey part. Interestingly, the northern part closest to New York City has been extremely healthy and solid and we've been passing on some very good price increases in that part of the market. But on the whole, very good. Houston has been great, Phoenix continues to be great. Northern California is just particularly strong. Florida, in particular Tampa -- excuse me, Orlando and the Southeast coast even more than Tampa have been very, very strong but the market feels good. Recently Virginia's come back on. There was a little bit of hesitation in the Virginia market and the Maryland market, I'd say earlier on, with the fiscal cliff discussions but, frankly, it's gone back and forth and back and forth. I think the market just seems to have shrugged it off and said, they're going to solve it eventually and gone back to home buying in that market as well. Michael Dahl - Crédit Suisse AG, Research Division: Great. And then as a follow-up, given the strength that you just talked about in Northern Cal, coupled with the pricing trends you show in the slides, from a capital allocation perspective, how do you think about balancing, bringing those mothballed -- the development spend needed to bring those mothballed communities online versus buying new land in those markets or in other markets today.

We have actually been under-invested. So thus far, our capital constraint has not dictated new acquisitions or unmothballing versus mothballing. We'd rather have a lower cash balance and then had invested more. So really the focus on unmothballing some communities has just more to do with trying to maximize our timing and looking at getting good returns on our new cash. Overall, as I think we mentioned, I'm pretty optimistic about getting a better pace of unmothballing communities. Those -- we've got -- we were talking about our inventory turns. They've been growing despite the fact that we got a significant number of dollars invested in mothballed communities. That will be a little icing on the cake as we start to unmothball those because we already own the land and it's on our books, so there'll be some land development but we've -- we were able to phase the land development and still get a reasonably good turn on those communities. So we feel pretty good about them. The biggest section, as we mentioned, is in California. The next biggest is in the Northeast, in New Jersey and I think we'll start to see some more positive pricing dynamics there as well.

And your next question comes from the line of Alan Ratner representing Zelman & Associates. Alan Ratner - Zelman & Associates, LLC: Ara, just adding on to that mothballed topic there, if we kind of look at the gross margins you're delivering on, at least the direct gross margins in that 23% or 24% earnings, what would be -- what would have to be an appropriate level for you to make that decision to bring a project back online? Would we -- should we expect some degradation as those communities come back? Or are you targeting kind of the company average that you're delivering right now?

To be honest, again, haven't focused on it. We are really, really driven by IRR more than gross margin. But having said that, I don't think -- while the unmothballed phenomenon that will be coming up will be helpful, I don't think the percentage of unmothballed deliveries will be significant enough to be a needle mover. So I wouldn't expect any positive or negative surprises from the unmothballing of communities.

I think that's the main point to focus on, Alan. As it comes in, it wouldn't surprise me if an individual community we unmothballed had less than our normal margin but still had very good returns on the new dollars that we invested. But as Ara said, it just won't be enough deliveries in the period that you should model it. Alan Ratner - Zelman & Associates, LLC: And then your comments on Virginia and Maryland, I think you were talking specifically about the fiscal cliff, but have you seen any more recent impact from the sequester that went in place earlier last week? And I guess, just adding on that, are there any other markets, maybe ones that are specifically tied to the military or other kind of public sectors there, that you're a little bit concerned about if this thing drags on longer?

It's an interesting question. Frankly, I would've expected more impact with the recent heated up battles, but I can't imagine a market that is more impacted than our Northern Virginia and close-in Maryland suburbs to the fiscal cliff discussions but, boy, the market just seems to have shrugged it off.

We can't note anything related to the sequester in any market. Now it's early, but there's certainly nothing that would lead us to believe that it's caused any degradation in sales pace.

Your next question comes from the line of Megan McGrath representing MKM Partners.

I wanted to ask you regional questions, but from the side of the input costs. I'm curious -- you gave us that great detail on how you were able to offset price increases on a year-over-year basis nationally. I'm curious if the input cost increase you're seeing are commensurate on a regional basis with the prices. In other words, California, are you seeing input costs up about 10%? As you raise prices, are they behind you? And are you seeing them raise, let's say, in New Jersey, where you're not able to raise costs? So are you seeing wide margins differential, by region, I guess?

