Hovnanian Enterprises Inc: Form 10-Q for the period ended Jul 31, 2025

Hovnanian Enterprises, Inc. (“HEI”) conducts all of its homebuilding and financial services operations through its subsidiaries (references herein to the “Company,” “we,” “us” or “our” refer to HEI and its consolidated subsidiaries and should be understood to reflect the consolidated business of HEI’s subsidiaries).

Key Performance Indicators

The following key performance indicators are commonly used in the homebuilding industry and by management as a means to better understand our operating performance and trends affecting our business and compare our performance with the performance of other homebuilders. We believe these key performance indicators also provide useful information to investors in analyzing our performance:

• Net contracts is a volume indicator which represents the number of new contracts executed during the period for the purchase of homes, less cancellations of contracts in the same period. The dollar value of net contracts represents the dollars associated with net contracts executed in the period. These values are an indicator of potential future revenues;
• Contract backlog is a volume indicator which represents the number of homes that are under contract, but not yet delivered as of the stated date. The dollar value of contract backlog represents the dollar amount of the homes in contract backlog. These values are an indicator of potential future revenues;
• Active selling communities is a volume indicator which represents the number of communities which are open for sale with ten or more home sites available as of the end of a period. We identify communities based on product type; therefore, at times there are multiple communities at one land site. These values are an indicator of potential revenues;
• Net contracts per active selling community is used to indicate the pace at which homes are being sold (put into contract) in active selling communities and is calculated by dividing the number of net contracts in a period by the number of active selling communities in the same period. Sales pace is an indicator of market strength and demand; and
• Contract cancellation rates is a volume indicator which represents the number of sales contracts cancelled in the period divided by the number of gross sales contracts executed during the period. Contract cancellation rates as a percentage of backlog is calculated by dividing the number of cancelled contracts in the period by the contract backlog at the beginning of the period. Cancellation rates as compared to prior periods can be an indicator of market strength or weakness.

Overview

Market Conditions and Operating Results

The demand for new and existing homes is dependent on a variety of demographic and economic factors, including job and wage growth, household formation, consumer confidence, mortgage financing, interest rates, inflation and overall housing affordability.

During fiscal 2024 and continuing through the first nine months of fiscal 2025, mortgage rates have fluctuated but still remain at a persistently high level. As a result, affordability generally remains challenging for homebuyers. We have stayed aggressive in our pricing, incentives and concessions in order to align with the current market.

We continue to use our increased inventory of quick move-in homes ("QMI homes") to help meet buyers’ needs for more affordable housing in the existing uncertain interest rate environment. The time between contract signing and closing is shorter with a QMI home as compared to a to be built home, which provides customers with more certainty on their mortgage pricing. The availability of QMI homes also allows us to offer mortgage interest rate buydown assistance, which is a tool we offer through our wholly-owned mortgage banking subsidiary ("K. Hovnanian Mortgage"), to help ease the impact of higher monthly payments from rising interest rates. We pay the cost of interest rate buydowns for customers that qualify through K. Hovnanian Mortgage and decide to use the program. The level of interest rate based incentives utilized differs across our markets and is one of several available options we use to drive sales and close homes.

Although the long-term fundamentals of the new home market remain favorable, during the first nine months of fiscal 2025, volatility in the broader economy and affordability constraints caused many consumers to delay purchasing a new home. As a result of this more difficult sales environment, we experienced a decrease in net contracts compared to the first nine months of fiscal 2024, although net contracts for the third quarter of fiscal 2025 increased from the prior year period. Even as mortgage rates increased and we focused on increasing sales pace versus price, we were still able to raise net prices in approximately 40%, 31% and 21% of our communities during the first, second and third quarters of fiscal 2025, respectively.

There remains a great degree of uncertainty due to inflation, tariffs, the continued possibility of an economic recession, employment risk and the potential for further mortgage rate increases. While we continue to experience some supply chain issues, we remain focused on continuing to shorten our construction cycle times and building on our national initiatives to drive down costs with our material providers and trade partners. The changing conditions in the housing market, and in the general economy, makes it difficult to predict how strongly our business will be impacted by these external factors over the remainder of fiscal 2025 and beyond.

During the nine months ended July 31, 2025, our cash position allowed us to spend $660.0 million on land purchases and land development for long-term growth, redeem $26.6 million of senior notes, repurchase $30.1 million of our common stock, and still have total liquidity of $277.9 million, including $146.6 million of homebuilding cash and cash equivalents and $125.0 million of borrowing capacity under our senior secured revolving credit facility as of July 31, 2025.

