Good morning, and thank you for joining us today for Hovnanian Enterprises Fiscal 2018 First Quarter Earnings Conference Call. And archive of the webcast will be available after the completion of the call and run for 12 months. This conference is being recorded for a rebroadcast. [Operator Instructions]. 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 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, Chelsey, and thank you for all participating this morning's call to review the results for our first quarter, which ended January 31, 2018. All statements in this conference call that are not historical facts should be considered as forward-looking statements within the meaning of the safe harbor provisions of the Private 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 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 others 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, 2017, and subsequent filings with the Securities and Exchange Commission. Except as otherwise required by applicable security 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, 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'll now turn the call over to Ara. Ara, go ahead.

Thanks, Jeff. As is typical, I'm going to review the operating results for the first quarter. I'll also discuss our current sales environment as well as our progress in land acquisition. Larry will follow me with more detail and discuss other items, including our liquidity position and our recent financing transactions. I'd like to purpose my comments by reminding you about the impact from retiring rather than refinancing $320 million of debt in late '15 and '16 that was a turbulent time for the high-yield market. As a result, we are unable to replenish our land supply sufficiently at that time. And this led to a reduction in our community count and revenues today, which obviously impacts our overall profitability. We're beginning to turn the corner regarding our land supply, and we will describe that more fully in a moment. Our recent financings provided us with both the significantly enhanced maturity ladder and capital at favorable rates to invest in our core business. However, our first quarter deliveries, revenues and profitability were adversely impacted by decreases in our community count. No place is as more evident than with respect to your revenues, which declined 24% during the first quarter from same quarter a year ago for all of the reasons I just stated. Turning to Slide 4. Here you can see that our adjusted gross margin was higher than last year at 17.9% compared to 17.2% a year ago. Despite this increase, we and the industry continued to be challenged by increasing labor and material costs. Now turning to Slide 5. You can see the challenge with regard to rising material costs, primarily lumber and OSB prices. To put this in perspective, the left side of the slide shows that framing the lumber composite is up 23% from a year…

Thanks, Ara. I'm going to start by providing an update on our Houston operations. Turning to Slide 12. Despite the fact that we have had almost three years of significantly lower oil prices, our Houston operations continue to pose solid results. Here we show contracts per community for the trailing 12 months ending January 31, for the last four years. As you can see, the 26.1 contracts for the most recent trailing 12 months is higher than both 2015 and 2016's levels, and just slightly less than 2017's level. Without the impact of Hurricane Harvey in the fourth quarter of last year, we suspect that our Houston contract results would have, once again, improved year-over-year. Turning to Slide 13. For the first quarter of 2018, we had 5.4 contracts per community in Houston, which is identical to the pace we achieved in the first quarter of both 2014 and 2015, and up from the 5.0 pace we achieved in the first quarter of 2016. However, it is down a touch compared to the 5.6 contracts per community in last year's first quarter. The fundamentals in the Houston market remain strong. Some of our peers have shifted their focus to the more affordable price points where we have been successfully operating for years. The overall market is continuing to recover from Hurricane Harvey. We're seeing labor and material costs modestly trend up as trades are going to jobs repairing the hurricane damage where they will be paid more. Although, we have been able to raise prices, margins are under a bit of pressure in Houston as cost have gone up faster than home prices. Houston remains an important market for us, and we have confidence in our local leadership team. However, we will continue to monitor this market very closely. If…

Thanks, Larry. I want to close by emphasizing that our number one priority right now is increasing our land position and our community count. Our pure operating performance measured by homebuilding EBIT-to-inventory has been above median or near the very top of the competitors for a long period of time. The recent financing transaction gives us the confidence and the stability to grow our land position and ultimately, our community count. This will eventually lead to growth in revenues, which should certainly enhance our performance dramatically. We believe the worst quarter of fiscal '18 is behind us, and future quarters, this fiscal year should lead to better operating results as we continue to rebuild our company. This concludes our formal remarks. And I would like to open it up for questions.

[Operator Instructions]. And our first question comes from the line of Arjun Chandar with JP Morgan.

I wanted to start with land spend with inventory. So given the growth in community counts, consequentially from the fourth quarter of fiscal '17, how do we think about the cadence. And I know you made some comments in prepared remarks around the cadence of community count over the balance of the year. But if I remember correctly from the middle of last year, you did say that this - the middle of fiscal '18 is when you expected kind of sustained positive inflection in community count. Is that still the expectation going forward?

Actually, we said towards the end of last half of '18. And in my comments, I mentioned, I think it will be couple of quarters later than that, could be the first half of '19. We're just seeing delays in the timing from when we contact the parcel, getting the finalized entitlements, getting the land development in place, getting the models open. Everything is just running a little further behind in the marketplace in general, so we're pushing that time-out.

Got you. And is there any minimal level of inventory at which time you consider yourself having to be little bit more aggressive in the land acquisition market as it relates to managing your liquidity balance?

Well, it's a good question. I mean it's certainly something we are - we discussed from time to time. Right now, we think there are going to be enough opportunities that we shouldn't be more aggressive than our normal discipline and the normal rates of return that we look for. So far, that's our position now. We will see how we do in the coming quarters on land acquisition.

