Hovnanian Enterprises, Inc. (NYSE:HOV) Q3 2023 Earnings Conference Call August 30, 2023 11:00 AM ET Company Participants Jeff O'Keefe - Vice President, Investor Relations Ara Hovnanian - Chairman, President and Chief Executive Officer Brad O'Connor - Chief Accounting Officer and Treasurer Conference Call Participants Alan Ratner - Zelman & Associates Operator Good morning, and thank you for joining us today for Hovnanian Enterprises Fiscal 2023 Third Quarter Earnings Conference Call. An archive of the webca ...

Financial Performance - Adjusted income before income taxes guidance for full year 2023 is between $66 million and $68 million[145] - Adjusted EBITDA for Q3 2023 was $109 million, compared to $87 million in Q2 2023 and $75 million in Q3 2022[112] - Adjusted homebuilding gross margin for Q3 2023 was 232%, compared to 215% in Q2 2023 and 263% in Q3 2022[92] - The company reduced total debt by $668 million since the beginning of fiscal year 2020[18] Land and Lots - Percentage of optioned lots has increased from 46% in Q3 2015 to 73% in Q3 2023[39] - Total lots controlled are 29487 in Q3 2023, including 8334 owned and 21598 optioned[63] - Years supply of owned lots is 16 years, while total lots is 25 years[48] Sales and Contracts - Contracts per community in Q3 2023, including build for rent, is 441[10] - Percentage of communities where prices were raised increased from 30% in Q1 2023 to 71% in Q3 2023[55] Balance Sheet and Liquidity - Total liquidity as of July 31, 2023, was $4555 million, including $3252 million of cash and cash equivalents, $53 million of restricted cash, and $125 million availability under the revolving credit facility[60, 84] - Net debt to net capitalization is projected to be 578% for FYE 2023[20]