Information on our operating results for the three and nine months ended July 31, 2025 are as follows:

• Sale of homes revenues increased to $769.1 million for the three months ended July 31, 2025 from $687.4 million for the three months ended July 31, 2024, and increased to $2.1 billion for the nine months ended July 31, 2025 from $1.9 billion for the nine months ended July 31, 2024. There was a 14.0% and 10.2% increase in the number of home deliveries for the three and nine months ended July 31, 2025, compared to the same periods of the prior year, partially offset by a decrease in average price of 1.9% and 3.8% for the three and nine months ended July 31, 2025, compared to the same periods of the prior year. The increase in deliveries was primarily the result of an increase in our backlog conversion ratio, while the decrease in average price was the result of the geographic and community mix of our deliveries.
• Gross margin dollars decreased 31.3% and 24.8% for the three and nine months ended July 31, 2025, as compared to the same periods of the prior year, while gross margin percentage decreased to 11.7% and 13.5% for the three and nine months ended July 31, 2025, respectively, from 19.1% and 18.9% for the three and nine months ended July 31, 2024, respectively. Gross margin percentage, before cost of sales interest expense and land charges, decreased to 17.3% for the three months ended July 31, 2025 from 22.1% for the three months ended July 31, 2024, and decreased to 17.6% for the nine months ended July 31, 2025 from 22.2% for the nine months ended July 31, 2024. The decrease in gross margin percentage was primarily due to increased use of incentives and concessions, including additional mortgage interest rate buydowns, to make our homes more affordable. In the current homebuilding environment, we remain focused on driving financial performance by increasing our sales pace versus achieving a higher gross margin.
• Income before income taxes decreased to $23.8 million for the three months ended July 31, 2025 from $97.3 million for the three months ended July 31, 2024, and decreased to $90.2 million for the nine months ended July 31, 2025 from $199.2 million for the nine months ended July 31, 2024. Net income decreased to $16.6 million for the three months ended July 31, 2025 from $72.9 million for the three months ended July 31, 2024, and decreased to $64.5 million for the nine months ended July 31, 2025 from $147.7 million for the nine months ended July 31, 2024. Included in income before income taxes for the nine months ended July 31, 2025 was a gain of $22.7 million related to the contribution of assets to a new joint venture. For the nine months ended July 31, 2024, income before taxes included a gain of $45.7 million related to the consolidation of a joint venture. Earnings per share, basic and diluted, decreased to $2.14 and $1.99, respectively, for the three months ended July 31, 2025 compared to $10.61 and $9.75, respectively, for the three months ended July 31, 2024. Earnings per share, basic and diluted, decreased to $8.55 and $7.94, respectively, for the nine months ended July 31, 2025 compared to $20.85 and $19.15, respectively, for the nine months ended July 31, 2024.
• Net contracts increased 1.6% for the three months ended July 31, 2025 and decreased 0.4% for the nine months ended July 31, 2025, compared to the same periods of the prior year. The increase for the three months ended is primarily due to our current strategy of using increased incentives to drive sale pace. During the third quarter of fiscal 2025, incentives were 11.6% of the average sales price, which is up 3.9% from the same period of the prior year and up 1.1% from the second quarter of fiscal 2025. The slight decrease in net contracts for the nine months ended July 31, 2025 is due to continued macroeconomic uncertainty that permeated throughout the period leading to low consumer confidence.
• Net contracts per active selling community increased to 9.8 and 30.8 for the three and nine months ended July 31, 2025, respectively, compared to 9.5 and 30.4 in the same periods of the prior year, primarily due to our focus on sales pace over price.
• Contract backlog decreased from 2,041 homes at July 31, 2024 to 1,491 homes at July 31, 2025, and the dollar value of contract backlog decreased to $838.8 million, a 27.6% decrease in dollar value compared to the prior year, as our backlog conversion ratio has increased from the prior year period due to our having more QMI homes available to sell and deliver.

