Hovnanian Enterprises(HOV) - 2026 Q1 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Total revenues for Q1 2026 reached $632 million, a 6% decrease compared to the previous year, primarily due to a 12% reduction in home deliveries [8][10] - Adjusted gross margin was 13.4%, slightly below expectations, while SG&A expenses were 13.3%, better than the low end of guidance [5][6] - Adjusted EBITDA for the quarter was $63 million, significantly higher than guidance, and adjusted pre-tax income was $31 million, also above forecast [6][10] Business Line Data and Key Metrics Changes - Income from unconsolidated joint ventures totaled $3 million, slightly below expectations, while income from consolidated joint ventures exceeded expectations with a gain of $27 million recorded as other income [6][22][23] - The company delivered 12% fewer homes year-over-year, impacting overall revenues, but a land sale helped offset some of the decline [8][10] - Incentives accounted for 12.6% of the average sales price, with a significant increase in mortgage rate buydowns contributing to affordability challenges [9][15] Market Data and Key Metrics Changes - Monthly traffic per community increased significantly in 5 of the 6 months leading up to January 2026, with January showing a 40% increase compared to the same month last year [12] - Contracts per community held steady at about 9.5 for the past 3 years, with February 2026 contracts on track to be higher than the same month last year [13][14] - The company experienced fluctuations in contracts over the past 12 months, with January showing an 11% year-over-year gain [12] Company Strategy and Development Direction - The company is focused on efficiently turning over existing inventory and advancing sales of Quick Move-in homes while preparing for new land opportunities that promise improved margins [11][21] - A shift in land acquisition strategy is noted, moving away from lower-margin entry-level homes to more move-up homes in prime locations and active adult communities [21][29] - The company aims to maintain a disciplined approach to land management, walking away from less attractive opportunities and focusing on higher-margin developments [28][29] Management's Comments on Operating Environment and Future Outlook - Management acknowledged ongoing challenges in the housing market, including affordability pressures and economic uncertainties, but expressed confidence in meeting homebuyer demand [38][41] - The expectation for adjusted pre-tax income is to improve in the latter half of 2026, supported by stronger contract activity and the delivery of higher-margin homes [40][42] - The company remains committed to sustainable growth and value for shareholders, with a focus on inventory efficiency and land-light operations [42][43] Other Important Information - The company ended Q1 2026 with $471 million in liquidity, above target, despite significant spending on land and stock repurchases [29][30] - The net debt-to-capital ratio improved to 41.4%, a significant reduction from previous years, indicating stronger financial health [32] - The company expects to provide financial guidance for the next quarter only, reflecting the current market volatility [33] Q&A Session Summary Question: On the topic of incentives and their pressure on margins, is there an opportunity to offer less incentives for higher margins? - Management prefers to focus on sales pace rather than price, maintaining incentives to clear lower-margin land and drive liquidity [45][46] Question: What is the current percentage of Quick Move-in homes versus built-to-order homes? - Quick Move-in sales dropped from 79% to 71%, not due to a strategic shift but rather market demand, with built-to-order homes showing higher profit margins [48][49]