[PART I. Financial Information](index=3&type=section&id=PART%20I.%20Financial%20Information) [Item 1. Financial Statements](index=3&type=section&id=Item%20l.%20Financial%20Statements%3A) The unaudited condensed consolidated financial statements detail the company's financial position and performance for the periods ended April 30, 2023 [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) The balance sheet shows a slight decrease in total assets to $2.48 billion and an increase in total equity to $429.5 million Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | April 30, 2023 | October 31, 2022 | | :--- | :--- | :--- | | **Total Assets** | **$2,483,754** | **$2,562,030** | | Cash and cash equivalents | $333,254 | $326,198 | | Total inventories | $1,484,992 | $1,519,184 | | **Total Liabilities** | **$2,054,257** | **$2,178,979** | | Senior notes and credit facilities | $1,144,090 | $1,146,547 | | **Total Equity** | **$429,497** | **$383,051** | [Condensed Consolidated Statements of Operations](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) Profitability declined year-over-year for the three and six months ended April 30, 2023, driven by lower gross margins Key Performance Metrics (in thousands, except per share data) | Metric | Q2 2023 | Q2 2022 | H1 2023 | H1 2022 | | :--- | :--- | :--- | :--- | :--- | | Total Revenues | $703,661 | $702,537 | $1,219,027 | $1,267,850 | | Net Income | $34,146 | $62,435 | $52,862 | $87,243 | | Diluted EPS | $4.47 | $8.39 | $6.74 | $11.44 | [Condensed Consolidated Statements of Changes in Equity](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Changes%20in%20Equity) Stockholders' equity increased to $429.5 million, driven by net income partially offset by dividends and share repurchases - Total equity increased from **$383.1 million** at the start of the period to **$429.5 million** at April 30, 2023[13](index=13&type=chunk)[14](index=14&type=chunk) - Key changes in equity for the six-month period included **net income of $18.7M in Q1 and $34.1M in Q2**, preferred dividend declarations of **$5.3M**, and share repurchases of **$4.8M**[13](index=13&type=chunk)[14](index=14&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=11&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) The company generated positive cash from operations, a significant improvement from the prior year, though total cash decreased slightly Cash Flow Summary for the Six Months Ended April 30 (in thousands) | Category | 2023 | 2022 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $65,967 | $(62,203) | | Net cash used in investing activities | $(20,455) | $(3,100) | | Net cash used in financing activities | $(56,988) | $(39,244) | | **Net decrease in cash** | **$(11,476)** | **$(104,547)** | [Notes to Condensed Consolidated Financial Statements](index=14&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) The notes provide context on accounting policies, segment realignment, debt, joint ventures, and a subsequent debt redemption - During the fourth quarter of fiscal 2022, the company **realigned its homebuilding segments** into three reportable segments: Northeast, Southeast, and West[27](index=27&type=chunk)[100](index=100&type=chunk) - The company has a shareholder rights plan, effective until August 2024, designed to **protect its net operating loss (NOL) carryforwards**[91](index=91&type=chunk) - Subsequent to the quarter end, on May 30, 2023, the company **redeemed $100.0 million** of its 7.75% Senior Secured 1.125 Lien Notes due 2026 for an aggregate price of **$104.2 million**[128](index=128&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=40&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses macroeconomic impacts, a sequential recovery in sales pace, and declines in year-over-year profitability due to margin compression [Overview and Market Conditions](index=40&type=section&id=Overview%20and%20Market%20Conditions) Housing market conditions improved in Q2 2023, allowing the company to increase prices amid rising customer demand - 30-year mortgage rates increased from **3.2% in January 2022 to a high of 7.1% in October 2022**, negatively impacting housing demand, before moderating to **6.4% by April 2023**[132](index=132&type=chunk) - During Q2 2023, improved demand and low existing home inventory allowed the company to **increase prices in approximately 69% of its communities**[133](index=133&type=chunk) [Results of Operations](index=44&type=section&id=Results%20of%20Operations) Flat year-over-year revenues were accompanied by a significant decline in home sales gross margin, which impacted net income Homebuilding Gross Margin Percentage | Metric | Q2 2023 | Q2 2022 | H1 2023 | H1 2022 | | :--- | :--- | :--- | :--- | :--- | | Gross Margin % | 17.8% | 23.3% | 18.1% | 21.8% | | Gross Margin % (before interest & land charges) | 20.9% | 26.6% | 21.2% | 24.7% | - Total Selling, General & Administrative (SGA) costs increased to **$75.5 million (10.7% of revenue)** in Q2 2023 from $68.2 million (9.7% of revenue) in Q2 2022[139](index=139&type=chunk) [Key Performance Indicators](index=48&type=section&id=Key%20Performance%20Indicators) Metrics show a strong sequential sales pace improvement and normalized cancellation rates, though backlog decreased year-over-year - Net contracts per average active selling community decreased to 12.5 in Q2 2023 from 14.3 in Q2 2022, but **nearly doubled from 6.5 in Q1 2023**, indicating a strong sequential improvement[143](index=143&type=chunk)[160](index=160&type=chunk) - The contract cancellation rate returned to a more normalized level of **18% in Q2 2023**, down from a high of **41% in Q4 2022**[161](index=161&type=chunk)[162](index=162&type=chunk) - Contract backlog **decreased 35.7% in dollar value to $1.3 billion** as of April 30, 2023, compared to $2.1 billion a year prior[144](index=144&type=chunk)[164](index=164&type=chunk) [Capital Resources and Liquidity](index=55&type=section&id=Capital%20Resources%20and%20Liquidity) The company maintained a solid liquidity position while investing in land, repurchasing stock, and paying preferred dividends - Total liquidity at April 30, 2023 was **$463.8 million**, comprising $333.3 million in cash and $125.0 million of borrowing capacity[186](index=186&type=chunk) - During the six months ended April 30, 2023, the company **repurchased 118,478 shares of Class A common stock for $4.8 million**[203](index=203&type=chunk) - The company's fixed charge coverage ratio was **above 2.0 to 1.0**, permitting the payment of dividends on its preferred stock[194](index=194&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=63&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's primary market risk from interest rates is limited due to its fixed-rate long-term debt structure Long-Term Debt Maturity Profile as of April 30, 2023 (in thousands) | Fiscal Year of Maturity | Principal Amount | | :--- | :--- | | 2023-2025 | $0 | | 2026 | $943,683 | | 2027 | $39,551 | | Thereafter | $171,618 | | **Total** | **$1,154,852** | [Item 4. Controls and Procedures](index=63&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that the company's disclosure controls and procedures were effective with no material changes to internal controls - The CEO and CFO concluded that the company's **disclosure controls and procedures were effective** as of April 30, 2023[225](index=225&type=chunk) [PART II. Other Information](index=64&type=section&id=PART%20II.%20Other%20Information) [Item 1. Legal Proceedings](index=64&type=section&id=Item%201.%20Legal%20Proceedings) The company is involved in ongoing litigation, including notable cases concerning alleged construction defects and environmental costs - The company is defending a lawsuit from the Great Notch condominium association, which asserts damages of approximately **$119.5 million**[49](index=49&type=chunk) - The New Jersey Department of Environmental Protection (NJDEP) has sued the company to recover **over $5.3 million** in costs related to a development[50](index=50&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=64&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) No unregistered sales of equity securities or common stock repurchases occurred during the three months ended April 30, 2023 - **No repurchases of common stock** were made during the three months ended April 30, 2023[230](index=230&type=chunk) [Item 6. Exhibits](index=65&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed with the report, including corporate governance documents and required officer certifications - The exhibits filed with this report include corporate governance documents, descriptions of securities, and required **CEO/CFO certifications**[233](index=233&type=chunk)[235](index=235&type=chunk)

