MATAWAN, N.J., Feb. 08, 2024 (GLOBE NEWSWIRE) -- Hovnanian Enterprises, Inc. (NYSE: HOV), a leading national homebuilder, will release financial results for the first quarter ended January 31, 2024, the morning of Thursday, February 22, 2024. The Company will webcast its first quarter earnings conference call at 11:00 a.m. (ET) on Thursday, February 22, 2024. The conference call and accompanying slide presentation will be webcast live through the “Investor Relations” section of Hovnanian Enterprises’ websit ...

STUART, Fla., Jan. 15, 2024 (GLOBE NEWSWIRE) -- K. Hovnanian Homes introduces Salerno Reserve, a new community of single-family homes in Stuart. Salerno Reserve offers LOOKS: a designer-curated collection of beautiful interiors. Buyers can choose between Loft, Farmhouse, Classic or Elements LOOKS, and enjoy cohesive style without the stress. "By whittling down an overwhelming number of design choices, we've been able to focus on making our 'LOOKS' stand out," said Alexander Hovnanian, Executive Vice Preside ...

Business and Risk Factors [Business Overview](index=5&type=section&id=Item%201%20Business) Hovnanian is a major US homebuilder operating in 13 states, focusing on QMI homes and a risk-averse land strategy - The company operates through two main divisions: homebuilding and financial services. The homebuilding operations are divided into three reportable segments: Northeast, Southeast, and West[12](index=12&type=chunk) - In **fiscal 2023**, the company offered homes with base prices ranging from **$135,000** to **$1,770,000**, with an average sales price of **$539,000**[13](index=13&type=chunk) - The company employs a **risk-averse land acquisition strategy**, preferring to use land options to control lots, which limits financial exposure. In **fiscal 2023**, the company walked away from **3,838** lots under option, resulting in a pre-tax charge of **$1.5 million**[44](index=44&type=chunk)[54](index=54&type=chunk) - In response to rising interest rates, the company shifted its focus to increasing the availability of **quick-move-in (QMI) homes** and executed "**Build-For-Rent agreements**" to supplement sales volume in **fiscal 2023**[38](index=38&type=chunk) FY 2023 Housing Deliveries and Revenue by Segment (Consolidated) | Segment | Housing Revenues (in thousands USD) | Homes Delivered | Average Sales Price | | :--- | :--- | :--- | :--- | | Northeast | **$933,156** | **1,618** | **$576,734** | | Southeast | **$419,656** | **776** | **$540,794** | | West | **$1,277,645** | **2,484** | **$514,350** | | **Consolidated Total** | **$2,630,457** | **4,878** | **$539,249** | - As of **October 31, 2023**, the company employed **1,715** full-time associates. The workforce is diverse, with **25.6%** being non-white and **44.3%** being women[27](index=27&type=chunk)[30](index=30&type=chunk) [Risk Factors](index=17&type=section&id=Item%201A%20Risk%20Factors) The company faces significant cyclical homebuilding risks, high leverage, and potential NOL limitations - The homebuilding industry is highly cyclical and significantly affected by changes in economic conditions, including interest rates, employment levels, and consumer confidence, which can impact profitability and liquidity[83](index=83&type=chunk)[84](index=84&type=chunk) - Substantial increases in interest rates, as seen in **fiscal 2022** and **2023**, can impair home affordability, lower demand, and reduce the company's ability to realize its sales backlog[91](index=91&type=chunk) - The company has a **significant amount of debt** (**$1.07 billion** as of **Oct 31, 2023**, excluding certain items), which could limit future financing, require substantial cash flow for debt service, and place it at a competitive disadvantage[127](index=127&type=chunk)[132](index=132&type=chunk)[133](index=133&type=chunk) - **Restrictive covenants** in debt instruments limit the company's ability to, among other things, incur more debt, pay dividends, repurchase stock, and make certain investments. Failure to comply could lead to default[139](index=139&type=chunk)[140](index=140&type=chunk) - The company has a federal **net operating loss (NOL) carryforward** of **$688.3 million**. An "**ownership change**" as defined by Section 382 of the Internal Revenue Code could substantially limit the ability to utilize these NOLs[155](index=155&type=chunk)[156](index=156&type=chunk)[157](index=157&type=chunk) - The