Hovnanian Enterprises(HOV) - 2025 Q3 - Quarterly Report

PART I. Financial Information Presents the company's financial statements, management's analysis, market risk disclosures, and internal controls Item 1. Financial Statements This section presents the unaudited condensed consolidated financial statements, including the balance sheets, operations, equity, and cash flows, with detailed notes Condensed Consolidated Balance Sheets Details changes in cash, inventories, investments, assets, liabilities, and equity from October 2024 to July 2025 Condensed Consolidated Balance Sheets (in thousands) | Metric | July 31, 2025 | October 31, 2024 | Change | Percentage Change | | :----------------------------------- | :----------------------------- | :------------------------------ | :-------------------- | :------------------ | | Cash and cash equivalents | $146,592 | $209,976 | $(63,384) | -30.19% | | Total inventories | $1,692,932 | $1,644,804 | $48,128 | 2.93% | | Investments in unconsolidated JVs | $218,356 | $142,910 | $75,446 | 52.79% | | Total assets | $2,629,352 | $2,605,574 | $23,778 | 0.91% | | Total liabilities | $1,793,989 | $1,805,225 | $(11,236) | -0.62% | | Total stockholders' equity | $835,363 | $800,349 | $35,014 | 4.37% | Condensed Consolidated Statements of Operations Reports revenue, expenses, net income, and EPS for the three and nine months ended July 31, 2025, versus prior year Condensed Consolidated Statements of Operations (3 Months Ended July 31, in thousands) | Metric | 2025 | 2024 | Change | Percentage Change | | :----------------------------------- | :---------------------------------------- | :---------------------------------------- | :-------------------- | :------------------ | | Total revenues | $800,583 | $722,704 | $77,879 | 10.78% | | Total expenses | $792,292 | $636,133 | $156,159 | 24.55% | | Net income | $16,615 | $72,919 | $(56,304) | -77.21% | | Basic EPS | $2.14 | $10.61 | $(8.47) | -79.83% | | Diluted EPS | $1.99 | $9.75 | $(7.76) | -79.59% | Condensed Consolidated Statements of Operations (9 Months Ended July 31, in thousands) | Metric | 2025 | 2024 | Change | Percentage Change | | :----------------------------------- | :---------------------------------------- | :---------------------------------------- | :-------------------- | :------------------ | | Total revenues | $2,160,677 | $2,025,280 | $135,397 | 6.68% | | Total expenses | $2,104,640 | $1,864,241 | $240,399 | 12.89% | | Net income | $64,532 | $147,659 | $(83,127) | -56.29% | | Basic EPS | $8.55 | $20.85 | $(12.30) | -58.99% | | Diluted EPS | $7.94 | $19.15 | $(11.21) | -58.54% | Condensed Consolidated Statements of Changes in Equity Outlines changes in total stockholders' equity, including net income, dividends, and share repurchases Condensed Consolidated Statements of Changes in Equity (in thousands) | Metric | October 31, 2024 | July 31, 2025 | Change | | :----------------------------------- | :------------------------------ | :--------------------------- | :-------------------- | | Total Stockholders' Equity | $800,349 | $835,363 | $35,014 | | Net Income (9 months ended July 31, 2025) | N/A | $64,532 | N/A | | Preferred Dividends Declared (9 months ended July 31, 2025) | N/A | $(8,007) | N/A | | Share Repurchases (9 months ended July 31, 2025) | N/A | $(30,302) | N/A | Condensed Consolidated Statements of Cash Flows Summarizes cash flows from operating, investing, and financing activities for the nine months ended July 31, 2025 Condensed Consolidated Statements of Cash Flows (9 Months Ended July 31, in thousands) | Cash Flow Activity | 2025 | 2024 | Change | | :------------------------------------------ | :------------------ | :------------------ | :-------------------- | | Net cash provided by (used in) operating activities | $19,205 | $(92,184) | $111,389 | | Net cash used in investing activities | $(60,635) | $(40,295) | $(20,340) | | Net cash used in financing activities | $(30,517) | $(161,169) | $130,652 | | Net decrease in cash and cash equivalents | $(71,947) | $(293,648) | $221,701 | | End of period cash and cash equivalents | $194,814 | $183,871 | $10,943 | Notes to Condensed Consolidated Financial Statements Provides detailed disclosures on accounting policies, stock compensation, debt, segments, and fair value measurements 1. Basis of Presentation Explains the unaudited nature of financial statements, U.S. GAAP compliance, and reliance on management estimates - The financial statements are unaudited and prepared under U.S. GAAP for interim reporting, relying on management estimates and assumptions[25] 2. Stock Compensation Details new performance-based incentive programs and a decrease in stock-based compensation expense - New performance-based 2025 LTIP and 2025 PSUs were approved in fiscal 2025, with vesting conditions tied to performance periods[26] Stock-based Compensation Expense (in thousands) | Metric | 3 Months Ended July 31, 2025 | 3 Months Ended July 31, 2024 | Change | Percentage Change | | :-------------------------- | :---------------------------------------- | :---------------------------------------- | :-------------------- | :------------------ | | Stock-based compensation expense | $6,200 | $9,200 | $(3,000) | -32.61% | Stock-based Compensation Expense (9 Months Ended July 31, in thousands) | Metric | 2025 | 2024 | Change | Percentage Change | | :-------------------------- | :---------------------------------------- | :---------------------------------------- | :-------------------- | :------------------ | | Stock-based compensation expense | $14,100 | $20,200 | $(6,100) | -30.20% | 3. Interest Reports decreased interest costs incurred and capitalized interest, with all interest qualifying for capitalization Interest Costs (in thousands) | Metric | 3 Months Ended July 31, 2025 | 3 Months Ended July 31, 2024 | 9 Months Ended July 31, 2025 | 9 Months Ended July 31, 2024 | | :------------------------------------ | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Interest incurred | $28,523 | $28,087 | $88,210 | $94,578 | | Cost of sales interest expensed | $(26,868) | $(22,316) | $(66,162) | $(63,757) | | Other interest expensed | $(7,149) | $(6,262) | $(25,811) | $(25,682) | | Interest capitalized at end of period | $48,139 | $54,592 | $48,139 | $54,592 | - During the three and nine months ended July 31, 2025 and 2024, inventory under development exceeded debt, allowing all related interest incurred to qualify for capitalization[30] 4. Reduction of Inventory to Fair Value Highlights increased inventory impairments and land option write-offs, affecting Northeast and West segments Inventory Impairments and Land Option Write-Offs (in thousands) | Metric | 3 Months Ended July 31, 2025 | 3 Months Ended July 31, 2024 | 9 Months Ended July 31, 2025 | 9 Months Ended July 31, 2024 | | :------------------------------------ | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Inventory impairments and land option write-offs | $16,045 | $3,099 | $20,141 | $3,638 | | Inventory impairments | $7,600 | $2,700 | $8,800 | $2,700 | | Aggregate write-offs (options, engineering, capitalized interest) | $8,400 | $400 | $11,300 | $900 | | Lots walked away from | 4,059 | 1,277 | 8,956 | 2,547 | - The impairments for fiscal 2025 were identified in one community in the Northeast segment and three communities in the West segment[33] 5. Variable Interest Entities Discusses land option contracts, VIE assessment, and increased cash deposits for land and lot options - The company analyzes option purchase contracts for VIEs but has not consolidated any, as it is not the primary beneficiary[38] Cash Deposits and Purchase Price for Land and Lot Options (in thousands) | Metric | July 31, 2025 | October 31, 2024 | Change | | :-------------------- | :------------ | :--------------- | :-------------------- | | Total cash deposits | $312,100 | $264,800 | $47,300 | | Total purchase price | $3,400,000 | $3,000,000 | $400,000 | 6. Warranty Costs Details warranty accruals and an increase in the warranty reserve balance due to additions exceeding charges Warranty Reserve Activity (in thousands) | Metric | 3 Months Ended July 31, 2025 | 3 Months Ended July 31, 2024 | 9 Months Ended July 31, 2025 | 9 Months Ended July 31, 2024 | | :------------------------------------ | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Balance, beginning of period | $91,800 | $85,177 | $89,391 | $98,919 | | Additions – Selling, general and administrative | $2,818 | $2,262 | $7,912 | $6,850 | | Additions – Cost of sales | $2,294 | $2,787 | $6,512 | $7,637 | | Charges incurred during the period | $(2,417) | $(2,546) | $(8,772) | $(28,139) | | Changes to pre-existing reserves | $1,955 | $418 | $1,407 | $2,831 | | Balance, end of period | $96,450 | $88,098 | $96,450 | $88,098 | - The majority of charges incurred in the first nine months of fiscal 2024 were for a construction defect litigation settlement[40] 7. Commitments and Contingent Liabilities Addresses ongoing litigation, environmental regulations, and a specific lawsuit regarding contamination - The company is involved in litigation, mainly construction defect claims, with estimated losses included in reserves[41] - The company faces a lawsuit from the NJDEP regarding contamination at Hickory Manor, seeking over $5.3 million in costs and disgorgement of profits[44] 8. Cash Equivalents, Restricted Cash and Customers' Deposits Reports changes in homebuilding and financial services restricted cash and cash equivalents Restricted Cash and Cash Equivalents (in thousands) | Metric | July 31, 2025 | October 31, 2024 | Change | | :------------------------------------ | :------------ | :--------------- | :-------------------- | | Homebuilding: Restricted cash and cash equivalents | $12,155 | $7,875 | $4,280 | | Financial Services: Restricted cash and cash equivalents | $30,839 | $42,300 | $(11,461) | - Homebuilding customers' deposits are significantly higher than restricted cash balances because deposits are not always restricted or can be released by pledging letters of credit/surety bonds[48] 9. Leases Covers operating lease costs, cash payments, and a decrease in right-of-use assets and lease liabilities Lease Costs and Payments (in thousands) | Metric | 3 Months Ended July 31, 2025 | 3 Months Ended July 31, 2024 | 9 Months Ended July 31, 2025 | 9 Months Ended July 31, 2024 | | :-------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Operating lease costs | $2,876 | $2,743 | $8,708 | $8,131 | | Cash payments on lease liabilities | $2,520 | $2,224 | $8,092 | $6,604 | Right-of-Use Assets and Lease Liabilities (in thousands) | Metric | July 31, 2025 | October 31, 2024 | Change | | :-------------------- | :------------ | :--------------- | :-------------------- | | ROU assets | $22,654 | $28,765 | $(6,111) | | Lease liabilities | $25,874 | $30,868 | $(4,994) | - A lease modification to shorten the term resulted in a $7.7 million decrease in ROU assets and lease liabilities during the nine months ended July 31, 2025[50] 10. Mortgage Loans Held for Sale Discusses mortgage loan originations, hedging, decreased loans held for sale, and increased loan origination reserves Mortgages Held for Sale (in thousands) | Metric | July 31, 2025 | October 31, 2024 | Change | | :------------------------------------ | :------------ | :--------------- | :-------------------- | | Mortgages held for sale pledged against warehouse lines | $128,900 | $145,700 | $(16,800) | Loan Origination Reserves (in thousands) | Metric | 3 Months Ended July 31, 2025 | 3 Months Ended July 31, 2024 | 9 Months Ended July 31, 2025 | 9 Months Ended July 31, 2024 | | :------------------------------------ | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Loan origination reserves, end of period | $2,889 | $2,094 | $2,889 | $2,094 | 11. Mortgages Details decreased nonrecourse mortgage loans and outstanding borrowings under Master Repurchase Agreements Mortgage Metrics (in thousands) | Metric | July 31, 2025 | October 31, 2024 | Change | | :------------------------------------ | :------------ | :--------------- | :-------------------- | | Nonrecourse mortgage loans, net | $53,524 | $90,675 | $(37,151) | | Weighted-average interest rate | 8.1% | 8.7% | -0.6% | | Aggregate borrowings outstanding under Master Repurchase Agreements | $110,000 | $131,400 | $(21,400) | - K. Hovnanian Mortgage entered into a new secured Master Repurchase Agreement with PlainsCapital Bank on June 6, 2025, providing up to $75.0 million[59] - The company believes it was in compliance with the covenants under the Master Repurchase Agreements as of July 31, 2025[60] 12. Senior Notes and Credit Facilities Reports a decrease in total senior notes and credit facilities, including a gain on debt extinguishment Senior Notes and Credit Facilities (in thousands) | Metric | July 31, 2025 | October 31, 2024 | Change | | :------------------------------------ | :------------ | :--------------- | :-------------------- | | Total senior notes and credit facilities, net | $861,922 | $896,218 | $(34,296) | | 13.5% Senior Notes due February 1, 2026 | $0 | $26,588 | $(26,588) | | Senior Secured 1.75 Lien Term Loan Credit Facility | $175,000 | $175,000 | $0 | | Senior Secured Revolving Credit Facility (borrowing capacity) | $125,000 | $125,000 | $0 | - On April 30, 2025, K. Hovnanian redeemed the remaining $26.6 million of its 13.5% Senior Notes due 2026, resulting in a $0.4 million gain on extinguishment of debt[65] - The company's debt instruments do not contain financial maintenance covenants but include restrictive covenants, and the company believes it was in compliance as of July 31, 2025[63] 13. Per Share Calculation Shows a significant decrease in basic and diluted earnings per share due to lower net income Per Share Calculation (in thousands, except EPS) | Metric | 3 Months Ended July 31, 2025 | 3 Months Ended July 31, 2024 | 9 Months Ended July 31, 2025 | 9 Months Ended July 31, 2024 | | :------------------------------------ | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Net income available to common stockholders | $13,946 | $70,250 | $56,525 | $139,652 | | Basic earnings per share | $2.14 | $10.61 | $8.55 | $20.85 | | Diluted earnings per share | $1.99 | $9.75 | $7.94 | $19.15 | 14. Preferred Stock Describes outstanding preferred stock and consistent preferred dividends paid for the periods - The company has 5,600 shares of 7.625% Series A preferred stock outstanding, with a liquidation preference of $25,000 per share[75] Preferred Dividends Paid (in thousands) | Metric | 3 Months Ended July 31, 2025 | 3 Months Ended July 31, 2024 | 9 Months Ended July 31, 2025 | 9 Months Ended July 31, 2024 | | :-------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Preferred dividends paid | $2,669 | $2,669 | $8,007 | $8,007 | 15. Common Stock Explains common stock classes, a shareholder rights plan, and increased share repurchases - Class A common stock has one vote per share, while Class B has ten votes per share, and Class A dividends are 110% of Class B[77] - A shareholder rights plan, effective until August 14, 2027, is designed to preserve NOL carryforwards by preventing ownership changes under Section 382[78] Common Stock Repurchases | Metric | 9 Months Ended July 31, 2025 | 9 Months Ended July 31, 2024 | Change | | :------------------------------------ | :--------------------------- | :--------------------------- | :------- | | Shares repurchased | 257,908 | 188,800 | 69,108 | | Market value of repurchases (in millions) | $30.1 | $26.5 | $3.6 | | Average price per share | $116.70 | $140.31 | $(23.61) | 16. Income Taxes Reports decreased income tax expense, federal tax offset by NOLs, and monitoring of new tax legislation Income Tax Expense (in thousands) | Metric | 3 Months Ended July 31, 2025 | 3 Months Ended July 31, 2024 | 9 Months Ended July 31, 2025 | 9 Months Ended July 31, 2024 | | :-------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Income tax expense | $7,187 | $24,350 | $25,663 | $51,565 | - Federal tax expense is offset by existing NOL carryforwards and is not paid in cash[82] - The OBBBA, enacted July 4, 2025, repeals energy efficient home credits for homes closing after June 30, 2026, but is not expected to have a material impact on current financial statements[83] 17. Operating and Reporting Segments Details performance across homebuilding segments (Northeast, Southeast, West) and financial services - The company's reportable segments include Northeast, Southeast, West homebuilding operations and a financial services segment[86][91] - Evaluation of segment performance is based primarily on income (loss) before income taxes[89] Segment Revenue (in thousands) | Segment | 3 Months Ended July 31, 2025 Revenue | 3 Months Ended July 31, 2024 Revenue | 9 Months Ended July 31, 2025 Revenue | 9 Months Ended July 31, 2024 Revenue | | :--------------------- | :----------------------------------- | :----------------------------------- | :----------------------------------- | :----------------------------------- | | Northeast | $289,180 | $255,332 | $830,209 | $645,859 | | Southeast | $104,747 | $115,964 | $231,025 | $350,761 | | West | $377,185 | $330,980 | $1,029,524 | $970,671 | | Financial services | $28,566 | $18,888 | $66,826 | $51,323 | Segment Income (Loss) before Taxes (in thousands) | Segment | 3 Months Ended July 31, 2025 Income (Loss) before taxes | 3 Months Ended July 31, 2024 Income (Loss) before taxes | 9 Months Ended July 31, 2025 Income (Loss) before taxes | 9 Months Ended July 31, 2024 Income (Loss) before taxes | | :--------------------- | :------------------------------------------------------ | :------------------------------------------------------ | :------------------------------------------------------ | :------------------------------------------------------ | | Northeast | $41,447 | $40,006 | $112,658 | $107,645 | | Southeast | $11,639 | $20,449 | $21,752 | $62,391 | | West | $(6,284) | $21,009 | $15,275 | $77,198 | | Financial services | $13,851 | $6,526 | $25,783 | $15,467 | 18. Investments in Unconsolidated Homebuilding and Land Development Joint Ventures Discusses increased investments in joint ventures, gains from contributions, and changes in share of net income - Investments in and advances to unconsolidated joint ventures increased by $75.4 million to $218.4 million at July 31, 2025, compared to October 31, 2024[8][189] - During the first quarter of fiscal 2025, the company contributed four active selling communities to a new unconsolidated joint venture, resulting in a $22.7 million gain[97] Our Share of Net Income from Joint Ventures (in thousands) | Metric | 3 Months Ended July 31, 2025 | 3 Months Ended July 31, 2024 | 9 Months Ended July 31, 2025 | 9 Months Ended July 31, 2024 | | :-------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Our share of net income | $15,511 | $10,698 | $33,759 | $36,814 | 19. Recent Accounting Pronouncements Evaluates the impact of new FASB ASUs on segment, income tax, and income statement expense disclosures - ASU 2023-07 (Reportable Segment Disclosures) is effective for annual periods after December 15, 2023, and interim periods after December 31, 2024, with no expected material impact[105] - ASU 2023-09 (Income Tax Disclosures) is effective for annual periods after December 15, 2024, and is being evaluated for potential impact[106] - ASU 2024-03 (Disaggregation of Income Statement Expenses) is effective for annual periods after December 15, 2026, and interim periods after December 15, 2027, and is being evaluated[107] 20. Fair Value of Financial Instruments Applies a fair-value hierarchy to mortgage loans, senior notes, credit facilities, and inventory impairments