Hovnanian Enterprises(HOV) - 2025 Q3 - Quarterly Results

Hovnanian Enterprises Fiscal 2025 Third Quarter Results Executive Summary The company reported an 11% revenue increase, met all guidance, and achieved a record 86% of optioned lots - Total Revenues Increased 11% Year-Over-Year[1] - Met or Exceeded All Guidance Metrics Provided[1] - 86% of Total Lots Are Optioned, Highest Percentage Ever[1] - Second Highest TTM ROE Amongst Midsized Homebuilders[1] Financial Performance Overview Total revenues grew for the quarter and nine-month period, but net income and profitability metrics declined Consolidated Financial Results Total Revenues | Period | FY2025 | FY2024 | Change (%) | | :----- | :----- | :----- | :--------- | | Q3 | $800.6M | $722.7M | 10.8% | | 9 Months | $2.16B | $2.03B | 6.7% | Net Income | Period | FY2025 | FY2024 | Change (%) | | :----- | :----- | :----- | :--------- | | Q3 | $16.6M | $72.9M | (77.2%) | | 9 Months | $64.5M | $147.7M | (56.3%) | Diluted EPS | Period | FY2025 | FY2024 | Change (%) | | :----- | :----- | :----- | :--------- | | Q3 | $1.99 | $9.75 | (79.6%) | | 9 Months | $7.94 | $19.15 | (58.5%) | EBITDA | Period | FY2025 | FY2024 | Change (%) | | :----- | :----- | :----- | :--------- | | Q3 | $61.0M | $127.9M | (52.3%) | | 9 Months | $190.7M | $294.3M | (35.2%) | Adjusted EBITDA | Period | FY2025 | FY2024 | Change (%) | | :----- | :----- | :----- | :--------- | | Q3 | $77.1M | $131.0M | (41.2%) | | 9 Months | $210.4M | $296.6M | (29.1%) | Profitability Metrics Homebuilding Gross Margin Percentage (after cost of sales interest expense and land charges) | Period | FY2025 | FY2024 | Change (pp) | | :----- | :----- | :----- | :---------- | | Q3 | 11.7% | 19.1% | (7.4) | | 9 Months | 13.5% | 18.9% | (5.4) | Homebuilding Gross Margin Percentage (before cost of sales interest expense and land charges) | Period | FY2025 | FY2024 | Change (pp) | | :----- | :----- | :----- | :---------- | | Q3 | 17.3% | 22.1% | (4.8) | | 9 Months | 17.6% | 22.2% | (4.6) | Total SG&A as % of Total Revenues | Period | FY2025 | FY2024 | Change (pp) | | :----- | :----- | :----- | :---------- | | Q3 | 11.3% | 12.4% | (1.1) | | 9 Months | 12.0% | 12.6% | (0.6) | Total Interest Expense as % of Total Revenues | Period | FY2025 | FY2024 | Change (pp) | | :----- | :----- | :----- | :---------- | | Q3 | 4.2% | 4.0% | 0.2 | | 9 Months | 4.3% | 4.4% | (0.1) | Income Before Taxes (GAAP & Adjusted) Income Before Income Taxes | Period | FY2025 | FY2024 | Change (%) | | :----- | :----- | :----- | :--------- | | Q3 | $23.8M | $97.3M | (75.5%) | | 9 Months | $90.2M | $199.2M | (54.7%) | Income Before Income Taxes (excluding land-related charges and gain on extinguishment of debt, net) | Period | FY2025 | FY2024 | Change (%) | | :----- | :----- | :----- | :--------- | | Q3 | $39.8M | $100.4M | (60.3%) | | 9 Months | $109.9M | $201.5M | (45.5%) | - Q3 FY2025 adjusted income before income taxes was at the high end of guidance[5] Operational Performance and Key Metrics Deliveries increased significantly while contract backlog decreased, reflecting a strategic shift to quick move-in homes Sales and Deliveries Consolidated Contracts (Homes) | Period | FY2025 | FY2024 | Change (%) | | :----- | :----- | :----- | :--------- | | Q3 | 1,211 | 1,192 | 1.6% | Consolidated Deliveries (Homes) | Period | FY2025 | FY2024 | Change (%) | | :----- | :----- | :----- | :--------- | | Q3 | 1,431 | 1,255 | 14.0% | Contracts (including domestic unconsolidated joint ventures) (Homes) | Period | FY2025 | FY2024 | Change (%) | | :----- | :----- | :----- | :--------- | | Q3 | 1,416 | 1,396 | 1.4% | Deliveries (including domestic unconsolidated joint ventures) (Homes) | Period | FY2025 | FY2024 | Change (%) | | :----- | :----- | :----- | :--------- | | Q3 | 1,676 | 1,479 | 13.3% | Average Price of Consolidated Contracts | Period | FY2025 | FY2024 | Change (%) | | :----- | :----- | :----- | :--------- | | Q3 | $511,673 | $541,773 | (5.6%) | Average Price of Consolidated Deliveries | Period | FY2025 | FY2024 | Change (%) | | :----- | :----- | :----- | :--------- | | Q3 | $537,421 | $547,748 | (1.9%) | Community Count and Backlog Consolidated Community Count | Date | FY2025 | FY2024 | Change (%) | | :--- | :----- | :----- | :--------- | | Jul 31 | 124 | 126 | (1.6%) | Community Count (including domestic unconsolidated joint ventures) | Date | FY2025 | FY2024 | Change (%) | | :--- | :----- | :----- | :--------- | | Jul 31 | 146 | 146 | 0.0% | - Consolidated contracts per community increased 3.2% year-over-year to 9.8 in Q3 fiscal 2025[5] Dollar Value of Consolidated Contract Backlog | Date | FY2025 | FY2024 | Change (%) | | :--- | :----- | :----- | :--------- | | Jul 31 | $838.8M | $1.16B | (27.6%) | Dollar Value of Contract Backlog (including domestic unconsolidated joint ventures) | Date | FY2025 | FY2024 | Change (%) | | :--- | :----- | :----- | :--------- | | Jul 31 | $1.10B | $1.46B | (24.4%) | - The year-over-year decrease in backlog dollars is partly due to increased sales of quick move-in homes (QMIs)[5] Cancellation Rates Gross Contract Cancellation Rate (Consolidated) | Period | FY2025 | FY2024 | Change (pp) | | :----- | :----- | :----- | :---------- | | Q3 | 19% | 17% | 2 | Gross Contract Cancellation Rate (including domestic unconsolidated joint ventures) | Period | FY2025 | FY2024 | Change (pp) | | :----- | :----- | :----- | :---------- | | Q3 | 19% | 17% | 2 | Land and Inventory Management Land and Land Development Spending | Period | FY2025 | FY2024 | Change (%) | | :----- | :----- | :----- | :--------- | | Q3 | $192.6M | $216.1M | (10.9%) | | 9 Months | $660.0M | $677.0M | (2.5%) | - Total controlled consolidated lots increased 1.8% to 40,246 as of July 31, 2025[11] - 86% of lots were optioned at the end of Q3 fiscal 2025, the highest percentage ever, consistent with a land-light strategic focus[11] - Current land position equaled 7.0 years' supply based on trailing twelve-month deliveries[11] - Total Quick Move-In Homes (QMIs) decreased 5.3% sequentially to 1,016, approaching the goal of 8 QMIs per community, illustrating efforts to match starts with sales pace[11] Liquidity and Capital Structure Total liquidity exceeded targets, and the company ranked highly among peers in capital efficiency metrics like ROE Liquidity Position - Total liquidity as of July 31, 2025, was $277.9 million, which was above the target liquidity range of $170 million to $245 million[11] - Total liquidity is comprised of $146.6 million of cash and cash equivalents, $6.3 million of restricted cash, and $125.0 million available under a senior secured revolving credit facility[20] Return on Equity and Investment - For the trailing twelve-month period, the return on equity (ROE) was 18.7%[5] - For the trailing twelve-month period, the net income return on inventory was 9.5%[5] - For the trailing twelve-month period, the adjusted earnings before interest and income taxes return on investment (Adjusted EBIT ROI) was 22.1%[5] - The company had the second highest ROE and believed the highest Adjusted EBIT ROI compared to nine of its publicly traded midsized homebuilder peers[5] Financial Guidance The company provided its financial outlook for the fourth quarter of fiscal 2025, assuming stable market conditions Fourth Quarter Fiscal 2025 Outlook Q4 FY2025 Financial Guidance | Metric | Range | | :-------------------------------- | :-------------------- | | Total Revenues | $750M - $850M | | Adjusted Homebuilding Gross Margin | 15.0% - 16.5% | | Adjusted Income Before Income Taxes | $45M - $55M | | Adjusted EBITDA | $77M - $87M | - Financial guidance assumes no adverse changes in current market conditions, including deterioration in the supply chain or material increases in mortgage rates, inflation, or cancellation rates[7] Management Commentary and Strategic Focus Management remains focused on growth, capital structure improvement, and disciplined land acquisition amid market challenges - Management is encouraged by Q3 performance, having met or exceeded all guidance metrics provided[10] - The market environment remains challenging due to uncertainty across global, political, and economic fronts, weighing on homebuyer sentiment, and affordability challenges from high home prices and modest mortgage rate declines[10] - Increased incentives led to the first year-over-year increase in quarterly contracts per community this fiscal year[10] - The company is selling through lower margin homes and land to make room for newer land purchases with better margins, consistent with its short-term