Good morning and thank you for joining us for the Hovnanian Enterprises Fiscal 2020 Third Quarter Earnings Conference Call. An archive of this webcast will be available after the completion of the call and will 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 third quarter results and then open the lines for questions. The Company will also be webcasting a slide presentation along with the opening comments from management. The slides are available on the Investor's page of the Company's website at www.khov.com. Those listeners who would like to follow along should now log on to the website. I would now like to turn the call over to Jeff O'Keefe, Vice President, Investor Relations. Jeff, please go ahead.

Thank you, Irwin. Thank you all for participating in this morning’s call to review the results for our third quarter, which ended July 31, 2020. 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 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 and uncertainties and other factors are described in detail in the sections entitled Risk Factors in 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, 2019, 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 on the call are Ara Hovnanian, Chairman, President and CEO; Larry Sorsby, Executive Vice President and CFO; and Brad O'Connor, Senior Vice President, Chief Accounting Officer and Treasurer. I'll now turn the call over to Ara. Ara, please go ahead.

Thanks, Jeff. I hope all of you and your families remain safe and healthy during these challenging times. Here we are in September of 2020, and although COVID continues to impact all aspects of all of our lives, the environment for new home sales remains robust. I'm going to review our third quarter results and then address the current market environment. As usual, Larry Sorsby will follow me with more detail before the Q&A. COVID has changed the way we do almost everything. The safety and well-being of our associates, customers, trade - and trade partners remains a huge focus at our company. We continued to successfully work through all the obstacles that are thrown our way by COVID - by the COVID-19 pandemic. We're working hard to ensure a safe working environment. Our associates have been absolutely amazing in continuing the day-to-day efforts to keep our operations running and planning for the future in the face of these uncertain and very difficult times. We switch to a virtual environment seamlessly and actually moved into high production sales and delivery mode at the same time. Given the challenges that COVID-19 has created, we're pleased with our third quarter performance. On slide four, we compare year-over-year results for our third quarter. As you can see in the upper left hand quadrant of the slide, total revenues grew 30% to $628 million during this year third quarter. Moving to the upper right hand portion of the slide, you can see that our gross margin was $106 million for the third quarter compared to $84 million last year. Reacting to slower demand in the early stages of the COVID-19 crisis, we offered consumers additional incentives on spec homes that could be delivered during our third quarter. This increased the volume of deliveries and…

Thanks, Ara. I'll start on slide 12. This was another strong quarter for our Financial Services division, driven by historically low rates and increased volumes, Financial Services third quarter pre tax earnings increased 182% year-over-year to a $11 million. On slide 13, we show that we have a solid backlog of 3,056 homes under contract at the end of the third quarter. The number of homes in backlog was up 20% and the dollar amount was up 17%. Our white-hot sales pace caused us to sell out of communities faster than we anticipated. If you turn to slide 14, you can see that our consolidated community count declined by 21 communities from 138 on July 31, 2019 to 117 at the end of July this year. In addition to selling through communities faster than we expected, there were two additional reasons for the decline. First, we had 14 community grand openings that were expected to have occurred by July 31 this year, but were delayed primarily due to COVID-19 issues. Second, we contributed four wholly-owned communities into unconsolidated joint ventures during the first quarter of fiscal 2020. Frankly, we thought that we would achieve revenue growth through community count growth. In reality, the significant improvements in sales pace we are achieving has been the driver of our 27% growth in revenues through the first nine months of this year. Similar to our peers, during the initial stages of COVID-19, and the uncertain economic environment it created, we took measures to preserve cash by delaying certain land purchases, land development activity, and beginning work on some unsold homes. During a third quarter we returned to our normal activities with respect to land purchases, land development, and building spec homes. However, as you can see on slide 15, our extremely strong sales…

[Operator Instructions] Our first question comes from the line of Alex Barron from Housing Research Center. Your question, please?

Hey, guys, very strong quarter and congrats on that.

Thank you.

I was curious about your guidance on the margins 19% to 20%, it sounds very good. But what was the reason the margins kind of took a step back this quarter or what accounts for, you know, the step back now versus the step up next quarter? Can you elaborate on that?

Sure. This is Ara. I’ll comment on that. As we mentioned, in the depth of the COVID crisis in the middle of March and April when things were looking fairly dire, frankly, sales were really off, the economy was uncertain and basically the US shut down. To be conservative, we discounted a bit and raised incentives, particularly on spec homes that could deliver soon. Those homes are the ones that delivered a lot of them in the third quarter. And they had lower gross margins. As we mentioned also in the script, we then pivoted and you know, the month of May were strong, the month of June were stronger and every month since has been stronger. So we began raising prices and we've continued raising prices. That's why you're going to see higher gross margins in the fourth quarter, because we're going to begin to see the benefits of that pivot and pricing strategy.

Okay. That sounds good. So even though you're not really giving guidance for next year, I imagine maybe we can expect a similar margin for the first quarter of next year. Okay, great. On the – the other question was on the joint ventures. So that income right now is only coming from the existing joint ventures, you're not delivering any homes in the KSA. So when do you expect the KSA will start showing some contribution?