Financial Data and Key Metrics - Total revenues for Q2 2023 were $704 million, flat year-over-year [18] - Adjusted gross margin was 20.9% in Q2 2023, down from 26.6% in Q2 2022 [18] - SG&A expenses were 10.7% of total revenues in Q2 2023, compared to 9.7% in Q2 2022 [19] - Adjusted EBITDA was $87 million in Q2 2023, down from $124 million in Q2 2022 [19] - Net income for Q2 2023 was $34 million, compared to $62 million in Q2 2022 [19] - Net debt to adjusted EBITDA was 2.2x at the end of Q1 2023, down significantly from 8.9x in 2019 [10] Business Line Data and Key Metrics - Contracts per community increased 18% from 3.3 in May 2022 to 3.9 in May 2023 [20] - Quick move-in (QMI) homes accounted for 60% of sales in 2023, up from 40% historically [48] - The cancellation rate in Q2 2023 returned to a normalized 18% [22] - The company has 4.8 QMIs per community at the end of Q2 2023, slightly above the historical average [48] Market Data and Key Metrics - The number of existing homes for sale in the US remains depressed at 910,000, less than half of the historical average of over 2 million [24] - Contracts per community in the West segment improved significantly in Q2 2023, closing the gap with the Northeast and Southeast [46] - The company raised net home prices in 69% of its communities during Q2 2023, reflecting strong demand [92] Company Strategy and Industry Competition - The company is focused on increasing the use of land options to enhance inventory turns and reduce risk [28][54] - The company has a 5.5-year supply of controlled land, with 71% of lots controlled via options [54][55] - The company is targeting a return to top-line growth in fiscal 2024, driven by an increase in new communities and a solid pace in contracts per community [27] - The company is trading at a 41% discount to the homebuilding industry average PE ratio, despite strong financial metrics [34] Management Commentary on Operating Environment and Future Outlook - Management is optimistic about future growth prospects, citing favorable demographics and a persistently low supply of existing homes [51] - The company expects total revenues for fiscal 2023 to be between $2.5 billion and $2.65 billion, with adjusted gross margins of 21% to 22.5% [32] - Management anticipates returning to a more normalized sales pace and increasing community count, which should drive growth in fiscal 2024 [27] - The company is closely monitoring the high-yield market for potential refinancing opportunities [4] Other Important Information - The company reduced staffing levels by 10% since the end of fiscal 2022 and implemented salary reductions for senior executives to cut SG&A costs [25] - The company redeemed $100 million of its 7.75% senior secured notes in May 2023, bringing total debt reduction since fiscal 2020 to $494 million [57] - The company has $337 million in deferred tax assets, which will enhance cash flow by offsetting future tax liabilities [57] Q&A Session Summary Question: Why did May contracts per community decline slightly compared to April? - The decline was attributed to seasonality, with May having only 4 Sundays compared to April's 5 Sundays, and a drop in build-for-rent (BFR) sales [108] Question: What is the company's plan for debt reduction? - The company plans to continue reducing debt in future periods, balancing investments in land with strengthening the balance sheet [68][71] Question: How are margins for quick move-in (QMI) homes compared to to-be-built homes? - The margin spread between QMIs and to-be-built homes has narrowed, with some markets showing identical margins for both [81][82] Question: Will the company pay cash taxes in the near future? - The company will not pay federal income taxes due to its deferred tax assets, but it will pay some state taxes [85][102]

Financial Performance - Total liquidity is comprised of $3333 million of cash and cash equivalents, $55 million of restricted cash, and $1250 million availability under the senior secured revolving credit facility as of April 30, 2023[45] - The company retired $494 million of debt since the beginning of fiscal 2020[22] - In May 2023, the company retired $100 million of debt[22] - Adjusted EBITDA for Q2 2023 was $88 million, compared to $46 million in Q2 2022[68] Land and Inventory - Option deposits as of April 30, 2023, were $184 million[9] - $30 million was invested in pre-development expenses as of April 30, 2023[9] - The company controlled 28,657 owned lots and 20,402 optioned lots as of Q2 2023[134] - The percentage of optioned lots was 30% as of Q2 2023[107] Sales and Contracts - The number of monthly contracts per community, excluding unconsolidated joint ventures, is shown in a graph[8] - Cancellation rates are between 16% and 24% from May-22 to May-23[78] - The company has 542 quick move-in homes (QMIs) at 04/30/23, excluding models[81] - The company raised home prices in many of its communities[83]

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, 2023 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 ...