company's operations are concentrated in Arizona, California, Florida, New Jersey, Texas, and Virginia, making it vulnerable to regional economic downturns or events in these specific markets[106](index=106&type=chunk)[107](index=107&type=chunk) Financial Information [Market for Common Equity and Share Repurchases](index=38&type=section&id=Item%205%20Market%20for%20Registrant%27s%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) Hovnanian's Class A common stock trades on NYSE; no public market for Class B or recent equity repurchases - The Class A Common Stock is traded on the New York Stock Exchange under the symbol "HOV"[169](index=169&type=chunk) - The company reported no issuer purchases of its equity securities during the period[171](index=171&type=chunk) [Management's Discussion and Analysis (MD&A)](index=40&type=section&id=Item%207%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) FY23 saw revenue and net income decline due to high interest rates and lower margins, despite strong liquidity [Overview and Market Conditions](index=41&type=section&id=Overview%20and%20Market%20Conditions) FY23 housing market faced rising interest rates, prompting incentives and QMI homes, which improved demand and liquidity - The company used its increased inventory of **QMI homes** and offered mortgage interest rate buydowns to combat the impact of rising interest rates and provide customers with more certainty on mortgage pricing[183](index=183&type=chunk) - A low supply of existing homes for sale led to increased demand for new homes, allowing the company to increase net prices in approximately **54%** of its communities during **Q4 2023**[184](index=184&type=chunk) - In **FY2023**, the company spent **$679.3 million** on land and development, repurchased **$245.0 million** of senior secured notes, and ended the year with total liquidity of **$564.2 million**[186](index=186&type=chunk) [Results of Operations](index=43&type=section&id=Results%20of%20Operations) FY23 total revenues decreased **5.7%** to **$2.76 billion** due to fewer deliveries and lower gross margins, partially offset by increased JV income Total Revenues Breakdown (FY2023 vs FY2022) | Revenue Source | 2023 (in thousands USD) | 2022 (in thousands USD) | Variance (in thousands USD) | | :--- | :--- | :--- | :--- | | Sale of homes | **$2,630,457** | **$2,840,454** | **$(209,997)** | | Land sales | **$48,217** | **$16,202** | **$32,015** | | Other revenues | **$17,254** | **$4,035** | **$13,219** | | Financial services | **$60,088** | **$61,540** | **$(1,452)** | | **Total Revenues** | **$2,756,016** | **$2,922,231** | **$(166,215)** | Homebuilding Gross Margin Analysis (FY2023 vs FY2022) | Metric | 2023 | 2022 | | :--- | :--- | :--- | | Homebuilding gross margin percentage | **19.6%** | **21.5%** | | Homebuilding gross margin %, before interest & land charges | **22.7%** | **25.0%** | - Inventory impairments and land option write-offs decreased significantly to **$1.5 million** in **FY2023** from **$14.1 million** in **FY2022**[209](index=209&type=chunk) - The company recorded a net loss on extinguishment of debt of **$25.6 million** in **FY2023**, primarily from redeeming and refinancing several series of senior secured notes[191](index=191&type=chunk)[231](index=231&type=chunk)[232](index=232&type=chunk) [Homebuilding Operations Analysis](index=48&type=section&id=Homebuilding%20Operations%20Analysis) Homebuilding operations saw increased sales pace but volatile cancellation rates, leading to a **16.4%** backlog value decline to **$1.1 billion** - Net contracts per average active selling community increased to **40.8** in **FY2023** from **39.6** in **FY2022**, indicating a **faster sales pace**[213](index=213&type=chunk) Quarterly Contract Cancellation Rates (as % of Gross Sales) | Quarter | 2023 | 2022 | | :--- | :--- | :--- | | First | **30%** | **14%** | | Second | **18%** | **17%** | | Third | **16%** | **27%** | | Fourth | **25%** | **41%** | Consolidated Contract Backlog (Year-End) | Metric | Oct 31, 2023 | Oct 31, 2022 | | :--- | :--- | :--- | | Total contract backlog (in thousands USD) | **$1,060,614 thousand** | **$1,268,679 thousand** | | Number of homes | **1,824** | **2,186** | [Capital Resources and Liquidity](index=54&type=section&id=Capital%20Resources%20and%20Liquidity) The company