No, we haven't seen -- basically there isn't a market. None of them have had a problem having home price increases more than construction costs increase. I think that's the root of your question. Some, maybe have accelerated more than others. To give you an example, in Northern California and some of the close-in areas is just particularly hot in terms of price increase ability there. But we're not having any markets -- we're not seeing any markets where the cost pressures are more than our ability to raise prices.

And I guess, how much faster -- I guess, that's part of the question too. I mean, those -- the price increases you've seen in some of the California markets have been pretty impressive. How much -- I guess, in terms of lag, how much are you finding -- how long does it take for your suppliers to kind of catch up with the price increases that you're putting in?

I don't think suppliers say, "Hey, they raised prices. I'm going to raise costs." Okay? I think they're testing the market constantly regardless of what homebuilders are doing with respect to prices, to try to get cost increases in place and builders are testing the market with respect to prices constantly regardless of what the cost increases have been. I mean, it's a free market. It's not like, oh, you got the ability to raise your home price, so I'm going to raise my material price or my labor price. It doesn't work in perfect parallel like that.

I will say, in general, there are many different categories of cost. The branded materials -- appliances, lighting fixtures, kitchen cabinets, a few other items, plumbing fixtures, those we typically negotiate national contracts and they have typically a 2- to 3-year price lock. So on those items, we're not seeing any price increases until that particular national contract comes due and they -- we stagger them, so there's always some coming due but they have a longer hold. There are other materials like lumber or concrete, that are commodity materials and, unfortunately, we typically don't get more than a couple of months' lock on those and we're subject to the ebbs and flows of the pricing and we feel that real time. And then somewhere in between is labor. Typically, we lock in labor for either the life of a particular community -- so the carpenter will give us a price for Galloping Hills and Juniper Plum, whatever the name of it is, for that community unless it is particularly long community, but they have been seen pricing pressures and, in some cases, they've had to pass on some pricing that would be beyond the contract just to be able to keep up with our stepped up production because of the sales. So it's a mixed bag, is the short answer, with a little bit in all of the categories.

That's really helpful. And just a quick smiling [ph] question on capitalized interest. It's been coming down a lot, obviously, as a dollar amount and as a percentage of your comps and revenue, what's the best way, at this stage of the cycle, to think about that line item? Is it as a continued percentage of revenues that maybe trending down or is it better to think of it as a dollar amount as we move forward?

I think it's probably closer related to -- as revenues continue to grow, it will come down. I mean, obviously, it has to also do with the mix of how many legacy deliveries we're getting versus newly identified. The newly identified properties have far less capitalized interest in it, whereas, some of the legacy communities, have a dramatic amount of capitalized interest, so that can influence us as well. But overall, I think, as we continue to grow revenue, you'll see that number coming down.

Your next question comes from the line of Nishu Sood the Deutsche Bank.

I wanted to ask a question about homeowners and what options they're selecting. I wanted to -- I was wondering if I could get your thoughts, stretching back some time, in terms of the amount of customization that homeowners are choosing right now, obviously, there's has been a clearly established trend in the market. The move-up segment has been the hot segment of the market. So what level of options are people choosing now compared to, say, the bottom of the market, and at the peak of the market, let's say back in 2005.

Nish, I'd say, the more of the -- first of all, it has bounced back and they are getting a little -- we're seeing a little more dollars on the option side. And we've had a slight tilt to more move-up product because the entry level has just had a little more challenge getting qualified for the -- because of the mortgage discussions we had earlier. But more than being really aggressive on the options, I think, we're just trending to see -- we're seeing trends of the buyers getting the larger homes. So we offer 5 models there, whereas in the past, they might have tended in the middle of the product lineup, we're just seeing more and more instances where they're going to the top of the lineup in terms of size. We generally price to have a pretty even gross margin in each of the different home types, so we're somewhat indifferent to which way they go, although in absolute dollars, obviously, it's a little more beneficial if they go to the large end. But I'd say that is more of the trend than a big increase in the options -- and by the way, some of our divisions do a little bit of custom options, but more of our -- most of our options are predetermined options, as opposed to custom options. We give them alternatives, more of it in finishes, but in some markets, we offer structural options: a sunroom, a morning room, a bumped out family room, et cetera. But again, it's been more in just absolute size of base models than options.

