管理層發言
Good morning and thank you for joining us today for Hovnanian Enterprises Fiscal 2024 Fourth Quarter Earnings Conference Call. An archive of the webcast will be available after the completion of the call and run for 12 months. This conference is being recorded for rebroadcast and all participants are currently in a listen-only mode. Management will make some opening remarks about the fourth quarter results and open a line for questions. The company will also be webcasting a slide presentation along with the opening comments from management. The slides are available on the Investors page of the company's website at www.khov.com. Those listeners who would like to follow along should now log on to the website. I'd like to turn the call over to Jeff O'Keefe, Vice President, Investor Relations. Jeff, please go ahead.
Thank you, Marvin, and thank you all for participating in this morning's call to review the results for our fourth quarter and year-end. All statements on this conference call that are not historical facts should be considered as forward-looking statements within the meaning of the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Such statements involve known and unknown risks and 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 and are 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 results, and are subject to risks, uncertainties, and assumptions that are difficult to predict or quantify. Therefore, actual results could differ materially and adversely from those forward-looking statements as a result of a variety of factors. Such risks, uncertainties, and other factors are described in detail in the sections entitled Risk Factors and Management's Discussion 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 31st, 2023, 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; Brad O'Connor, CFO and Treasurer; and David Mitrisin, Vice President, Corporate Controller. I'll now turn the call over to Ara.
Thanks, Jeff. I'm going to review our fourth quarter and year-end results and I'll also comment on the current housing environment. Brad will follow me with more details and of course, we'll open it up for Q&A afterwards. Let me begin on Slide 5. Here we show full-year guidance compared to our actual results. Starting on the top of the slide, revenues were $3 billion which was slightly better than the midpoint of our guidance. Our adjusted gross margin was 22% for the year, which was exactly at the midpoint of the guidance we gave. Our SG&A ratio was 11.4%, which was very near the midpoint of the guidance that we gave. Our income from unconsolidated joint ventures was $52 million, which was slightly below the guidance we gave due to delayed deliveries in three communities related to utility connections. Adjusted EBITDA was $456 million for the year, which is above the high end of the range that we gave.
And finally, our adjusted pretax income was $327 million, which was also above the high end of the guidance range that we gave. We're obviously pleased that our profitability for the full year was above the high end of the guidance range. On Slide 6, we show how our full-year results compared to last year. Starting in the upper left-hand portion of the slide, you can see that our total revenues increased 9% to just over $3 billion. Moving across the top to gross margin, our gross margin was 22% in fiscal year '24, which was slightly below the prior year's gross margin. Moving to the bottom left, you can see that adjusted EBITDA increased 7% for the year to $456 million. And in the bottom right-hand portion of the slide, we're excited about the adjusted pretax income improvement over the prior year, up 16% to $327 million. If you go to Slide 7, here we show our results compared to last year's fourth quarter.
Keep in mind that last year's fourth quarter was one of the strongest fourth quarters that we've had in a very long time, particularly for gross margin and pretax income. It makes the year-over-year comparisons for the quarter much more difficult. Starting in the upper left-hand quadrant of the slide, you can see our total revenues increased 10% to just under $1 billion. In the upper right-hand portion of the slide, you can see that our gross margin was a healthy 21.7%, but down compared to a particularly strong margin in the previous year. On a sequential basis, we decreased slightly from 22.1% in the third quarter of '24. Gross margins declined year-over-year as per our guidance, despite a 1% decrease in construction costs over the same period. The lower gross margin is primarily due to the continued use of mortgage rate buydowns, which have been stubbornly high due to the elevated levels of mortgage rates as well as some other incentives.
It's also related to a greater conscious focus on pace versus price, which we will discuss more fully in a moment. Going forward, we expect to continue to use mortgage rate buydowns to help with buyer affordability. During this year's fourth quarter, incentives were 8.5% of the average sales price. This is up 120 basis points from a year ago and up 500 basis points higher than fiscal '22, which was prior to the mortgage rate spike impacting deliveries. Because of the continued use of incentives and increased land-light position, we expect gross margins to decrease further in the first quarter as we provided in our guidance. We continue to emphasize pace over price and we expect to report strong EBIT ROI again going forward. As a side note, we utilize a comparable level of incentives in new land acquisitions and they must meet our IRR minimum hurdle rate of 20% even after the cost of these incentives.