maintained **$564.2 million** in liquidity in FY23, driven by debt refinancing and share repurchases - Total liquidity at **October 31, 2023** was **$564.2 million**, comprising **$434.1 million** in homebuilding cash and **$125.0 million** available under its revolving credit facility[242](index=242&type=chunk) - Cash provided by operating activities was **$435.3 million** in **FY2023**, a **significant increase** from **$89.5 million** in **FY2022**[131](index=131&type=chunk)[244](index=244&type=chunk) - In **FY2023**, the company undertook several **debt management actions**, including redeeming **$200.0 million** of its **7.75%** Notes, repurchasing **$45.0 million** of its **10.0%** Notes, and refinancing several other notes with new issues due in **2028** and **2029**[231](index=231&type=chunk)[232](index=232&type=chunk)[233](index=233&type=chunk)[234](index=234&type=chunk) - The company repurchased **118,478** shares of its Class A common stock for **$4.8 million** during **fiscal 2023**. As of year-end, **$33.0 million** remained available under the repurchase authorization[263](index=263&type=chunk)[502](index=502&type=chunk) [Inventories and Land Position](index=59&type=section&id=Inventories%20and%20Land%20Position) FY23 saw total inventory decrease by **$86.2 million**, with a strategic increase in QMI homes and stable controlled home sites Total Controlled Home Sites (Consolidated) | Date | Owned | Optioned | Total Home Sites | | :--- | :--- | :--- | :--- | | Oct 31, 2023 | **7,337** | **24,389** | **31,754** | | Oct 31, 2022 | **9,022** | **22,496** | **31,800** | - The number of started or completed unsold homes and models increased to **909** at the end of **FY2023** from **739** at the end of **FY2022**, a **strategic move** to increase the availability of **QMI homes**[274](index=274&type=chunk)[275](index=275&type=chunk) - The company utilizes land banking and model sale-leaseback arrangements, which are accounted for as financings. As of **October 31, 2023**, this "**Consolidated inventory not owned**" totaled **$224.8 million**[270](index=270&type=chunk)[388](index=388&type=chunk) [Market Risk Disclosures](index=68&type=section&id=Item%207A%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) Market risk is primarily interest rate-related but limited due to fixed-rate long-term debt and short-term mortgage hedging - The company has **limited exposure** to variable interest rates as substantially all of its long-term debt requires **fixed payments**[302](index=302&type=chunk) Long-Term Debt Maturity Schedule (as of Oct 31, 2023) | Maturity Year (Fiscal) | Principal (in thousands USD) | Weighted-Avg Interest Rate | | :--- | :--- | :--- | | 2026 | **$204,092** | **11.55%** | | 2027 | **$39,551** | **5.00%** | | 2028 | **$306,498** | **8.53%** | | Thereafter | **$520,120** | **10.58%** | | **Total** | **$1,070,261** | **9.97%** | [Controls and Procedures](index=68&type=section&id=Item%209A%20Controls%20and%20Procedures) Management and auditors concluded the company's disclosure controls and internal control over financial reporting were effective - Management concluded that the company's disclosure controls and procedures were **effective** as of **October 31, 2023**[309](index=309&type=chunk) - Deloitte & Touche LLP audited and found the company's internal control over financial reporting to be **effective** as of **October 31, 2023**[313](index=313&type=chunk)[350](index=350&type=chunk) Corporate Governance [Directors, Executive Officers, Compensation, and Related Matters](index=70&type=section&id=Items%2010-14) This section's detailed information is largely incorporated by reference from the company's definitive proxy statement - Information required by Items 10, 11, 12, 13, and 14 is largely incorporated by reference from the company's definitive proxy statement to be filed for its annual meeting on **March 21, 2024**[317](index=317&type=chunk)[325](index=325&type=chunk)[326](index=326&type=chunk)[327](index=327&type=chunk)[328](index=328&type=chunk) - The company has adopted a **Code of Ethics** applicable to all associates and directors, as well as **Corporate Governance Guidelines**, which are available on its website[321](index=321&type=chunk)[322](index=322&type=chunk)[323](index=323&type=chunk) Financial Statements and Notes [Auditor's