It sounds like the percentage of sales price that is options or upgrades, clearly it sounds like it'd be far below what it was in 2005, when every option was pretty much taken. But how would it compare to say, a normalized market? I don't know when you would pick, 2000 or 2002?

Nish, it's just not something I'm tracking. It's is interesting because we actually shift around quite a bit what is included as a standard in a given location, and on long life communities, it can shift mid-community. If all of a sudden a competitor offers granite countertops and paneled cabinets as a standard, we may no longer offer that as an option and we may include it standard. So what you'd see is our option upgrades look like they came down but, in fact, they're getting the same finish. We're just including it in the base price. So because there is a lot of movement in that area, it's not something we focus on. We just look at the overall bottom line, gross margin, and particularly, the effect on IRR.

Got it. And if I could ask about land options. You folks, I think 9,000 out of your 24,000 lots you've taken under control since 2009, have been optioned. A very strong number, probably higher than peers. It kind of runs against the investor sense out there that the land market, land developers and land sellers are basically in much more difficult straits and they were doing the boom, and so options would therefore be less available. So what has enabled your success on the optioning side and, more specifically, what sort of options are you using here, thinking about developer options versus land bank versus JV options, et cetera?

Well first of all, I think we're using 3 primarily different types of options. The one category is finished lot options that typically come from a developer, sometimes from a bank that's inherited finished lots. That is certainly one of the types of options. The other type, this is very different, it's an option with a landowner where we have to take it through the entitlements. That occurs more often in the Northeast, sometimes in the DC market, sometimes in the Florida market, where it's an option. It could be for 1 year, it could be for 2 years or 3 years even in New Jersey and Pennsylvania, where we have to take it through the entitlement process, and it's an option until the entitlements are achieved or not achieved. And that we have still been able to achieve because the land is unsellable without the entitlements and we add value to the sellers to do that. The third category is land banking, where the property is purchased in bulk and we match up a land banker, as we've done from time to time, and option backlogs. So we've been flexible and utilized all 3 types of options, if we can. Our ideal scenario is that 100% of everything is acquired or controlled through options and we buy it on a just-in-time basis, but that's difficult to achieve in all markets at all times.

Your next question comes from the line of Alex Barron representing Housing Research Center. Alex Barrón - Housing Research Center, LLC: I wanted to ask you, given your highlight of the California improvement in prices and given how significant of a mothball position you guys have there, is the thought process that you're going to eventually unmothball this? Or is there a chance that you could actually sell some of this land, because I'm assuming it's worth more than your book value at this point?

It is something we look at regularly. The time period, just keep in mind that we just shared with you, is just over the last 13 weeks, the last 3 months. So a lot of the rapid price increase has been in the somewhat recent period. We're also looking at our portfolio of mothballed lots and in a couple of the cases, in Northern California specifically, we decided that we can maximize our profits by actually redesigning the site plan, in some cases going to lower density than what we had planned to improve our returns and so that will take a little bit of time. During the real heyday, everybody tended to increase the density dramatically, but we're seeing some better returns and slightly lower densities so that could take a little time. All in all, I'd say that the unmothballed component is going to be icing on our plans. We're moving forward and focusing on land acquisitions as if the land that we have in mothball is not becoming unmothballed and that'll add just a little bit of additional juice later in the recovery. Alex Barrón - Housing Research Center, LLC: Okay. And Larry, I wanted to, I guess, focus a little bit more on your operating leverage potential going forward here. You guys put a presentation in February that showed you could probably maintain the SG&A run rate and it comes out to about $195 million for the year. I guess, if I look at this quarter's number, I guess, you could still get to that number. Is that something that you guys are sort of targeting? And...

