Hovnanian Enterprises Inc(HOVNP) - 2025 Q3 - Quarterly Results

Executive Summary & Highlights Hovnanian Enterprises reported strong Q3 FY2025 performance, exceeding guidance and maintaining high return metrics despite market challenges Fiscal 2025 Third Quarter Overview Hovnanian Enterprises exceeded Q3 FY2025 guidance, reporting increased revenues, 86% optioned lots, and strong TTM ROE - 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] Consolidated Financial Performance The company reported increased revenues but significant declines in gross margins, net income, and EBITDA for Q3 and nine months of FY2025 Revenues Total revenues for Q3 FY2025 increased 10.8% to $800.6 million, with nine-month revenues up 6.7% to $2.16 billion Total Revenues (Consolidated) | Period | FY2025 (Millions) | FY2024 (Millions) | YoY Change | | :----- | :---------------- | :---------------- | :--------- | | Q3 | $800.6 | $722.7 | +10.8% | | 9 Months | $2,160.0 | $2,030.0 | +6.7% | Domestic Unconsolidated Joint Ventures Sale of Homes Revenues | Period | FY2025 (Millions) | FY2024 (Millions) | YoY Change | | :----- | :---------------- | :---------------- | :--------- | | Q3 | $165.0 | $151.0 | +9.3% | | 9 Months | $441.2 | $386.9 | +14.0% | Gross Margins Homebuilding gross margin, after charges, decreased to 11.7% in Q3 FY2025, while 17.3% before charges met guidance Homebuilding Gross Margin Percentage | Metric | Period | FY2025 | FY2024 | Change | | :----- | :----- | :----- | :----- | | After interest & land charges | Q3 | 11.7% | 19.1% | -7.4 pp | | After interest & land charges | 9 Months | 13.5% | 18.9% | -5.4 pp | | Before interest & land charges | Q3 | 17.3% | 22.1% | -4.8 pp | | Before interest & land charges | 9 Months | 17.6% | 22.2% | -4.6 pp | - Homebuilding gross margin percentage, before cost of sales interest expense and land charges, was 17.3% during the fiscal 2025 third quarter, which was within the guidance range we provided[3] Operating Expenses (SG&A, Interest) SG&A as a percentage of revenues improved to 11.3% in Q3 FY2025, while interest expense slightly increased Total SG&A | Period | FY2025 (Millions) | FY2025 (% of Revenues) | FY2024 (Millions) | FY2024 (% of Revenues) | | :----- | :---------------- | :--------------------- | :---------------- | :--------------------- | | Q3 | $90.8 | 11.3% | $89.5 | 12.4% | | 9 Months | $258.3 | 12.0% | $254.5 | 12.6% | Total Interest Expense as % of Total Revenues | Period | FY2025 | FY2024 | Change | | :----- | :----- | :----- | :----- | | Q3 | 4.2% | 4.0% | +0.2 pp | | 9 Months | 4.3% | 4.4% | -0.1 pp | Profitability (Income Before Taxes, Net Income, EPS) Income before taxes, net income, and diluted EPS saw significant year-over-year declines in Q3 and nine months of FY2025 Income Before Income Taxes | Period | FY2025 (Millions) | FY2024 (Millions) | YoY Change | | :----- | :---------------- | :---------------- | :--------- | | Q3 | $23.8 | $97.3 | -75.5% | | 9 Months | $90.2 | $199.2 | -54.7% | Net Income and Diluted EPS | Metric | Period | FY2025 | FY2024 | YoY Change | | :----- | :----- | :----- | :----- | | Net Income (Millions) | Q3 | $16.6 | $72.9 | -77.2% | | Net Income (Millions) | 9 Months | $64.5 | $147.7 | -56.3% | | Diluted EPS | Q3 | $1.99 | $9.75 | -79.6% | | Diluted EPS | 9 Months | $7.94 | $19.15 | -58.6% | EBITDA and Adjusted EBITDA EBITDA and Adjusted EBITDA decreased substantially in Q3 and nine months of FY2025, but Q3 Adjusted EBITDA exceeded guidance EBITDA and Adjusted EBITDA | Metric | Period | FY2025 (Millions) | FY2024 (Millions) | YoY Change | | :----- | :----- | :---------------- | :---------------- | :--------- | | EBITDA | Q3 | $61.0 | $127.9 | -52.3% | | EBITDA | 9 Months | $190.7 | $294.3 | -35.2% | | Adjusted EBITDA | Q3 | $77.1 | $131.0 | -41.2% | | Adjusted EBITDA | 9 Months | $210.4 | $296.6 | -29.0% | - Adjusted EBITDA was $77.1 million for the quarter ended July 31, 2025, which was above the guidance range we provided[5] Operational Metrics Key operational metrics show mixed performance with increased deliveries but decreased backlog and higher cancellation rates, while return metrics remain strong Contracts and Deliveries Consolidated contracts increased 1.6% in Q3 FY2025, with total contracts including JVs also rising, and deliveries up 14.0% Consolidated Contracts (Homes) | Period | FY2025 | FY2024 | YoY Change | | :----- | :----- | :----- | :--------- | | Q3 | 1,211 | 1,192 | +1.6% | Contracts (Including Domestic Unconsolidated Joint Ventures) (Homes) | Period | FY2025 | FY2024 | YoY Change | | :----- | :----- | :----- | :--------- | | Q3 | 1,416 | 1,396 | +1.4% | Consolidated Deliveries (Homes) | Period | FY2025 | FY2024 | YoY Change | | :----- | :----- | :----- | :--------- | | Q3 | 1,431 | 1,255 | +14.0% | Community Count Consolidated community count decreased 1.6%, total count including JVs was flat, and contracts per community increased Community Count | Metric | As of July 31, 2025 | As of July 31, 2024 | YoY Change | | :----- | :------------------ | :------------------ | :--------- | | Consolidated | 124 | 126 | -1.6% | | Including JVs | 146 | 146 | 0.0% | Contracts Per Community (Q3 FY2025) | Metric | FY2025 | FY2024 | YoY Change | | :----- | :----- | :----- | :--------- | | Consolidated | 9.8 | 9.5 | +3.2% | | Including JVs | 9.7 | 9.6 | +1.0% | Backlog and Cancellation Rates Consolidated contract backlog decreased 27.6% due to QMI sales, and the gross cancellation rate increased to 19% in Q3 FY2025 Contract Backlog (Dollar Value) | Metric | As of July 31, 2025 (Millions) | As of July 31, 2024 (Millions) | YoY Change | | :----- | :----------------------------- | :----------------------------- | :--------- | | Consolidated | $838.8 | $1,160.0 | -27.6% | | Including JVs | $1,100.0 | $1,460.0 | -24.4% | - The year-over-year decrease in backlog dollars is partly due to increased sales of quick move in homes (QMIs), which are typically in backlog for a very short period of time[5] Gross Contract Cancellation Rate (Q3 FY2025) | Metric | FY2025 | FY2024 | Change | | :----- | :----- | :----- | :----- | | Consolidated | 19% | 17% | +2 pp | | Including JVs | 19% | 17% | +2 pp | Return Metrics (ROE, ROI) The company reported strong TTM ROE of 18.7% and Adjusted EBIT ROI of 22.1%, positioning it favorably among midsized homebuilder peers Trailing Twelve-Month Return Metrics | Metric | Value | | :----- | :---- | | Return on Equity (ROE) | 18.7% | | Net Income Return on Inventory | 9.5% | | Adjusted EBIT ROI | 22.1% | - For the most recently reported trailing twelve-month periods, we had the second highest ROE, and we believe the highest Adjusted EBIT ROI compared to nine of our publicly traded midsized homebuilder peers[5] Liquidity and Inventory The company maintained strong liquidity and a land-light strategy with high optioned lots, while managing land spending and QMI inventory Land and Land Development Spending Land and land development spending decreased in Q3 and the first nine months of FY2025, reflecting a disciplined approach to acquisitions Land and Land Development Spending | Period | FY2025 (Millions) | FY2024 (Millions) | YoY Change | | :----- | :---------------- | :---------------- | :--------- | | Q3 | $192.6 | $216.1 | -10.9% | | 9 Months | $660.0 | $677.0 | -2.5% | Total Liquidity Total liquidity as of July 31, 2025, was $277.9 million, exceeding the target range of $170 million to $245 million Total Liquidity (As of July 31, 2025) | Component | Amount (Millions) | | :-------- | :---------------- | | Cash and cash equivalents | $146.6 | | Restricted cash | $6.3 | | Available under revolving credit facility | $125.0 | | Total Liquidity | $277.9 | - Total liquidity as of July 31, 2025, was $277.9 million, which was above our target liquidity range of $170 million to $245 million[11] Controlled Lots and Land-Light Strategy Total controlled consolidated lots increased 1.8% with 86% optioned, its highest ever, reflecting a land-light strategy Controlled Consolidated Lots (As of July 31, 2025) | Metric | Value | YoY Change | | :----- | :---- | :--------- | | Total Controlled Consolidated Lots | 40,246 | +1.8% | | Percentage of Lots Optioned | 86% | Highest Ever | | Years' Supply (TTM Deliveries) | 7.0 | | - Continuing our land-light strategic focus, 86% of our lots were optioned at the end of the third quarter of fiscal 2025, which is our highest percentage of option lots ever[11] Quick Move-In Homes (QMIs) Total Quick Move-In Homes (QMIs) decreased 5.3% sequentially, aligning with the goal of matching starts with sales pace Quick Move-In Homes (QMIs) | Metric | As of July 31, 2025 | As of April 30, 2025 | QoQ Change | | :----- | :------------------ | :------------------- | :--------- | | Total QMIs | 1,016 | 1,073 | -5.3% | | QMIs per community | 8.2 | | | - Total QMIs as of July 31, 2025, were 1,016, a decline of 5.3% compared with 1,073 as of April 30, 2025, illustrating our efforts to match our starts with our sales pace[11] Financial Guidance (Q4 FY2025) Q4 FY2025 guidance projects total revenues between $750-850 million, adjusted gross margin 15.0-16.5%, and adjusted EBITDA $77-87 million Fourth Quarter Fiscal 2025 Projections The company provided guidance for the fourth quarter of fiscal 2025, projecting total revenues between $750 million and $850 million, adjusted homebuilding gross margin between 15.0% and 16.5%, adjusted income before income taxes between $45 million and $55 million, and adjusted EBITDA between $77 million and $87 million Q4 FY2025 Financial Guidance | Metric | Guidance Range (Millions) | | :----- | :------------------------ | | Total Revenues | $750 - $850 | | Adjusted Homebuilding Gross Margin | 15.0% - 16.5% | | Adjusted Income Before Income Taxes | $45 - $55 | | Adjusted EBITDA | $77 - $87 | Management Commentary and Strategic Outlook Management acknowledged market challenges, emphasizing increased incentives, disciplined land acquisition, and confidence in long-term housing demand to sustain strong returns CEO's Remarks and Market Conditions CEO acknowledged challenging market conditions but highlighted exceeding Q3 guidance and addressing affordability with incentives - While the market environment remains challenging, we're encouraged by our performance this quarter. We met or exceeded the guidance range for all the metrics provided for the third quarter[10] - Uncertainty across global, political and economic fronts continued to weigh on homebuyer sentiment resulting in a slower sales pace than we had expected at the beginning of the fiscal year. Additionally, affordability challenges are weighing on buyer activity as home prices remain high, and mortgage rates have only seen modest declines from recent highs[10] - We addressed these affordability headwinds with increased incentives that led to the first year-over-over increase in quarterly contracts per community this fiscal year[10] Growth Strategy and Future Outlook The company focuses on growth and capital structure improvement with strict land acquisition discipline, confident in future demand - Our primary focus remains on pursuing growth opportunities, while improving our capital structure. Given the current market conditions, our approach to new land acquisitions relies on strict adherence to underwriting discipline[10] - We believe we are in a period where consumers are adjusting to current home prices and mortgage rates and remain confident that the combination of pent-up housing demand and the positive long-term demographic trends for housing will drive increased demand for new homes going forward[10] - Our second highest ROE and what we believe to be the highest adjusted EBIT ROI among midsized homebuilder peers for the trailing twelve-month period, demonstrate the effectiveness of our strategy, and we remain focused on sustaining returns that outpace industry benchmarks[10] Company Information This section provides an overview of Hovnanian Enterprises, Inc., its operations, and details for accessing the fiscal 2025 third-quarter financial results webcast About Hovnanian Enterprises, Inc. Hovnanian Enterprises, Inc., founded in 1959, is a leading national homebuilder marketing homes as 'K. Hovnanian Homes' and 'Four Seasons communities' - Hovnanian Enterprises, Inc., founded in 1959 by Kevork S. Hovnanian, is headquartered in Matawan, New Jersey and, through its subsidiaries, is one of the nation's largest homebuilders with operations in Arizona, California, Delaware, Florida, Georgia, Maryland, New Jersey, Ohio, Pennsylvania, South Carolina, Texas, Virginia and West Virginia[13] - The Company's homes are marketed and sold under the trade name K. Hovnanian Homes. Additionally, the Company's subsidiaries, as developers of K. Hovnanian's Four Seasons communities, make the Company one of the nation's largest builders of active lifestyle communities[13] Webcast Information Hovnanian Enterprises hosted a webcast for its Q3 FY2025 financial results conference call on August 21, 2025, accessible on its investor relations website - 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. 