Report](index=83&type=section&id=Report%20of%20Independent%20Registered%20Public%20Accounting%20Firm) The auditor issued an unqualified opinion on financial statements and internal controls, identifying warranty and construction defect reserves as a Critical Audit Matter - The auditor issued an **unqualified (clean) opinion** on both the financial statements and the effectiveness of internal control over financial reporting[350](index=350&type=chunk) - A **Critical Audit Matter** was identified concerning the estimation of reserves for **warranty costs and construction defects**. This was due to the **high degree of complexity, subjectivity, and judgment** required by management in determining the liability, which necessitated **increased audit effort** and the use of **actuarial specialists**[358](index=358&type=chunk)[359](index=359&type=chunk) [Consolidated Financial Statements](index=85&type=section&id=Consolidated%20Financial%20Statements) FY23 financial highlights include **$2.49 billion** total assets, **$581.8 million** equity, **$2.76 billion** revenues, **$205.9 million** net income, and **$435.3 million** operating cash flow Consolidated Balance Sheet Highlights | (In thousands USD) | Oct 31, 2023 | Oct 31, 2022 | | :--- | :--- | :--- | | Total Inventories | **$1,349,186** | **$1,519,184** | | Total Assets | **$2,492,940** | **$2,562,030** | | Senior notes and credit facilities, net | **$1,051,491** | **$1,146,547** | | Total Liabilities | **$1,911,151** | **$2,178,979** | | Total Equity | **$581,789** | **$383,051** | Consolidated Statement of Operations Highlights | (In thousands USD) | FY 2023 | FY 2022 | FY 2021 | | :--- | :--- | :--- | :--- | | Total Revenues | **$2,756,016** | **$2,922,231** | **$2,782,857** | | Income before income taxes | **$255,951** | **$319,753** | **$189,861** | | Net Income | **$205,891** | **$225,490** | **$607,817** | | Diluted EPS | **$26.88** | **$29.00** | **$85.86** | Consolidated Statement of Cash Flows Highlights | (In thousands USD) | FY 2023 | FY 2022 | FY 2021 | | :--- | :--- | :--- | :--- | | Net cash provided by operating activities | **$435,275** | **$89,466** | **$210,213** | | Net cash (used in) provided by investing activities | **$(78,235)** | **$(2,152)** | **$8,996** | | Net cash used in financing activities | **$(261,711)** | **$(16,520)** | **$(217,273)** | [Notes to Financial Statements](index=93&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) The notes provide critical details on accounting policies, debt, segment performance, NOLs, joint ventures, and litigation matters - **(Note 9)** The company executed a **major refinancing** in **October 2023**, issuing **$225.0 million** of **8.0%** Notes due **2028** and **$430.0 million** of **11.75%** Notes due **2029** to redeem several series of notes maturing in **2026**[455](index=455&type=chunk)[456](index=456&type=chunk) - **(Note 11)** The company has remaining federal **Net Operating Loss (NOL) carryforwards** of **$688.3 million**. A valuation allowance of **$71.9 million** is maintained against certain state NOLs and tax credits that are not expected to be realized[486](index=486&type=chunk)[487](index=487&type=chunk) - **(Note 12)** The company recorded **no inventory impairments** in **FY2023**, compared to **$8.4 million** in **FY2022**. Write-offs for abandoned land options and other costs were **$1.5 million**, down from **$5.7 million** in the prior year[491](index=491&type=chunk)[493](index=493&type=chunk) - **(Note 16)** Warranty and construction defect reserves stood at **$89.6 million** at year-end. In **fiscal 2023**, an additional **$10.1 million** was added to reserves due to an updated assessment of claims history[520](index=520&type=chunk)[522](index=522&type=chunk) - **(Note 18)** The company reached a **settlement** in the Four Seasons at **Great Notch case** in **December 2023**. The settlement amount was not materially different from what had been reserved[530](index=530&type=chunk) - **(Note 20)** The company actively uses **unconsolidated joint ventures**. In **FY2023**, it contributed numerous communities to new and existing JVs, generating significant cash, and also consolidated the assets of other JVs[537](index=537&type=chunk)[538](index=538&type=chunk)[539](index=539&type=chunk)

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 July 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 or O ...

