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

Financial Data and Key Metrics Changes - Total revenues for the first quarter reached $632 million, a decrease of 6% year-over-year, primarily due to a 12% reduction in home deliveries [6][7] - 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 was $63 million, significantly higher than guidance, and adjusted pre-tax income was $31 million, also above forecast [6][7] 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][21] - The percentage of Quick Move-in homes (QMIs) in total sales decreased from 79% to 71%, while to-be-built sales increased from 21% to 29% [16][19] Market Data and Key Metrics Changes - Monthly traffic per community increased significantly, with January showing a 40% year-over-year increase, indicating improved buyer engagement [11] - Contracts in February 2026 were up 13% compared to the prior year, suggesting a positive trend in sales activity [12] Company Strategy and Development Direction - The company is focused on maintaining a steady sales pace and efficiently turning over existing inventory while preparing for new land opportunities that promise improved margins [10][20] - The strategy includes prioritizing the acquisition of land for move-up homes in prime locations and expanding active adult communities, moving away from lower-margin developments [20][27] Management's Comments on Operating Environment and Future Outlook - Management acknowledged ongoing challenges in the housing market but expressed confidence in meeting homebuyer demand and improving profitability in the latter half of 2026 [36][39] - The company expects adjusted pre-tax income to improve in the second half of 2026, supported by stronger contract activity and the delivery of higher-margin homes [37][39] Other Important Information - The company ended the quarter with $471 million in liquidity, which is above target, and has significantly reduced net debt while increasing equity [28][30] - The net debt-to-capital ratio improved to 41.4%, a substantial decrease from 146.2% at the start of fiscal 2020 [30] 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 [43] Question: What is the current percentage of Quick Move-in homes versus built-to-order homes? - The percentage of QMIs has dropped to 71%, while built-to-order sales have increased, reflecting market demand rather than a strategic shift [44]