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) Non-GAAP Financial Measures & Reconciliations This section defines the company's non-GAAP financial measures and provides reconciliation tables to their most directly comparable GAAP counterparts Definitions of Non-GAAP Measures This section defines key non-GAAP financial measures like EBIT, EBITDA, and Adjusted EBIT ROI, noting their most directly comparable GAAP measures - Consolidated earnings before interest expense and income taxes ('EBIT') and before depreciation and amortization ('EBITDA') and before inventory impairments and land option write-offs and loss (gain) on extinguishment of debt, net ('Adjusted EBITDA'), the ratio of Adjusted EBITDA to interest incurred and EBIT before inventory impairments and land option write-offs and loss (gain) on extinguishment of debt, net ('Adjusted EBIT') are not U.S. generally accepted accounting principles ('GAAP') financial measures. The most directly comparable GAAP financial measure is net income[15] - Homebuilding gross margin, before cost of sales interest expense and land charges, and homebuilding gross margin percentage, before cost of sales interest expense and land charges, are non-GAAP financial measures. The most directly comparable GAAP financial measures are homebuilding gross margin and homebuilding gross margin percentage, respectively[16] - Adjusted income before income taxes, which is defined as income before income taxes excluding land-related charges and loss (gain) on extinguishment of debt, net is a non-GAAP financial measure. The most directly comparable GAAP financial measure is income before income taxes[17] Reconciliation Tables Detailed tables reconcile various non-GAAP financial measures, including adjusted EBITDA and adjusted EBIT ROI, to their comparable GAAP measures - The reconciliation for historical periods of EBIT, EBITDA, Adjusted EBIT and Adjusted EBITDA to net income are presented in tables attached to this earnings release[15] - The reconciliation for historical periods of homebuilding gross margin, before cost of sales interest expense and land charges, and homebuilding gross margin percentage, before cost of sales interest expense and land charges, to homebuilding gross margin and homebuilding gross margin percentage, respectively, is presented in a table attached to this earnings release[16] - The presentation of the ratios of Adjusted EBIT ROI and net income return on inventory are presented in a table attached to this earnings release[19] Forward-Looking Statements This section outlines the disclaimer for forward-looking statements, detailing various risks and uncertainties that could impact future financial results Disclaimer and Risk Factors This section disclaims forward-looking statements, highlighting that actual results may differ due to various risks including economic conditions and regulations - All statements in this press release 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[21] - 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 future results, performance or achievements expressed or implied by the forward-looking statements[21] - Such risks, uncertainties and other factors include, but are not limited to, (1) changes in general and local economic, industry and business conditions and impacts of a significant homebuilding downturn; (3) fluctuations in interest rates and the availability of mortgage financing, including as a result of instability in the banking sector; (22) government regulation, including regulations concerning development of land, the home building, sales and customer financing processes, tax laws and the environment[21] Condensed Consolidated Financial Statements This section presents the condensed consolidated statements of operations and balance sheets, detailing financial performance and position for Q3 FY2025 Statements of Operations The condensed consolidated statements of operations detail revenues, expenses, and profitability for Q3 and nine months of FY2025 Condensed Consolidated Statements of Operations (Three Months Ended July 31) | Metric | 2025 (Thousands) | 2024 (Thousands) | | :----- | :--------------- | :--------------- | | Total revenues | $800,583 | $722,704 | | Total expenses | $792,292 | $636,133 | | Income before income taxes | $23,802 | $97,269 | | Net income | $16,615 | $72,919 | | Net income per common share (Diluted) | $1.99 | $9.75 | Condensed Consolidated Statements of Operations (Nine Months Ended July 31) | Metric | 2025 (Thousands) | 2024 (Thousands) | | :----- | :--------------- | :--------------- | | Total revenues | $2,160,677 | $2,025,280 | | Total expenses | $2,104,640 | $1,864,241 | | Income before income taxes | $90,195 | $199,224 | | Net income | $64,532 | $147,659 | | Net income per common share (Diluted) | $7.94 | $19.15 | Balance Sheets The condensed consolidated balance sheets detail the company's financial position, showing changes in inventories, JV investments, and cash Condensed Consolidated Balance Sheets (Selected Items, in thousands) | Metric | July 31, 2025 | October 31, 2024 | | :----- | :------------ | :--------------- | | Cash and cash equivalents | $146,592 | $209,976 | | Total inventories | $1,692,932 | $1,644,804 | | Investments in and advances to unconsolidated joint ventures | $218,356 | $142,910 | | Total assets | $2,629,352 | $2,605,574 | | Total liabilities | $1,793,989 | $1,805,225 | | Total stockholders' equity | $835,363 | $800,349 | Segment Performance and Operational Data This section provides detailed operational and financial data across consolidated segments and unconsolidated joint ventures, highlighting regional performance variations Consolidated Segment Data (Northeast, Southeast, West) Consolidated segment data for Q3 FY2025 shows varied regional performance, with increased deliveries despite mixed contract and average price trends Consolidated Contracts (Homes) - Q3 FY2025 | Region | 2025 | 2024 | Change | | :----- | :--- | :--- | :----- | | Northeast | 416 | 414 | +0.5% | | Southeast | 157 | 114 | +37.7% | | West | 638 | 664 | -3.9% | | Total | 1,211 | 1,192 | +1.6% | Consolidated Deliveries (Homes) - Q3 FY2025 | Region | 2025 | 2024 | Change | | :----- | :--- | :--- | :----- | | Northeast | 479 | 404 | +18.6% | | Southeast | 195 | 231 | -15.6% | | West | 757 | 620 | +22.1% | | Total | 1,431 | 1,255 | +14.0% | Consolidated Contract Backlog (Dollars) - As of July 31, 2025 | Region | 2025 (Thousands) | 2024 (Thousands) | Change | | :----- | :--------------- | :--------------- | :----- | | Northeast | $444,862 | $617,520 | -28.0% | | Southeast | $130,678 | $147,268 | -11.3% | | West | $263,272 | $393,980 | -33.2% | | Total | $838,812 | $1,158,768 | -27.6% | Unconsolidated Joint Ventures Data (Excluding KSA JV) Unconsolidated JVs (excluding KSA JV) saw slight increases in homes contracted and deliveries, but decreased contract dollar value and backlog Unconsolidated JV Contracts (Homes, Excl. KSA) - Q3 FY2025 | Region | 2025 | 2024 | Change | | :----- | :--- | :--- | :----- | | Northeast | 131 | 126 | +4.0% | | Southeast | 58 | 65 | -10.8% | | West | 16 | 13 | +23.1% | | Total | 205 | 204 | +0.5% | Unconsolidated JV Deliveries (Homes, Excl. KSA) - Q3 FY2025 | Region | 2025 | 2024 | Change | | :----- | :--- | :--- | :----- | | Northeast | 144 | 100 | +44.0% | | Southeast | 77 | 96 | -19.8% | | West | 24 | 28 | -14.3% | | Total | 245 | 224 | +9.4% | Unconsolidated JV Contract Backlog (Dollars, Excl. KSA) - As of July 31, 2025 | Region | 2025 (Thousands) | 2024 (Thousands) | Change | | :----- | :--------------- | :--------------- | :----- | | Northeast | $192,171 | $185,942 | +3.3% | | Southeast | $63,462 | $101,312 | -37.4% | | West | $8,607 | $12,256 | -29.8% | | Total | $264,240 | $299,510 | -11.8% | KSA Joint Venture Data The KSA Joint Venture experienced significant declines in Q3 FY2025 contracts and deliveries, but its contract backlog substantially increased by 187.7% KSA JV Contracts (Homes) - Q3 FY2025 | Metric | 2025 | 2024 | Change | | :----- | :--- | :--- | :----- | | Homes | 39 | 109 | -64.2% | | Dollars (Thousands) | $9,193 | $28,069 | -67.2% | KSA JV Deliveries (Homes) - Q3 FY2025 | Metric | 2025 | 2024 | Change | | :----- | :--- | :--- | :----- | | Homes | 1 | 3 | -66.7% | | Dollars (Thousands) | $177 | $475 | -62.7% | KSA JV Contract Backlog (Homes & Dollars) - As of July 31, 2025 | Metric | 2025 | 2024 | Change | | :----- | :--- | :--- | :----- | | Homes | 607 | 211 | +187.7% | | Dollars (Thousands) | $148,308 | $47,447 | +212.6% |