Moving to the bottom left-hand portion of the slide, as a result of the lower gross margin percentage, you can see that our adjusted EBITDA decreased a bit to $159 million in this year's fourth quarter. Finally, in the bottom right-hand portion of the slide, correspondingly adjusted pretax profits also decreased a bit to $126 million. While the fourth quarter met our expectations and guidance, it would have been better if not for the hurricanes right toward the end of our fiscal year. We ended up missing deliveries, primarily due to a lack of meters installed in homes and a scarcity of subcontractor crews due to the shift toward rebuilding. Our current communities were spared major damage, but there was a tornado that touched down recently in one of our completed communities on Florida's East Coast causing some damage to about a dozen homes. I understand that investors and analysts are closely watching new orders and current demand levels, so I will now address contracts from various angles.
If you look at Slide 8, despite fluctuations throughout the year, we finished the year with fourth quarter contracts rising 48% compared to the previous year. I want to emphasize this statistic because it is quite significant. Our fourth quarter contracts grew by 48% year-over-year. This strong contracting trend continued into November, with our contracts up 55% year-over-year as demand for our homes remained strong. Regardless of political views, it appears there has been a resurgence of optimism regarding the economic outlook for our homebuyers following the election. Moving to Slide 9, you can observe that contracts per community for the fourth quarter increased to 10.4, a 25% year-over-year rise, and more than double the sales pace of the fourth quarter of 2022. This indicates a solid sales pace for the fourth quarter, positioning us well for a successful fiscal 2025. We are pleased with these results, especially amidst the uncertainties linked to the presidential election, the effects of hurricanes, fluctuations in mortgage rates, and broader economic and geopolitical challenges.
Referencing Slide 10, we can see mortgage rate trends. The gray line on this slide illustrates the changes in mortgage rates from July 2022 to November 2023, while the blue line represents the changes from July 2023 to November 2024. Throughout most of this period, the patterns of monthly increases and decreases were quite parallel, though at slightly higher rates this year. However, after July of this year, mortgage rates fell below the previous year's levels for the same months, continuing to decline until the end of September. Although mortgage rates have risen since early October, they still remain lower than they were last year. Additionally, we are experiencing very strong web traffic. In the last month of the quarter and in November, our website's weekly visits were only outpaced by the COVID surges in 2021 and 2022. This trend gives me considerable optimism about future demand. On Slide 11, we provide a detailed comparison of monthly contracts per community against the same month from the previous year.
Aside from September, where our sales pace was consistent with last year, our contracts per community showed significant growth compared to the same month last year. As illustrated on the slide, EFRs did not have a considerable impact in any of the displayed months. We still believe that the key factors driving our strong performance, such as the low supply of existing homes and a favorable jobs report, remain in place. Additionally, the overall economic health and positive demographic trends are robust. Moving to Slide 12, we present contracts per community as if our quarter ended on September 30th, allowing us to compare our results to peers reporting on a calendar quarter-end. With 10.7 contracts per community, our September sales pace ranks third among public homebuilders reporting at this time, despite September being one of the slower months in the quarter, as highlighted previously.
On Slide 13, our year-over-year growth in contracts per community for the same period was the second highest among our peers, again based on the September quarter-end for comparison with other companies. The next two months saw significantly stronger sales for us. The objective of these last two slides is to demonstrate that we are still selling more homes than our competitors on average. At the top of Slide 14, you can see that a substantial percentage of our deliveries involve homebuyers utilizing mortgage rate buydowns. In the fourth quarter of this year, 72% of our customers took advantage of buydowns. The reliance on buydowns in our deliveries reflects buyers’ need to address affordability challenges in the current mortgage rate environment. Given the persistently high mortgage rates, we expect buydown levels to remain steady moving forward. We are budgeting for these costs to stay constant, which includes our analysis of new land acquisitions.