We are on the verge of delivering homes right - we're just on the verge now. I'd expect that should begin in the next quarter or two. And there are reason I'm hesitating because just as the pandemic has created lots of issues and delays in the US, it's done the same in Saudi Arabia as well. But all is going well. Sales are strong, production is continuing. So we're just going through the logistics steps to begin delivering homes in fairly large quantities.

Okay, great. And if I could ask one last one. So your liquidity looks pretty good here. And you guys took advantage and bought back some debt [ph] this quarter. Is there anything that constraints how much you could do that next quarter?

Repeat the question one more time…

Yes, you expect your liquidity, I think you said was over $300 million at this point. And you bought back like $25 million of the 2022 bonds. Is there anything that constrains how much you could buy next quarter?

Yes, we have a limited capacity under various covenants to do additional repurchases of the 2022 bonds. So I would say that you should not expect a similar amount to be done next quarter.

Okay, great. I'll get back into queue. Thanks.

Thank you. Our next question comes from line of Thomas Maguire from Zelman & Associates. Your question please?

Hey, guys, great job on the quarter.

Thank you.

Just on the price worst-case [ph] dynamic, what - whatsoever that makes you pull that or it gets to. Ara, you talked about raising prices across virtually all communities? What drives that decision and kind of say, you know, that pace is enough or is there a return metric you're thinking about? Is it more that you don't want the backlog to get too far extended? Or just how do you think about that?

Really, all of the above. I mean, the reality is we analyze it on a community-by-community basis. If we sold a couple of homes in a week, and that meets our budgets, we are not shy to raise prices that we - if we raise prices and still sell a couple of homes, we will raise prices again. And then we'll see what happens. If we continue to sell, we will raise prices again. If a price increase in a particular community begins to dampen sales, then we'll hold back on selling - on raising prices. So it's really a dynamic situation that we analyze community-by-community, market-by-market across the entire country.

That makes kind of sense. Got it. And then just on the community count, I know there's a ton of moving pieces and you're continuing to close out communities with a robust pace here, but how do you think about the ability to put a floor on that number and begin ramping moving forward? And, you know, I know we talked about qualitatively the revenue and with land deals coming to the committee, is there a line of sight to that number moving higher in the coming quarters? And then you know, what drove the decision to contribute the communities to the JVs?

First, we don't anticipate at the moment contributing more communities to JVs. But you know, we review that strategy month-to-month. We are having fairly good success right now in acquiring new parcels, land parcels in almost all of our markets that meet our return hurdles at current prices and current paces, assuming no home price appreciation. So we're pretty comfortable there and feeling good for the longer term. In the shorter term, as we mentioned in the script, we have 100% of all of the land we need to achieve meaningful growth in 2021 next year, which begin for us in November, and then we've got 80% of all the land we need to have meaningful growth again in 2022. So we're feeling like we're in pretty good shape in terms of our land position, frankly, a little better than we normally would be this early on, and we're finding opportunities that should fill our 2022 desires that remaining 20% and then opportunities for 2023 deliveries beyond that.

Yeah. I think, you know, that the focus needs to really be [ph] on revenue growth, whether we get that by having additional communities, or whether we get that by having higher sales on a per community basis. You know, the objective is to get higher revenues and higher profitability. So if, in fact, we continue, as we suspect we will, at a higher sales pace per community given the increased demand that just is going to cause us and every other homebuilder out there to sell through communities faster than they had previously anticipated. But the end result will still be revenue and profit growth for us and the industry.

Very good. Thank you. I really appreciate it. Congrats again. And enjoy long weekend.

Thanks.

Thank you. [Operator Instructions] Our next question is a follow up from the line of Alex Barron from Housing Research Center. Your question, please?

Yeah. Thanks, guys. So your tax rate has been fairly low these last few quarters, is there any expectation of when that goes back to normal?

All that's in the tax line, on P&L right now its state taxes. You don't see any federal taxes because of the deferred tax asset that's fully - has a full reserve against it. So anytime we have income the deferred tax asset gets used and valuation allowance gets reduced, but there's no P&L effect. And that won't change until we are able to reverse the reserve, which is something that we probably wouldn't be able to look at until we have sustained profitability at a reasonable level. So maybe this time next year, our trends continue, we can have that conversation and consider reversing some or all the reserve.

Okay. Yeah, that was going to be my next question. If it was reasonable to expect maybe towards the end of next year that you'd be qualifying for reversing the DTA?

I think we'll be certainly looking at it around that time, yeah.

Okay, great. Thanks so much.

Thank you. And this does conclude the question-and-answer session of today's program. I'd like now - like to hand the program back to Ara Hovnanian, ready for the remarks.

Well, thank you very much, as I said at the outset, we're pleased with our results. But we're even more excited about the results to come. We look forward to giving you continued good news in the very near future. Thank you.

Thank you, ladies and gentlemen for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.