Fair Value of Financial Instruments (in thousands) | Metric | Fair Value Hierarchy | July 31, 2025 | October 31, 2024 | | :-------------------- | :------------------- | :------------ | :--------------- | | Mortgage loans held for sale | Level 2 | $130,545 | $148,925 | Fair Value of Debt Instruments (in thousands) | Debt Instrument | Fair Value Hierarchy | July 31, 2025 | October 31, 2024 | | :----------------------------- | :------------------- | :------------ | :--------------- | | 8.0% Senior Secured 1.125 Lien Notes | Level 2 | $227,070 | $231,068 | | 11.75% Senior Secured 1.25 Lien Notes | Level 2 | $465,062 | $474,561 | | 5.0% Senior Notes due 2040 | Level 3 | $15,595 | $11,485 | | Senior Secured 1.75 Lien Term Loan Credit Facility | Level 3 | $184,571 | $190,041 | Fair Value of Assets (in thousands) | Asset | Fair Value Hierarchy | 3 Months Ended July 31, 2025 Total Losses | 9 Months Ended July 31, 2025 Total Losses | | :------------------- | :------------------- | :---------------------------------------- | :---------------------------------------- | | Land and land options held for future development or sale | Level 3 | $(7,630) | $(8,846) | 21. Transactions with Related Parties Reports decreased services from an engineering firm owned by a relative of the Chairman and CEO Services from Related Engineering Firm (in thousands) | Metric | 3 Months Ended July 31, 2025 | 3 Months Ended July 31, 2024 | 9 Months Ended July 31, 2025 | 9 Months Ended July 31, 2024 | | :-------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Services from related engineering firm | $100 | $300 | $500 | $900 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Analyzes financial condition and operating results, covering market conditions, revenue, expenses, and liquidity Overview Summarizes market conditions, sales strategies, gross margin trends, liquidity, and land investments - Mortgage rates remained persistently high, leading to challenging affordability for homebuyers, prompting aggressive pricing and incentives[121] - The company utilized quick move-in homes (QMI homes) and mortgage interest rate buydown assistance to meet buyer needs and ease the impact of rising interest rates[123] Key Performance Indicators (in millions, except homes and EPS) | Metric | 3 Months Ended July 31, 2025 | 3 Months Ended July 31, 2024 | 9 Months Ended July 31, 2025 | 9 Months Ended July 31, 2024 | | :------------------------------------ | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Sale of homes revenues | $769.1 | $687.4 | $2,066.3 | $1,948.0 | | Homes delivered | 1,431 | 1,255 | 3,970 | 3,601 | | Average price per home | $537,421 | $547,748 | $520,473 | $540,958 | | Gross margin percentage | 11.7% | 19.1% | 13.5% | 18.9% | | Net income | $16.6 | $72.9 | $64.5 | $147.7 | | Basic EPS | $2.14 | $10.61 | $8.55 | $20.85 | | Net contracts | 1,211 | 1,192 | 3,814 | 3,831 | | Net contracts per active selling community | 9.8 | 9.5 | 30.8 | 30.4 | | Contract backlog (homes) | 1,491 | 2,041 | N/A | N/A | | Contract backlog (dollars in millions) | $838.8 | $1,158.8 | N/A | N/A | Total Revenues Details the increase in total revenues driven by home sales and financial services, offset by land sales fluctuations Total Revenues by Category (in thousands) | Revenue Category | 3 Months Ended July 31, 2025 | 3 Months Ended July 31, 2024 | Dollar Change | Percentage Change | | :------------------------------ | :--------------------------- | :--------------------------- | :------------ | :------------------ | | Homebuilding: Sale of homes | $769,050 | $687,424 | $81,626 | 11.9% | | Homebuilding: Land sales and other revenues | $2,967 | $16,392 | $(13,425) | (81.9)% | | Financial services | $28,566 | $18,888 | $9,678 | 51.2% | | Total revenues | $800,583 | $722,704 | $77,879 | 10.8% | Total Revenues by Category (9 Months Ended July 31, in thousands) | Revenue Category | 2025 | 2024 | Dollar Change | Percentage Change | | :------------------------------ | :--------------------------- | :--------------------------- | :------------ | :------------------ | | Homebuilding: Sale of homes | $2,066,278 | $1,947,989 | $118,289 | 6.1% | | Homebuilding: Land sales and other revenues | $27,573 | $25,968 | $1,605 | 6.2% | | Financial services | $66,826 | $51,323 | $15,503 | 30.2% | | Total revenues | $2,160,677 | $2,025,280 | $135,397 | 6.7% | Homebuilding: Sale of Homes Explains increased home sales revenue from higher deliveries, despite a lower average sales price Homebuilding Sales Metrics (3 Months Ended July 31) | Metric | 2025 | 2024 | % Change | | :-------------------- | :--------------------------- | :--------------------------- | :------- | | Housing revenues | $769,050 | $687,424 | 11.9% | | Homes delivered | 1,431 | 1,255 | 14.0% | | Average sales price | $537,421 | $547,748 | (1.9)% | Homebuilding Sales Metrics (9 Months Ended July 31) | Metric | 2025 | 2024 | % Change | | :-------------------- | :--------------------------- | :--------------------------- | :------- | | Housing revenues | $2,066,278 | $1,947,989 | 6.1% | | Homes delivered | 3,970 | 3,601 | 10.2% | | Average sales price | $520,473 | $540,958 | (3.8)% | - The increase in deliveries was primarily due to an increase in the backlog conversion ratio, while the decrease in average price resulted from the geographic and community mix of deliveries[134] Homebuilding: Land Sales and Other Revenues Reports fluctuations in land sales and other revenues, influenced by land parcel mix and interest income - Land sales and other revenues decreased by $13.4 million for the three months ended July 31, 2025, but increased by $1.6 million for the nine months ended July 31, 2025[137] - The decrease in other revenues was due to lower rates on cash and cash equivalent accounts during the first three quarters of fiscal 2025[137] Homebuilding: Cost of Sales Attributes decreased gross margin percentage to increased incentives and mortgage interest rate buydowns Homebuilding Gross Margin (in thousands) | Metric | 3 Months Ended July 31, 2025 | 3 Months Ended July 31, 2024 | 9 Months Ended July 31, 2025 | 9 Months Ended July 31, 2024 | | :------------------------------------ | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Homebuilding gross margin | $90,122 | $131,202 | $278,233 | $369,954 | | Homebuilding gross margin percentage | 11.7% | 19.1% | 13.5% | 18.9% | | Homebuilding gross margin percentage, before cost of sales interest expense and land charges | 17.3% | 22.1% | 17.6% | 22.2% | - The decrease in gross margin percentage was primarily due to increased use of incentives and concessions, including additional mortgage interest rate buydowns, to make homes more affordable[142] - The company is focused on increasing sales pace over achieving a higher gross margin in the current homebuilding environment[128] Homebuilding: Inventory Impairments and Land Option Write-Offs Highlights a significant increase in inventory impairments and land option write-offs in specific segments Inventory Impairments and Land Option Write-Offs (in thousands) | Metric | 3 Months Ended July 31, 2025 | 3 Months Ended July 31, 2024 | 9 Months Ended July 31, 2025 | 9 Months Ended July 31, 2024 | | :------------------------------------ | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Inventory impairments and land option write-offs | $16,000 | $3,100 | $20,100 | $3,600 | | Inventory impairments | $7,600 | $2,700 | $8,800 | $2,700 | - The impairments for fiscal 2025 were recorded for two communities in the Northeast segment and three communities in the West segment[145] Homebuilding: Selling, General and Administrative Explains increased SGA expenses due to higher advertising costs and compensation from headcount growth Homebuilding SGA Expenses (in thousands) | Metric | 3 Months Ended July 31, 2025 | 3 Months Ended July 31, 2024 | 9 Months Ended July 31, 2025 | 9 Months Ended July 31, 2024 | | :------------------------------------ | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Homebuilding SGA expenses | $55,800 | $51,000 | $161,100 | $146,400 | - The increase in SGA was primarily due to higher selling overhead from increased advertising costs and total compensation expense from headcount growth and annual merit increases[146] Homebuilding: Key Performance Indicators Discusses increased net contracts per community but decreased contract backlog due to quick move-in sales Net Contracts per Active Selling Community | Metric | 3 Months Ended July 31, 2025 | 3 Months Ended July 31, 2024 | 9 Months Ended July 31, 2025 | 9 Months Ended July 31, 2024 | | :------------------------------------ | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Net contracts per active selling community | 9.8 | 9.5 | 30.8 | 30.4 | Contract Backlog | Metric | July 31, 2025 | July 31, 2024 | Dollar Change (in thousands) | Percentage Change | | :------------------------------------ | :------------ | :------------ | :--------------------------- | :------------------ | | Contract backlog (dollars) | $838,812 | $1,158,768 | $(319,956) | (27.6)% | | Contract backlog (number of homes) | 1,491 | 2,041 | (550) | (26.9)% | - The decrease in contract backlog was primarily driven by an increase in sales of QMI homes and improved contract backlog conversion[152] Cancellation Rate (%) | Quarter | 2025 Cancellation Rate (%) | 2024 Cancellation Rate (%) | | :------ | :------------------------- | :------------------------- | | First | 16% | 14% | | Second | 15% | 14% | | Third | 19% | 17% | Homebuilding: Operations by Segment Analyzes varied segment performance, with Northeast growth, Southeast decline, and West revenue increase but profit decrease Segment Revenue (in thousands) | Segment | 3 Months Ended July 31, 2025 Revenue | 3 Months Ended July 31, 2024 Revenue | 9 Months Ended July 31, 2025 Revenue | 9 Months Ended July 31, 2024 Revenue | | :-------- | :------------------------------------ | :------------------------------------ | :------------------------------------ | :------------------------------------ | | Northeast | $289,180 | $255,332 | $830,209 | $645,859 | | Southeast | $104,747 | $115,964 | $231,025 | $350,761 | | West | $377,185 | $330,980 | $1,029,524 | $970,671 | Segment Income (Loss) before Taxes (in thousands) | Segment | 3 Months Ended July 31, 2025 Income (Loss) before taxes | 3 Months Ended July 31, 2024 Income (Loss) before taxes | 9 Months Ended July 31, 2025 Income (Loss) before taxes | 9 Months Ended July 31, 2024 Income (Loss) before taxes | | :-------- | :------------------------------------------------------- | :------------------------------------------------------- | :------------------------------------------------------- | :------------------------------------------------------- | | Northeast | $41,447 | $40,006 | $112,658 | $107,645 | | Southeast | $11,639 | $20,449 | $21,752 | $62,391 | | West | $(6,284) | $21,009 | $15,275 | $77,198 | - Northeast's income before taxes increased due to higher homebuilding revenue and a $4.0 million increase in income from unconsolidated joint ventures[155] - West's income before taxes decreased significantly due to a $2.3 million increase in SGA, an $8.6 million increase in inventory impairments and land option write-offs, and a significant decrease in gross margin percentage[163][165] Financial Services Reports increased financial services income driven by more closed loans and a wider basis point spread Financial Services Income before Income Taxes (in thousands) | Metric | 3 Months Ended July 31, 2025 | 3 Months Ended July 31, 2024 | 9 Months Ended July 31, 2025 | 9 Months Ended July 31, 2024 | | :------------------------------------ | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Income before income taxes | $13,900 | $6,500 | $25,800 | $15,500 | - The increase in financial services income was primarily due to an increase in closed loans and a wider basis point spread between originated loans and their implied sale rate[167] Loan Type Percentage of Total Loans (9 Months Ended July 31) | Loan Type | 2025 Percentage of Total Loans | 2024 Percentage of Total Loans | | :--------------------------------- | :----------------------------- | :----------------------------- | | FHA/VA loans | 41.0% | 34.1% | | Conforming conventional loans | 58.0% | 65.3% | Corporate General and Administrative Details decreased corporate G&A expenses, primarily due to lower stock compensation expense Corporate General and Administrative Expenses (in thousands) | Metric | 3 Months Ended July 31, 2025 | 3 Months Ended July 31, 2024 | 9 Months Ended July 31, 2025 | 9 Months Ended July 31, 2024 | | :------------------------------------ | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Corporate general and administrative expenses | $35,000 | $38,500 | $97,200 | $108,100 | - The decrease was primarily due to lower stock compensation expense, including a benefit from a decrease in the company's stock price impacting phantom stock awards[168] Income from Unconsolidated Joint Ventures Explains increased three-month income from joint ventures due to profit-sharing, but decreased nine-month income from losses Income from Unconsolidated Joint Ventures (in thousands) | Metric | 3 Months Ended July 31, 2025 | 3 Months Ended July 31, 2024 | 9 Months Ended July 31, 2025 | 9 Months Ended July 31, 2024 | | :------------------------------------ | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Income from unconsolidated joint ventures | $15,500 | $10,700 | $33,800 | $36,800 | - The three-month increase was due to recognizing a higher share of income from two unconsolidated joint ventures where partners achieved certain return hurdles[169] - The nine-month decrease was primarily due to losses from two unconsolidated joint ventures (one new, one not delivering homes) and the prior-year consolidation of a joint venture[169] Income Taxes Reports decreased income tax expense, with federal tax offset by NOL carryforwards and not paid in cash Income Tax Expense (in thousands) | Metric | 3 Months Ended July 31, 2025 | 3 Months Ended July 31, 2024 | 9 Months Ended July 31, 2025 | 9 Months Ended July 31, 2024 | | :-------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Income tax expense | $7,200 | $24,400 | $25,700 | $51,600 | - Federal tax expense is offset by existing NOL carryforwards and is not paid in cash[170] Capital Resources and Liquidity Assesses total liquidity, positive operating cash flow, debt management, and changes in inventory - Total liquidity at July 31, 2025, was $277.9 million, comprising $146.6 million in homebuilding cash and $125.0 million in revolving credit capacity[171] - Cash from operations for the first three quarters of fiscal 2025 was $19.2 million, a significant improvement from the prior year[173] - The company spent $660.0 million on land purchases and development, redeemed $26.6 million of senior notes, and repurchased $30.1 million of common stock during the first three quarters of fiscal 2025[126][173] - Total inventory (excluding consolidated inventory not owned) decreased by $70.6 million, while consolidated inventory not owned increased by $118.7 million due to land banking and model financing[190][191] Inflation Discusses the impact of the 2.7% annual inflation rate on home sales prices and mitigation through fixed-price contracts - The annual inflation rate in the United States was 2.7% in July 2025, a slight increase from October 2024 but significantly down from its peak in June 2022[199] - Long-term inflation increases home sales prices due to higher costs for land, materials, and labor, posing a risk if these increases outpace potential purchasers' incomes[199] - Short-term inflation impact is mitigated by fixed-price contracts with subcontractors and material suppliers, typically for 3-12 months[200] Critical Accounting Policies Identifies key accounting policies, including inventories, joint ventures, warranty reserves, and income taxes, with no recent changes - Critical accounting policies include inventories, unconsolidated joint ventures, warranty and construction defect reserves, and income taxes[201] - No significant changes to critical accounting policies have occurred since October 31, 2024[201] Safe Harbor Statement Provides a safe harbor for forward-looking statements, noting potential material differences due to various risks - All non-historical statements are considered 'Forward-Looking Statements' under the Private Securities Litigation Reform Act of 1995[202] - Actual results may differ materially from forward-looking statements due to various risks and uncertainties, including economic conditions, material shortages, interest rate fluctuations, and regulatory changes[202][206] - The company undertakes no obligation to publicly update or revise any forward-looking statements[205] Item 3. Quantitative and Qualitative Disclosures About Market Risk Details limited exposure to variable interest rate risk and hedging strategies for mortgage operations - Substantially all long-term debt requires fixed interest payments, limiting exposure to variable rates[207] - Interest rate risk on mortgage loans held for sale is not significant due to frequent repricing and hedging with forward commitments[207] Long-Term Debt as of July 31, 2025 (in thousands) | Long-Term Debt | Total | FV at 7/31/2025 | | :------------------------------------------------ | :----------- | :-------------- | | Fixed rate debt | $854,968 | $892,298 | | Weighted average interest rate | 10.21% | N/A | Item 4. Controls and Procedures Confirms the effectiveness of disclosure controls and procedures, with no material changes to internal controls - Disclosure controls and procedures were evaluated as effective as of July 31, 2025[209] - No material changes occurred in internal control over financial reporting during the quarter ended July 31, 2025[210] PART II. Other Information Contains information on legal proceedings, equity sales, other disclosures, exhibits, and signatures Item 1. Legal Proceedings Refers to Note 7 of the financial statements for detailed information on legal proceedings - Legal proceedings information is detailed in Note 7 of the Condensed Consolidated Financial Statements[212] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds Reports no unregistered equity sales, an increased stock repurchase program, and no repurchases in Q3 2025 - No unregistered sales of equity securities occurred[213] - The Board authorized an increase to the Class A common stock repurchase program, with $26.4 million available as of July 31, 2025[214] - No common stock repurchases were made during the third quarter of fiscal 2025[215] Item 5. Other Information States no Rule 10b5-1 or non-Rule 10b5-1 trading arrangements were adopted or terminated - No Rule 10b5-1 or non-Rule 10b5-1 trading arrangements were adopted or terminated by directors or officers during the three months ended July 31, 2025[216] Item 6. Exhibits Lists all filed exhibits, including corporate governance documents, stock agreements, and certifications - Exhibits include amendments to the Rights Agreement (e.g., Amendment No. 3 dated January 11, 2024), corporate bylaws, and various stock certificates[219] - Form of 2025 Associate Performance Share Unit Agreements (EBIT and EBIT ROI for Class A, Class B, and Phantom) are listed as exhibits[219] - Certifications from the Chief Executive Officer and Chief Financial Officer (Rule 13a-14(a)/15d-14(a) and Section 1350) are included[222] Signatures Confirms the report's signing by the Chairman, CEO, President, and CFO on August 29, 2025 - The report was signed by Ara K. Hovnanian, Chairman of the Board, CEO, and President, and Brad O'Connor, CFO, on August 29, 2025[224]