We continue to discover land opportunities for growth, even amid high incentive levels. To accommodate homebuyers' preferences for mortgage rate buydowns, we are intentionally maintaining a high level of quick move-in homes, or QMIs, to offer affordable mortgage rate buydowns in the near term. On Slide 15, we show that we had 7.9 QMIs per community at the end of the fourth quarter, which is consistent with where it was at the end of the third quarter. We define QMIs, by the way, as a home once we start the building. In the fourth quarter of '24, QMI sales were 72% of our total sales, an increase from 67% in the third quarter of '24. Historically, that percentage was about 40%. Obviously, demand for these QMIs remains high, so we're very comfortable with the current level of QMIs per community. Due to the increase in community count in the quarter, it's not surprising that our finished QMIs increased to 233 finished homes.
On a per community basis, that puts us at 1.8 finished QMIs per community. That's up slightly from 1.5 finished QMIs per community at the end of the third quarter, but it's lower than the 1.9 QMIs at our first quarter. Our goal with QMIs is obviously to sell them before completion. During the fourth quarter, we emphasized pace versus price. We're pleased that with the significant increase in sales pace and the effect on ROI, this did result in a lower gross margin for the fourth quarter and an even lower margin in our guidance for the first quarter of '25. But again, the tradeoff of pace versus price resulting in lower margins is producing great returns on inventory for us. The decrease in gross margin is primarily due to increased use of incentives, particularly in the West. The focus on quick move-in homes results in more contracts that are signed and delivered in the same quarter, which leads to higher backlog conversion.
Our fourth quarter is an extreme example of this increase as 31% of our homes delivered in the fourth quarter were contracted in the same quarter. This resulted in a backlog conversion ratio of 86%. This is the highest backlog conversion ratio we've had for the past 14 years. We'll continue to manage our QMIs at a community level. We track our start schedule at a community level and we make sure that there is a match with our current sales pace per community so that we don't get too far ahead of ourselves. If you move to Slide 16, you can see that even with the economic and political uncertainty, as well as the higher mortgage rates, we are still able to raise net prices in 34% of our communities during the fourth quarter. While we are focusing on pace versus price, we are still able to raise prices in about a third of our communities. Turning to Slide 17, I'll add that in addition to the use of our incentives and the increased level of QMIs, we also attribute part of our performance metrics to the introduction of our new national portfolio of home designs that we refer to as 'Looks'.
The new designs feature curated interiors with simple and honest pricing that reduced the complexity of the selection process for the homebuyers and the building process for us. There are significant other advantages to our 'Looks' program, but we'll discuss that at some point in the future. The current high levels of demand should support the growth that we're focused on achieving over the next several years. I'll now turn it over to Brad O'Connor, our Chief Financial Officer.
Thank you, Ara. On Slide 18, you can see that we ended the quarter with a total of 147 open for sale communities, a 14% increase from last year. 130 of those communities were wholly owned. During the fourth quarter, we opened 21 new wholly owned communities and sold out of 17 wholly owned communities. We had 17 unconsolidated joint venture communities at the end of the fourth quarter; we opened one new unconsolidated joint venture community and closed four unconsolidated joint venture communities during the quarter. Even with the growth in community count this quarter, we still experienced delays in opening new communities, primarily due to utility hookups throughout the country. We expect community count to continue to grow further in fiscal '25. The leading indicator for further community count growth is shown on Slide 19. We ended the quarter with 41,891 controlled lots, which equates to a 7.8 year supply of controlled lots.
Our lot count increased 6% sequentially and 32% year-over-year. If you include lots from our unconsolidated joint ventures, we now control 44,720 lots. We added 5,500 lots and 56 future communities during the fourth quarter. Our land teams are actively engaging with land sellers, negotiating for new land parcels that meet our underwriting standards. In fiscal '24, we began talking about our pivot to growth. This followed a stretch of several years where we used a significant amount of the cash generated to pay down debt. On Slide 20, we show our land and land development spend for each quarter going back five years. You can see how that pivot to growth has impacted our land and land development spend. During the fourth quarter of '24, our land and land development spend increased 45% year-over-year to $318 million. You can clearly see that the land and land development spend in every quarter of fiscal '24 was the highest over the five years shown on this slide.