I mean, we kind of said that in the script, is that we expect to hold SG&A relatively stable in terms of dollar amounts. So I think that's a fair assumption. I mean, it may change a tiny bit, but we think we can continue to run the company without a material increase in SG&A. Alex Barrón - Housing Research Center, LLC: Yes. Because I -- I mean, I was a little confused because the revenues dropped significantly, obviously, due to seasonality sequentially but the dollars in SG&A didn't. So I'm assuming that going -- once the revenues start picking up in the back half of the year, maybe the same will hold true.

I'm not sure what you mean by the same will hold true, but SG&A is primarily fixed. So regardless of what revenues are, we think that dollar expense is going to be relatively fixed. Alex Barrón - Housing Research Center, LLC: Okay. I thought most -- I thought the SG&A, roughly 1/2 of it or some portion of it was fixed and the other portion was variable, with commissions or what have you, with volume?

Commissions are in our gross margin.

Part of it is, I mean, I don't have the exact percentage but, obviously, part of the SG&A is the G&A. It's our office rent, salaries, et cetera and that is relatively fixed. The only selling part that's really more variable is advertising dollars or the biggest component is more advertising dollars.

Which does change from quarter-to-quarter, but it does not move the needle that much.

Your next question comes from the line of Michael Kim representing CRT Capital Group.

Yes, I appreciate the slide on Northern California. I was just wondering if you could maybe describe the geographic breakdown of your 4,800 mothballed lots in the west region. How much is tied to Northern California versus Southern California? And what percent of your mothballed assets in Northern California are represented by the submarkets on Slide 17?

We're just not going to get into breaking out segment data more granularly. It's just a bad precedent to get into, but suffice it to say that there is a fair amount of that 4,800 that is in fact, in Northern California, at little more inland than the area where you see the 8 communities that we had the significant price increases on.

Okay, understood. And my second question, how should we think about the remaining development spend associated with your mothballed assets and, I guess, also more broadly speaking, the split between development spend versus new land acquisitions over the next couple of years?

Development spend versus new acquisitions. Let me start with the mothballed lots. I think it's safe to say that a lot of the remaining mothballed lots need substantial amount of land development in order for us to build homes on it, so there would be additional dollars we'd have to invest in streets and underground utilities, et cetera, to get it ready. With respect to your second question, which I think is development spend versus land spend, maybe in the future. I mean, if we can find finished lots, that's our first preference. Those are harder and harder to come by. So even over the past several years, we've been buying raw land and doing the development ourselves. The only thing that kind of changes, obviously, we underwrite to an IRR so the additional time that's necessary to actually do the development work, call it, 4 to 6 months, causes us to pay less for the land than if the land was already developed. But we're comfortable and have the expertise in virtually all of our markets to perform the land development work and it just delays our ability to open a community by the length of time it takes to do the development work, call it, 4 to 6 months.

Got you. And there's no magnitude of number that you'd be able to provide on the development spend for the mothballed assets?

I mean -- no, we're not in a position to do that. I would just say, the vast majority of the lots in mothballed still takes some amount of development dollars in order to get it prepared to build houses on.

You have a follow-up question from the line of Alex Barrón representing Housing Research Center. Alex Barrón - Housing Research Center, LLC: Larry, I wanted to ask you about the portion of the gross margin you pointed out, the indirect cost as being the reason for the sequential drop. Why do you think that doesn't show up as much in previous years as this year?

It does. If you go back and look at gross margin trends, the first quarter has often been lower than the other quarters for exactly that reason. And certainly the indirect overheads would have the same or similar impact.

At this time, I would like to turn the call over to Mr. Hovnanian for closing remarks.

Great. Well, thank you very much. As we've mentioned, we are very pleased with the momentum of the market and we look forward to giving continued positive progress throughout the remainder of the year. Thank you.

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