Hovnanian Enterprises, Inc. (NYSE:HOV) Q2 2020 Earnings Conference Call June 4, 2020 11:00 AM ET Company Participants Jeffrey O'Keefe - Vice President, Investor Relations Ara Hovnanian - Chairman, President and Chief Executive Officer Larry Sorsby - Executive Vice President and Chief Financial Officer Conference Call Participants Alan Ratner - Zelman & Associates Alex Barron - Housing Research Center Operator Good morning and thank you for joining us today for Hovnanian Enterprises Fiscal 2020 Second Quarte ...

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) ☒ Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended JANUARY 31, 2020 OR ☐ Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Commission file number 1-8551 Hovnanian Enterprises, Inc. (Exact Name of Registrant as Specified in Its Charter) Delaware (State or Other Jurisdiction of Incorporation o ...

Company Overview - Hovnanian Enterprises, Inc. has delivered over 342,000 homes since its inception, including 5,720 homes in fiscal 2019[12]. - The company operates in 141 communities across 24 markets in 14 states, with an average sales price of $394,000 nationwide in fiscal 2019[13]. - The company employed 1,868 full-time associates as of October 31, 2019[21]. - The company is among the top 15 homebuilders in the U.S. based on homebuilding revenues and deliveries, competing with various local and regional builders[58]. Financial Performance - The value of net sales contracts increased by 14.5% to $2.1 billion for the year ended October 31, 2019, compared to $1.8 billion for the previous year[48]. - The number of homes contracted rose by 14.3% to 5,340 in fiscal 2019 from 4,671 in fiscal 2018[48]. - The backlog of signed contracts for homes was 2,652 with a sales value of $1.1 billion as of October 31, 2019, compared to 2,192 homes valued at $977.3 million in 2018[52]. - The company delivered 4,946 homes with consolidated revenues of $1,949,682 thousand for the year ended October 31, 2019[47]. - Cash flows from operating activities were $249.1 million in fiscal 2019, compared to $66.8 million in fiscal 2018, indicating improved cash generation[78]. Market Conditions - The homebuilding industry has faced labor shortages, particularly in markets like Houston, Dallas, and Northern California, leading to construction delays[56]. - The homebuilding industry is cyclical and significantly affected by economic conditions, which could impact the company's ability to build homes at competitive prices[64]. - Weather-related issues and natural disasters have historically caused delays and increased operational costs, affecting sales and construction activities[66]. - Rising construction costs may limit the ability to raise home sales prices, potentially resulting in lower gross margins[70]. Land Acquisition and Development - Hovnanian Enterprises aims to maintain adequate liquidity while pursuing new land acquisitions to enhance profitability[24]. - The company employs a risk-averse land acquisition strategy, aiming to limit financial exposure through negotiated takedown options[30]. - The company controls a total of 15,515 proposed developable home sites, with a combined book value of $108,565 thousand[54]. - The availability of suitable undeveloped land and improved lots at acceptable prices is critical for the company's success in homebuilding[87]. Customer Focus and Satisfaction - The company focuses on a diverse product array to cater to various customer segments, including first-time buyers and luxury buyers[27]. - Hovnanian Enterprises emphasizes customer satisfaction and quality, implementing various quality initiatives to enhance service[28]. - The company manages its financial services operations to streamline the home-buying experience for customers[32]. Debt and Liquidity - As of October 31, 2019, the company had $1,549.1 million in total debt, with $829.8 million in debt service payments for the year[74]. - The company may face liquidity challenges if cash flows are insufficient to meet debt service obligations, potentially leading to asset disposals[78]. - The company is currently prohibited from paying dividends on common and preferred stock due to restrictions imposed by its debt instruments[82]. - The company has $19.2 million in outstanding letters of credit, collateralized by $19.9 million in cash, highlighting its reliance on credit facilities[73]. Regulatory and Legal Challenges - The company anticipates increasingly stringent regulatory requirements that may lead to higher compliance costs and operational delays[62]. - Legal claims related to construction defects could result in potential damages of approximately $119.5 million, which may be subject to treble damages under the New Jersey Consumer Fraud Act[111]. - The company is involved in ongoing negotiations with the EPA regarding a cleanup site, with potential costs estimated at $2.7 million[110]. - The company is subject to extensive laws and regulations that can delay or increase the costs of homebuilding operations[106]. Strategic Initiatives - The company’s strategy includes homebuilding and land development joint ventures to expand market opportunities and enhance returns on capital[31]. - The company plans to continue pursuing land acquisitions that generate appropriate investment returns and drive greater operating efficiencies[24]. - The company is evaluating additional joint venture opportunities but may face restrictions due to existing debt covenants[103]. Economic and Competitive Landscape - The company faces competition from larger homebuilders with greater financial resources, which could impact future earnings[117]. - Geopolitical risks and market disruptions may have a substantial impact on the economy and housing market[128]. - The company is significantly affected by economic cycles, with revenues and earnings varying based on general economic activity[77].

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) [X ] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended JULY 31, 2019 OR [ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Commission file number 1-8551 Hovnanian Enterprises, Inc. (Exact Name of Registrant as Specified in Its Charter) Delaware (State or Other Jurisdiction of Incorporation ...

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) [X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended APRIL 30, 2019 OR [ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Commission file number 1-8551 Hovnanian Enterprises, Inc. (Exact Name of Registrant as Specified in Its Charter) Delaware (State or Other Jurisdiction of Incorporation ...

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) [ X ] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended JANUARY 31, 2019 OR [ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Commission file number 1-8551 Hovnanian Enterprises, Inc. (Exact Name of Registrant as Specified in Its Charter) Delaware (State or Other Jurisdiction of Incorpora ...