Our fourth quarter represented the highest quarterly spend since 2010 when we started reporting that metric. Our corporate land committee continues to be busy, which is an indication that our lot count should continue to increase over time, but not always in a straight line. We are using current home prices, including the current level of mortgage rate buydowns and other incentives, current construction costs, and current sales base to underwrite to a 20% plus percent internal rate of return. Our underwriting standards automatically self-adjust to any changes in market conditions. We are finding many opportunities in our markets and are very focused on growing our top and bottom lines for the long-term. And this growth in lots controlled precedes growth in community count, which precedes growth in deliveries. We are very pleased with the trends. On Slide 21, we show the percentage of our lots controlled via option increased from 46% in the fourth quarter of fiscal '15 to 84% in the fourth quarter of fiscal '24.
This is the highest percentage of option lots we've ever had, continuing our strategic focus on land-light. Turning now to Slide 22, you see that we continue to have one of the higher percentages of land controlled via option compared to our peers. Needless to say, with the second highest percentage of option lots, we are significantly above the median. On Slide 23, compared to our peers, we have the second highest inventory turnover rate. High inventory turns are a key component of our overall strategy. We believe we have opportunities to continue to increase our use of land options and further improve our turns on inventory in future periods. Our focus on pace versus price is evident here. Turning to Slide 24, even after spending a record $318 million on land and land development, we ended the fourth quarter with $338 million of liquidity, which is above the high end of our targeted liquidity range.
Turning now to Slide 25, this slide shows our maturity ladder as of October 31, 2024. Over the past several years, we have taken a number of steps to improve our maturity ladder and we remain committed to further strengthening our balance sheet going forward. In February of 2025, one year prior to maturity, we plan to pay off all of the remaining $27 million of the 13.5% notes, which is our highest coupon debt. Turning to Slide 26, we show the progress we've made to date to grow our equity and reduce our debt. Starting on the upper left-hand part of the slide, we show the $1.3 billion growth in equity over the past few years. During the same period, on the upper right-hand portion, you can see the $700 million reduction in debt. On the bottom of the slide, you can see that our net debt to net cap at the end of fiscal '24 was 49.3%, which is a significant improvement from our 146.2% at the beginning of fiscal '20.
We still have more work to do to achieve our goal of a mid-30% level, but we are comfortable that we are on a path to achieve our target soon. We've made considerable progress, which is evidenced by the credit rating upgrades we received from both S&P Global and Moody's during fiscal '24. Our balance sheet has improved significantly over the last five years and we expect to continue to make noteworthy progress moving forward. Given our remaining $241 million of deferred tax assets, we will not have to pay federal income taxes on approximately $800 million of future pretax earnings. This benefit will continue to significantly enhance our cash flows in years to come and will accelerate our growth plans. Regarding guidance, our internal plan, given our significant new community openings and current sales base is for substantial growth in deliveries and revenues in fiscal '25, which is off to a spectacular start.
However, given the volatility and the difficulty in projecting margins with moving interest rates and volatility in general, we will focus our guidance on the current quarter, the first quarter of fiscal '25. Our financial guidance for the first quarter of '25 assumes no adverse changes in current market conditions, including no further deterioration in our supply chain or material increases in mortgage rates, inflation, or cancellation rates. Our guidance assumes continued extended construction cycle times averaging five months, compared to our pre-COVID cycle time for construction of approximately four months. It also assumes that we continue to be more reliant on QMI sales, which makes forecasting gross margins more difficult. Our guidance assumes continued use of mortgage rate buydowns and other incentives similar to recent months. Further, it excludes any impact to SG&A expense from our phantom stock expense related solely to the stock price movement from the $176.04 stock price at the end of the fourth quarter of fiscal '24.
I also want to emphasize that our first quarter has historically been our lowest-performing quarter in terms of gross margin, SG&A, and pretax in 2025 will not be different. Slide 27 presents our forecast for the first quarter of fiscal '25. We anticipate total revenues for this quarter to range from $650 million to $750 million. The adjusted gross margin is expected to fall between 17.5% and 18.5%. This figure is lower than usual, primarily due to the costs associated with mortgage rate buydowns and our strategy of prioritizing pace over price. It's important to note that, under normal circumstances, gross margins in the first quarter tend to be lower than in other quarters because of reduced volume, which leads to certain fixed costs and cost of sales. We estimate SG&A as a percentage of total revenue to be between 13.5% and 14.5%, which remains above our typical levels. The elevated SG&A is partly due to our preparations for substantial growth in community count, requiring us to hire new staff in advance.