And with regards to the refinancing transactions, the new secured superpriority revolver that's been put in place with GSO. Is that secured by the same collateral that secures the all secure group?

It's secured by the same collateral that secures the existing $75 million superpriority term loans, which is the old group.

[Operator Instructions]. And our next question comes from the line of Alex Barrón with Housing Research Center. Alex Barrón: I was hoping you could discuss what your experience has been to date with the tick up in the interest rates? And what your expectation would be if interest rates were to go a bit higher? What your response would be there?

Yes, this is certainly much discussed as well in the industry. The best and first response is, when I first started full time a couple of year - in the industry, a couple of years later mortgage rates went to 18%. And during that time there were more housing starts in the United States than there were last year. So I think the market can adjust and has proven to adjust to higher rates. Needless to say, it would be most beneficial if the rate adjustment is gradual over time. And I think that's the more likely scenario. What does happen as rates go up? People first scale back their options and selections, they may not get as higher level upgrade of cabinets or carpet or tile. They may not get the extra bonus room. Then later they may choose a smaller model within that community. And then if rates go further yet beyond their affordability, they may think about a further out location or even a house - a different housing type, a smaller single-family home or a town house depending on where they are in income. So overall, I'm not very concerned regarding gradual rises in mortgage rates. I think it's - we've certainly been through it many times in our 60-year history. Alex Barrón: Got it. And then can you discuss your current land - or your recent land positions? How are they different than what you've done in the last year or two? Are they further out, are they targeting smaller homes or cheaper homes? Or are they pretty much the same thing?

I would say they are a mix of active adult communities, which is the same thing in type, but we've been more successful recently finding more geographies to develop a special niche we have. We build our active adult communities under the brand name of Four Seasons. That is a - I think, a very important niche with the demographics of the aging baby boomer. That has been certainly one segment. I think we've seen a little bit more of an emphasis on town houses. And that's partly because of the affordability, partly because you can sometimes get those in closer in-locations, which cater to a different demographic group, the millennials. Otherwise, we have a mix of some properties that are a little further out for our most entry-level product that we call the Aspire line, and a variety of different move-up opportunities as well.

And I'm showing no further questions at this time. I'm sorry, we do have a question from the line of James Finnerty with Citi.

On the land spends, just want to make sure I get your latest thoughts on that. You said you've spent $155 million in the first quarter. And I guess previous comments were for year-over-year land spend growth. That still the guidance? And any idea in terms of magnitude year-over-year?

Yes, we still believe that we will have some year-over-year growth in land spend. We certainly have the liquidity to accomplish that. The land teams have been busy. We're seeing our land committee calendar getting even evermore booked. So yes, I think it will continue to be the case.

And in terms of community count, I guess you had 165 for the quarter, including 25 JV, but you're thinking the rest of the year, we should think of just from a modeling perspective, sequential declines on, I guess, from the 140 through the end of the year? Or is it - I just want to - just trying to think about how we should model it?

Yes, I think you're on the right track. We don't believe the current level is sustainable for the next several quarters. And we won't really see growth until the first part of 2019. So I think you're on the right track.

So theoretically, first quarter '19, potentially higher than fourth quarter '18?

Sometime in early 2019. I don't think we said first quarter, but we expect sometime early in 2019.

Yes, I mean as you know from everyone in the industry, the reason it's so difficult to project is the last details of entitlements before opening, but also that some community sell out a little faster or slower than projected. And if you sell a few more homes than you thought in a quarter, all of a sudden your community count goes down, because once we're down to less than 10 homes remaining, we no longer count that as a community. So there are obviously many that could be on one side of the bubble or the other. So it's just a very difficult number to be super accurate with.

And just in terms of the pushout in terms of the growth, would you say it's more due to selling out of communities quickly than anticipated? Or bringing on new communities at a slower pace?

A little bit of both. As you see over the last year, our sales pace per community has continued to increase. And that certainly causes you to sell out a little faster. And it has been more challenging as I've mentioned, getting new communities, getting them on time and getting them all the way through the final entitlements and able to open on time.

Okay. And just one sort of detailed question about the revolver availability. It increased by several million quarter-over-quarter. Just curious what drove that since it go from $8 million to $11 million availability?

It's just the use of letter of credit that are also part of the revolver go down, which makes availability for cash to increase. The total revolver $75 million of course, which we used for letters of credit. But if our letter of credit use goes down, it increases the availability for cash.

I am sorry. We do have a follow-up question from the line of Alex Barrón with Housing Research Center. Alex Barrón: Can you guys just discuss the dynamics going on in the Northeast and mid-Atlantic affecting the sales pace at the moment?

It is a very location-specific. In general, in the mid-Atlantic, the Virginia market is doing well and is a little stronger than the Maryland market. There certainly were some concerns during the budget negotiations in Washington that affected that market. Overall, the New Jersey market has held strong. It's just been a matter of getting sufficient communities online to get some growth in sales.

On a per committee count basis, I'll just turn it in here that the...

Community count itself.

What was sales per community, Jeff?

Sales per community was down in both.

In both?

In the quarter, yes.

Okay. Well, thank you very much. As we said, we feel good that this is the sub-quarter and it's behind us, and we look forward to giving you improved performance reports in future quarters. Thank you.

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