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]

Home Sales Performance - Home sales revenue decreased to $499.6 million for the three months ended January 31, 2023, down 9.4% from $551.4 million in the same period of 2022, with a 20.1% decrease in home deliveries[134][144] - Home sales for the three months ended January 31, 2023, were $499,645, a decrease of 9.4% from $551,366 in the same period of 2022[150] Pricing and Margins - The average sales price per home increased by 13.4% to $532,671 for the three months ended January 31, 2023, compared to $469,647 in the prior year[134][144] - Gross margin percentage decreased to 18.7% for the three months ended January 31, 2023, down from 19.9% in the same period of 2022, primarily due to increased incentives and concessions[135] - Homebuilding gross margin decreased to $93,204, representing a gross margin percentage of 18.7%, down from 19.9% in the prior year[150] Contracts and Backlog - Net contracts decreased by 49.2% for the three months ended January 31, 2023, compared to the same period in the prior year, reflecting a slow sales pace across the industry[139] - Contract backlog decreased from 3,624 homes at January 31, 2022, to 2,028 homes at January 31, 2023, with a dollar value decrease of 37.6% to $1.2 billion[141] - Net contracts per average active selling community dropped to 6.5 from 13.1 year-over-year, reflecting a significant decline in demand due to high inflation and rising mortgage rates[155] - Contract backlog dollars decreased by 37.6% to $415,128 as of January 31, 2023, with the number of homes in backlog down 44.0%[158] Cancellations and Buyer Behavior - The gross contract cancellation rate was 30% in the first quarter of fiscal 2023, an improvement from 41% in the fourth quarter of fiscal 2022[141] - Contract cancellation rates increased to 30% in Q1 2023, compared to 14% in Q1 2022, indicating a higher level of buyer uncertainty[156] Financial Performance - Pre-tax income decreased to $18.0 million for the three months ended January 31, 2023, down from $35.4 million in the same period of 2022[138] - Selling, general and administrative costs increased to $73.4 million, or 14.2% of total revenues, for the three months ended January 31, 2023, compared to 12.8% in the prior year[136] - Selling, general and administrative expenses increased by $5.2 million to $47.9 million, largely due to fees for mortgage rate concessions and merit-based salary increases[154] Liquidity and Investments - The company spent $134.4 million on land purchases and land development during the three months ended January 31, 2023, maintaining total liquidity of $365.7 million[142] - Total liquidity as of January 31, 2023, was $365.7 million, including $234.9 million in cash and cash equivalents and $125.0 million of borrowing capacity under the senior secured revolving credit facility[173] - Cash used in investing activities was $23.3 million during the first quarter of fiscal 2023, primarily due to a new unconsolidated joint venture and acquisition of fixed assets[175] Debt and Financing - As of January 31, 2023, the company's long-term debt totals $1,154.85 million, with a fair value of $1,111.72 million[212] - Senior notes and credit facilities totaled $1,145.3 million net of discounts and unamortized debt issuance costs as of January 31, 2023[179] - The company has $133.9 million in nonrecourse mortgages secured by inventory, with maturities spread over the next two to three years[213] - The company has a $125.0 million Secured Credit Facility with no outstanding borrowings as of January 31, 2023[213] Economic and Market Conditions - The company expects continued pressure on results from higher wages due to inflation and increased advertising spending as it navigates a challenging housing market[132] - The annual inflation rate in the U.S. reached 6.4% in January 2023, impacting home sales due to rising construction costs[205][207] - The company faces risks related to economic conditions, raw material shortages, and fluctuations in interest rates[210] - The company is affected by regional economic factors, including employment levels and home prices[210] Joint Ventures and Investments - Income from unconsolidated joint ventures decreased by $1.0 million to $7.2 million for the three months ended January 31, 2023, compared to the same period in the prior year[171] - Investments in unconsolidated joint ventures increased by $26.1 million to $101.0 million as of January 31, 2023, due to a new joint venture and income from existing ventures[193] Inventory Management - Total inventory decreased by $18.6 million to $1.2 billion as of January 31, 2023, primarily due to home deliveries and inventory contributed to a new joint venture[194] - Consolidated inventory not owned increased by $6.4 million to $267.6 million, driven by land banking transactions[195] Financial Services - Financial services income before income taxes increased to $3.1 million for the three months ended January 31, 2023, compared to $2.9 million in the same period in 2022, attributed to a decrease in total financial services costs and an increase in the basis point spread[168] - Financial services assets decreased by $43.2 million to $112.8 million, primarily due to a reduction in residential mortgage receivables held for sale[203] - Financial services liabilities decreased by $44.5 million to $91.1 million, correlating with the decrease in mortgage loans held for sale[204] Interest Rate Management - The company has limited exposure to variable interest rates, as substantially all long-term debt requires fixed interest payments[211] - Interest rate risk from mortgage loans is mitigated through forward commitments from private investors[211] - The company does not use financial instruments to hedge interest rate risk except for mortgage loans[211]