This anticipated growth is reflected in our land position and spending. Historically, our first quarter is the quarter with the lowest volume, which often results in a higher SG&A percentage of revenues during this time. We foresee income from joint ventures to be between $15 million and $30 million. Our guidance for adjusted EBITDA is projected to be between $55 million and $65 million, while we expect adjusted pretax income for the first quarter to be between $25 million and $35 million. Turning to Slide 28, we show that our return on equity was 34.6%, the second highest over the trailing 12 months compared to our peers. And on Slide 29, we show that compared to our peers, we have one of the highest consolidated EBIT returns on investment at 30.7%. While our ROE was helped by our leverage, our EBIT return on investment is a true measure of pure homebuilding operating performance without regard to leverage and was the highest among our midsized peers.
We believe we are striking a good balance between pace and price, which is delivering industry-leading ROIs and ROEs. Over the last several years we have consistently had one of the highest ROIs among our peers. Eventually, investors will recognize our consistent superior returns on capital and significantly improved balance sheet. Given our rapidly growing book value, we think it would be appropriate to consider a variety of metrics including EBIT return on investment, enterprise value to EBITDA, and our price to earnings multiple when establishing a fair value for our stock. We believe when all of the fundamental financial metrics are considered, our stock is one of the most compelling values in the industry. On Slide 30, we show our price to book multiple compared to our peers and we are just above the median. On Slide 31, we show the trailing 12-month price to earnings ratio for us and our peer group based on our price-earnings multiple of 5.98 times at yesterday's stock price of $189.96.
We are trading at a 45% discount to the homebuilding industry average PE ratio if you consider all public builders and a 36% discount when considering our midsize peers. We recognize that our stock may trade at a discount to the group because of our higher leverage, but our leverage has been shrinking and our equity has been growing rapidly. On Slide 32, we show that despite our extremely high ROE, there are a number of peers that have a higher price-to-book ratio than us. This slide visually demonstrates how much we are undervalued relative to the other builders when looking at the relationship between ROE and price to book. A very similar result exists when looking at ROE to price to earnings. On Slide 33, you can see an even more glaring disconnect with our high EBIT ROI and our PE. We have the third highest EBIT ROI and yet our stock trades at the lowest multiple to earnings of the group.
These last four slides further emphasize our point that given our high return on equity and return on investment, combined with our rapidly improving balance sheet, we believe our stock continues to be the most undervalued in the entire universe of public homebuilders. I will now turn it back over to Ara for some brief closing remarks.
Thanks, Brad. I just wanted to wrap up the call by saying that we're very excited about the growth we hope to achieve in fiscal '25. Our recent sales have been fantastic. In the fourth quarter again, contracts increased 48% and then we follow that up with a 55% growth in contracts in November. These are very strong year-over-year improvements and these are improvements over last year, which was a great year for us. Some of you might be concerned about our gross margin guidance for the first quarter. Although these contracts are at a lower gross margin, I want to repeat that we made a conscious effort on trading pace for margin, given our focus on inventory turns, EBIT ROIs, and QMIs. The improved sales pace and the expected corresponding growth in revenues should result in continued industry-leading inventory turns, EBIT ROI, and ROE over the coming year. In closing, the housing market continues to show positive fundamentals notwithstanding the affordability challenges. Given the growth in our lot count, our community count, and our land and land development spend, we think we are really well positioned to drive delivery growth in excess of 10% on an annual basis over the next few years and we expect to continue to deliver top-tier industry returns for our shareholders. That concludes our formal comments and we're happy to turn it over for Q&A now.
分析師問答
Our first question comes from Alan Ratner of Zelman & Associates. Your line is now open.
Hey, guys, good morning. Thanks for all the commentary so far. Very helpful. Ara, I'd love to drill in a little more on the strategy shift might be too strong of a word, but just the kind of the pace versus price kind of decision right now and clearly a bit of a change this quarter. I think we had always expected margins to gradually pull back from the recent levels we've seen, but admittedly it's happening a lot quicker than even we would have expected. And I know this is intentional on your part, but 18% gross margin plus or minus is kind of back to where you were pre-pandemic and it kind of brings your EBIT margin levels down to something in that kind of mid, maybe high-single-digit range. And I'm just curious if you think about the outlook for '25, it doesn't sound like you're anticipating much change in incentives. You do have some unknowns out there with tariffs and labor costs and things like that. Is there a level of gross margin if you were to see some cost creep where you would perhaps shift back to maybe more of a price over pace dynamic? Maybe pull back a little bit on the QMIs or the start base in order to try to preserve that margin or do you feel like there's enough in the bag here that you can kind of maintain this level 18% plus or minus and drive that 10% growth regardless of what happens on cost?