Financial Data and Key Metrics Changes - Total revenues for the first quarter were $515 million, reflecting a 9% decline compared to the previous year [102] - Adjusted gross margin was 21.8%, down from 22.4% year-over-year, impacted by a 470 basis point increase in incentives and concessions [70] - Adjusted pre-tax income was $19 million, compared to $36 million last year, with net income also decreasing from $25 million to $19 million [77] Business Line Data and Key Metrics Changes - The cancellation rate improved to 30% of gross contracts in the first quarter, down from 41% in the previous quarter [6] - The number of Quick Move-In (QMI) homes sold increased to about 60% of total sales, up from 40% historically, indicating a shift in consumer preference [110] - The company ended the quarter with 132 communities open for sale, with a lot count of 29,123 lots, a decrease from previous periods [11][12] Market Data and Key Metrics Changes - The number of existing homes for sale in the U.S. is currently 870,000, less than half of the historical average of over 2 million homes [8] - Monthly contracts per community showed a positive trend, increasing from 1.2 in November to 3.4 by February [78] - The company has a five-and-a-half-year supply of controlled land, with 73% controlled in fiscal 2021 or earlier [15] Company Strategy and Development Direction - The company is focusing on increasing inventory turnover and mitigating land risk by controlling lots primarily through option contracts [13] - A strategy to enhance affordability includes offering various customer incentives, such as below-market mortgage rates and discounts on options [9] - The management team is optimistic about the current sales environment and expects better financial performance for the remainder of the year [21][36] Management Comments on Operating Environment and Future Outlook - Management noted that despite rising mortgage rates, consumer demand appears to be stabilizing, with buyers adjusting their expectations [22][27] - The company plans to continue monitoring mortgage rate movements and the actions of the Federal Reserve, while maintaining a focus on long-term housing market fundamentals [36] - Financial guidance for the second quarter anticipates total revenues between $525 million and $625 million, with adjusted gross margins of 21% to 22.5% [32] Other Important Information - The company repurchased approximately 7% of its outstanding shares for $17 million, indicating confidence in its stock valuation [14][28] - The SG&A ratio is expected to increase due to higher wages and advertising spend, with an anticipated range of 13% to 14% of total revenue [94] - The company has retired $394 million of debt since fiscal 2019 and extended its revolving credit facility maturity to June 30, 2024 [16] Q&A Session Summary Question: Inquiry about buyer enthusiasm and incentives - Management noted that fewer existing homes available for sale and adjusted buyer expectations have contributed to increased sales momentum, despite rising rates [27] Question: Clarification on stock buyback - The company confirmed a $17 million stock buyback over the last two quarters, with plans to monitor market conditions for potential future repurchases [28][30] Question: Land market pricing adjustments - Management indicated that land sellers are becoming more realistic about pricing, leading to increased transactions as the market improves [43][44] Question: Demand for build-to-order products - Demand for both build-to-order and Quick Move-In homes has increased, with a noted shift towards more QMI sales [46][47] Question: Pricing power differences between product types - Management highlighted that build-to-order products currently have better margins compared to Quick Move-In homes, which tend to have more incentives [58]

☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended OCTOBER 31, 2022 Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-K ☐ 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 22-1851059 (State or Other Jurisdiction of Incorporation or Organiza ...

8027 Review of Financial Results Fourth Quarter Fiscal 2022 Forward-Looking Statements 2 Note: All statements in this presentation 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 ...

Hovnanian Enterprises, Inc. (NYSE:HOV) Q4 2022 Earnings Conference Call December 8, 2022 11:00 AM ET Company Participants Ara Hovnanian - Chairman, President and CEO Larry Sorsby - EVP and CFO Brad O’Connor - SVP, Chief Accounting Officer and Treasurer Jeff O’Keefe - VP, IR 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 2022 Fourth Quarter Earnings Conference Call. ...