strategy[10] - Primary focus remains on pursuing growth opportunities while improving the capital structure, with strict adherence to underwriting discipline for new land acquisitions[10] - Management is confident that pent-up housing demand and positive long-term demographic trends will drive increased demand for new homes[10] Company Information Hovnanian Enterprises is a national homebuilder founded in 1959, operating across multiple states About the Company - Hovnanian Enterprises, Inc. was founded in 1959 by Kevork S. Hovnanian and is headquartered in Matawan, New Jersey[13] - The company operates as a leading national homebuilder in Arizona, California, Delaware, Florida, Georgia, Maryland, New Jersey, Ohio, Pennsylvania, South Carolina, Texas, Virginia, and West Virginia[13] - Homes are marketed and sold under the trade name K. Hovnanian Homes, and the company is one of the largest builders of active lifestyle communities through K. Hovnanian's Four Seasons communities[13] Webcast Details - Hovnanian Enterprises will webcast its fiscal 2025 third quarter financial results conference call at 11:00 a.m. E.T. on Thursday, August 21, 2025[12] - The webcast can be accessed live through the 'Investor Relations' section of Hovnanian Enterprises' website at http://www.khov.com[12](index=12&type=chunk) - An archive of the broadcast will be available for 12 months under the 'Past Events' section of the Investor Relations page[12] Non-GAAP Financial Measures Explanation This section defines non-GAAP financial measures used in the report and notes that reconciliations are provided - Defines EBIT, EBITDA, Adjusted EBITDA, and Adjusted EBIT as non-GAAP measures, with net income as the most directly comparable GAAP measure[15] - Defines Homebuilding gross margin, before cost of sales interest expense and land charges, and its percentage as non-GAAP measures, with homebuilding gross margin and percentage as comparable GAAP measures[16] - Defines Adjusted income before income taxes as a non-GAAP measure, with income before income taxes as the most directly comparable GAAP measure[17] - Defines Adjusted Investment as a non-GAAP measure, with total inventories as the most directly comparable GAAP measure[18] - Defines the ratio of Adjusted EBIT return on adjusted investment (Adjusted EBIT ROI) as a non-GAAP measure, with the ratio of net income return to total inventories as the most directly comparable GAAP measure[19] - Reconciliations for historical periods of these non-GAAP measures to their GAAP counterparts are presented in tables attached to the earnings release[15][16][17] Forward-Looking Statements The report contains forward-looking statements that are subject to numerous risks and uncertainties - All statements not historical facts are considered 'Forward-Looking Statements' under the 'Safe Harbor' provisions of the Private Securities Litigation Reform Act of 1995[21] - Such statements involve known and unknown risks, uncertainties, and other factors that may cause actual results, performance, or achievements to be materially different from those expressed or implied[21] - Risks include changes in economic conditions, shortages/price fluctuations of raw materials and labor, fluctuations in interest rates, increases in inflation, adverse weather, land availability/cost, reliance on subcontractors, cancellation rates, tax laws, legal claims, competition, utility issues, IT failures, global instability, high leverage, financing availability, credit ratings, government regulation, hazardous materials, unconsolidated joint ventures, controlling stockholders, availability of net operating loss carryforwards, and loss of key personnel[21] - The company undertakes no obligation to publicly update or revise any forward-looking statements[21] Condensed Consolidated Financial Statements This section presents the company's condensed consolidated statements of operations and balance sheets Statements of Operations - Detailed breakdown of revenues from homebuilding (sale of homes, land sales and other) and financial services[40] - Comprehensive listing of expenses including cost of sales (excluding interest, interest, inventory impairments, land option write-offs), selling, general and administrative, financial services, corporate