Well, Alan, I want to acknowledge that you were correct in predicting that industry margins would decline from the notably high levels observed right after the pandemic. However, I want to highlight two key points. First, as Brad mentioned, our gross margins in the first quarter have historically been the lowest, and this year is no exception. While this might seem counterintuitive, there are some fixed costs, particularly related to construction overhead, that vary over time. Therefore, it’s not simply a matter of subtracting costs from prices. We do anticipate improvement over the quarters, but given the uncertainty, we will project one quarter at a time. Secondly, I seem to have lost my train of thought. Brad, would you like to add something regarding the second point on margin?
Sure. I think one of the things I'll add, Alan, is as we drive forward growth that we've been talking about, our EBIT margin should improve because our SG&A will improve with more volume. So you start to squeeze some of the other components of EBIT margin through the volume. So if gross margin comes down a little, you can make room for it with better SG&A percentage with growth. The other thing is as we think about whether we would pull back on dates and I think that's what you're thinking about here. We'd have to consider as we move to more land-light and by rolling lot takes, et cetera, we can consider whether we would continue in those communities or not at the point where it doesn't make economic sense to move forward. So the last thing we want to do is sit on an existing asset we own. So we have to consider all those components when deciding whether we would drive for pace versus continue to or try to improve margin and slow pace down.
But I'll focus on the point I was going to enunciate that Brad just touched on. We are shifting to a greater land-light. It's always been part of our strategy. It's becoming even more of our strategy. As you saw from some of the graphs, land-light gross margins are inherently lower than wholly-owned gross margins, which is what we were pre-pandemic that you're comparing to. If everything was perfect, our gross margin should go down because you pay more for a land-light lot than you do for a wholly-owned lot that you carry for two years or three years. But what we've done a lot of analysis and we think our ROI and earnings are much better off with lower margins and higher turnover and a higher sales pace. I want to focus Alan on a 55% increase in sales last month following a 48% increase in sales for the quarter. That, along with what Brad mentioned, the benefits of SG&A, we feel very comfortable are going to offset the margin decrease and it's a tradeoff that's very well worth it. We don't currently expect our gross margins to fall. We actually expect them to be up from the first quarter for all the reasons that we mentioned.
Great. I appreciate all the additional insights and I understand your points, which make a lot of sense. Brad, my second question relates to your previous topic about the asset-light and land-light strategy and its flexibility in allowing you to renegotiate or potentially walk away from deals that are no longer viable. Have you initiated this process in any markets or communities? Are there deals that no longer make economic sense based on the previous underwriting, or is this still something that is a ways off?
Yeah, we haven't had to do that yet, Alan. Certainly, something we look at with every community as it's performing. But fortunately, we haven't had to walk away or frankly renegotiate anything at the moment. As you can see in our numbers, we did have a couple of impairments for stuff that we did own where we were underperforming and we had to make an impairment. But our walkaways have been very normal, which is typically walkaways that happen during the due diligence period as opposed to something that happens once we've gotten going. So fortunately, so far, no, we have not had to do that.
Hey, Alan, I want to point out an interesting fact that hasn’t received much attention. As we shift towards a land-light strategy, we are among the leaders in this approach. Our balance sheet reflects a lower percentage of land and land development compared to our work in process. This is important because it helps reduce risk; when the market slows down, it’s much easier to convert a finished home into liquidity than to do so with a raw or developed lot. Therefore, one of the benefits of our QMI strategy is increased safety, as we can achieve liquidity very quickly, even faster than in previous cycles.
Makes a lot of sense. And one last quick housekeeping question. The joint venture guide for $15 million to $30 million is that kind of just straight profitability from JVs or are there any consolidations contemplated within that guide like you had last quarter.
That's just straight normal JV income. There's no consolidations considered in that number.
Great. All right. Thanks a lot, guys. Appreciate it. Good luck and Happy Holidays.
Thank you.
Okay, thank you. Same to you, Alan.
Thank you. One moment for our next question. Our next question comes from the line of Alex Barron of Housing Research Center. Your line is now open.
Yes. Thanks, guys, and great job in the quarter. Glad to see the growth is coming. I wanted to ask about, is there any thought or possibility that you guys could be taking out the debt earlier than its maturity and able to swap it for a lower interest rate debt.
Yeah, I mean, Alex, it's something that we're looking at. As you probably know, a lot of that debt currently has pretty high prepayment penalties. So it's a balance of considering what the lower rate might be versus the cost of doing that. As I mentioned, we're going to pay off the $27 million that's coming due in 2026. We'll do that in a year early. So just in a few months here we're going to pay that off. But otherwise, we are monitoring as the call premiums reduce versus what we expect we might be able to issue new debt at and consider when we should do that. So it's something we're definitely paying attention to. But those make calls or call premiums are at the moment pretty significant.
I think it's important to highlight that as the call premiums become more reasonable, there will be substantial savings in interest. If the current levels remain relatively stable when we refinance, we will see significant reductions in our interest expenses, and this opportunity is not far off. As our call premiums decline quickly, these opportunities will arise soon.
Yeah, I mean, that's the hope. As far as share buybacks, I couldn't figure out if you guys bought any this quarter. I know you did in the last couple of quarters.
We did not have any in the fourth quarter.
Okay. And as far as your shift towards increasing sales pace, is there like an average target you guys are trying to aim at?
No, we don't. We just look at pricing and pace on a community-by-community basis. So we don't have a specific target.
It's something we certainly consider because we've moved to a more land-light model, and we have scheduled land take and lot take requirements each month or quarter. We want to ensure we are maintaining a sales pace that meets those requirements. If we increase our pace, we can acquire the lots more quickly, but we definitely want to make sure we meet the necessary pace to achieve the minimum lot takedowns.
Got it. And if I could ask one more, I saw some homes advertised with a 3.5% mortgage rate and I was wondering if that was just a temporary thing that led to the lower guidance. In other words, if you're no longer offering that, is there a chance that margins could bounce back in the back half of the year?
There's certainly a chance that margins could improve in the second half of the year. It all depends on mortgage rates, market conditions, and the requirements for selling homes while keeping up our desired pace. Regarding the example you mentioned on our website, we do run advertisements and offer incentives by community. This means that one or two communities might have very low rates, while others may not be as low. We closely monitor each community's performance and what competitors are offering to remain competitive. To address your question about margins improving later in the year, we definitely believe that is possible if the market strengthens or if mortgage rates decrease, thereby reducing the cost of the buyouts we're providing. So, that's certainly a possibility.
I'll add that similar to retail stores, even if a community offers a 3.5% 30-year fixed, it doesn't mean every home in the community is. It's usually for a select number of homes that have been finished and are ready to deliver. It's not an across-the-board offering.
Got it. Yeah, I assume that. Okay, guys, well, best of luck for 2025. Thanks.
Okay, thanks, Alex.
Thank you. Please hold for our next question. Our next question comes from Austin Hopper of AWH Capital. You may proceed.
Hey, guys, thanks for taking my question. And you answered several of them already. You talked about SG&A as a percentage of revenues. I guess, it was 11.4% in the year. Can you give us a sense like what that can trend towards in future periods kind of as you scale your business and how that would potentially offset some amount of gross margins?
I think as we grow, we've talked about the fact that we've had to invest ahead in some of the growth, but as we intimated in the remarks, we said we think we're positioned for 10% plus growth over the next few years. And if we can achieve that, I think SG&A goes from 11.4% to something south of 10% ultimately, which still would put us at the high end of the range of our homebuilding peers. So we're continuing to look at ways to drive that further. But just pure growth should get us into single digits over the next couple of years if we can grow the way we anticipate.
Great. Thank you.
Thank you. I am showing no further questions at this time. I would now like to turn it back to Ara Hovnanian for closing remarks.
Thank you very much. We are pleased with the results for our last quarter and we look forward to giving you continued great results during fiscal '25. Thank you.
This concludes our conference call for today. Thank you for all participating and have a nice day. All parties may disconnect.