general and administrative, and other interest[40] - Includes gain on extinguishment of debt, net, and income from unconsolidated joint ventures[40] - Presents income before income taxes, state and federal income tax provision, net income, less preferred stock dividends, and net income available to common stockholders[40] - Provides basic and diluted net income per common share and weighted-average number of common shares outstanding[40] Balance Sheets - Assets include cash and cash equivalents, restricted cash, inventories (sold and unsold homes/lots, land/land options, consolidated inventory not owned), investments in unconsolidated joint ventures, receivables, property and equipment, and prepaid expenses[38] - Liabilities include nonrecourse mortgages, accounts payable and other liabilities, customers' deposits, liabilities from inventory not owned, senior notes and credit facilities, and accrued interest[38] - Stockholders' equity details preferred stock, common stock (Class A and B), paid-in capital, retained earnings, and treasury stock[38] Non-GAAP Reconciliations This section provides detailed reconciliations of non-GAAP financial measures to their comparable GAAP measures Income Before Taxes Reconciliation - Reconciles Income before income taxes to Income before income taxes excluding land-related charges and gain on extinguishment of debt, net[24] - Adjustments include inventory impairments and land option write-offs, and gain on extinguishment of debt, net[24] Homebuilding Gross Margin Reconciliation - Reconciles Homebuilding gross margin to Homebuilding gross margin, before cost of sales interest expense and land charges, and Homebuilding gross margin, after cost of sales interest expense, before land charges[25] - Details cost of sales, excluding interest expense and land charges, and cost of sales interest expense[25] - Includes Land charges and their impact on gross margin[25] - Presents Land Sales Gross Margin data, including land and lot sales, cost of sales, and interest[25] Adjusted EBITDA Reconciliation - Reconciles Net income to EBIT, EBITDA, and Adjusted EBITDA[27] - Adjustments include income tax provision, interest expense, depreciation and amortization, inventory impairments and land option write-offs, and gain on extinguishment of debt, net[27] - Includes the ratio of Adjusted EBITDA to interest incurred[27] Interest Incurred, Expensed and Capitalized - Details interest capitalized at the beginning and end of the period[30] - Shows interest incurred, interest expensed, interest contributed to unconsolidated joint ventures, and interest acquired from unconsolidated joint ventures[30] Adjusted EBIT Return on Adjusted Investment Reconciliation - Reconciles Net income to Adjusted EBIT for the trailing twelve-month period, including adjustments for income tax provision, interest expense, inventory impairments, land option write-offs, and gain on extinguishment of debt, net[32] - Reconciles Total inventories to Adjusted Investment, including adjustments for liabilities from inventory not owned, interest capitalized, and investments in and advances to unconsolidated joint ventures[32] - Calculates Net income Return on Inventory and Adjusted EBIT Return on Adjusted Investment for the trailing twelve-month period[32] Segment Data This section provides detailed operational data broken down by geographic region for consolidated and unconsolidated operations Consolidated Segment Data (Contracts, Deliveries, Backlog) - Provides detailed consolidated segment data for the Northeast, Southeast, and West regions[41][44] - Includes contracts, deliveries, and contract backlog in terms of homes, dollar values, and average prices[41][44] - Data is presented for both the three months and nine months ended July 31, 2025, and 2024[41][44] Unconsolidated Joint Ventures Segment Data (Contracts, Deliveries, Backlog) - Presents segment data specifically for unconsolidated joint ventures (excluding KSA JV) by Northeast, Southeast, and West regions[50][54] - Details contracts, deliveries, and contract backlog in terms of homes, dollar values, and average prices[50][54] - Separate data is provided for the KSA JV[50][54] - Data is presented for both the three months and nine months ended July 31, 2025, and 2024[50][54]