Results of Operations

Total Revenues

Compared to the same period in the prior year, revenues increased (decreased) as follows:

(Dollars in thousands)

(Dollars in thousands)

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Homebuilding: Sale of Homes

For the three and nine months ended July 31, 2025, sale of homes revenues increased 11.9% and 6.1%, respectively, compared to the same periods in the prior year. The sale of homes revenue increased due to a 14.0% and 10.2% increase in homes delivered, respectively, partially offset by a 1.9% and 3.8% decrease in the average price per home for the three and nine months ended July 31, 2025, respectively, compared with the prior year periods. The average price per home decreased to $537,421 in the three months ended July 31, 2025 from $547,748 in the three months ended July 31, 2024. The average price per home decreased to $520,473 in the nine months ended July 31, 2025 from $540,958 in the nine months ended July 31, 2024. The increase in deliveries was primarily the result of an increase in our backlog conversion ratio. The decrease in average price was the result of the geographic and community mix of our deliveries. For further detail on changes in segment revenues see “Homebuilding: Operations by Segment” below. For further detail on land sales and other revenues, see “Homebuilding: Land Sales and Other Revenues” below.

Information on the sale of homes is set forth in the table below:

(Dollars in thousands, except average sales price)

(1) Represents housing revenues and home deliveries for our unconsolidated homebuilding joint ventures for the period. We provide this data as a supplement to our consolidated results as an indicator of the volume managed in our unconsolidated joint ventures. See Note 18 to the Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report on Form 10-Q for a further discussion of our unconsolidated joint ventures.

Homebuilding: Land Sales and Other Revenues

Land sales and other revenues decreased $13.4 for the three months ended July 31, 2025 and increased $1.6 million for the nine months ended July 31, 2025, compared to the same periods in the prior year. Revenue associated with land sales can vary significantly due to the mix of land parcels sold. There were two and five land sales during the three and nine months ended July 31, 2025, respectively, and one and two land sales in the three and nine months ended July 31, 2024, respectively. Land sales revenues decreased $13.0 million and increased $4.8 million during the three and nine months ended July 31, 2025, respectively, compared to the same periods in the prior year. Other revenues, which includes interest income, decreased due to lower rates on our cash and cash equivalent accounts during the first three quarters of fiscal 2025, partially offsetting the increase in land sales revenues for the nine months ended July 31, 2025.

Homebuilding: Cost of Sales

Cost of sales includes expenses for homebuilding and land and lot sales, including inventory impairments and land option write-offs (defined as “land charges” in the tables below). A breakout of such expenses for homebuilding and land and lot sales and the gross margins for each is set forth below.

Homebuilding gross margin, before cost of sales interest expense and land charges, is a non-GAAP financial measure. This measure should not be considered as an alternative to homebuilding gross margin determined in accordance with U.S. GAAP as an indicator of operating performance.

Management believes this non-GAAP measure enables investors to better understand our operating performance. This measure is also useful internally, helping management evaluate our operating results on a consolidated basis and relative to other companies in our industry. In particular, the magnitude and volatility of land charges for the Company, and for other homebuilders, have been significant and, as such, have made comparable financial analysis of our industry more difficult. Homebuilding metrics excluding land charges, as well as interest amortized to cost of sales, and other similar presentations prepared by analysts and other companies are frequently used to assist investors in understanding and comparing the operating characteristics of homebuilding activities by eliminating many of the differences in companies’ respective levels of impairments and debt.

(Dollars in thousands)

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Cost of sales as a percentage of consolidated home sales revenues are presented below:

We sell a variety of home types in various communities, each yielding a different gross margin. As a result, depending on the mix of communities delivering homes, consolidated gross margin may fluctuate up or down. Total homebuilding gross margin percentage decreased to 11.7% and 13.5% for the three and nine months ended July 31, 2025, compared to 19.1% and 18.9% for the prior year periods. Total homebuilding gross margin percentage, before cost of sales interest expense and land charges decreased to 17.3% and 17.6% for the three and nine months ended July 31, 2025, compared to 22.1% and 22.2% for the three and nine months ended July 31, 2024. The decrease in gross margin percentage for the three and nine months ended July 31, 2025 was primarily due to increased use of incentives and concessions, including additional mortgage interest rate buydowns, to make our homes more affordable.

Land and lot sale expenses and gross margins are set forth below:

(In thousands)

Land sales are ancillary to our homebuilding operations and are expected to continue in the future but may fluctuate significantly.

Homebuilding: Inventory Impairments and Land Option Write-Offs

Inventory impairments and land option write-offs reflects certain inventories we have either written off or written down to their estimated fair value totaling $16.0 million and $3.1 million in expense for the three months ended July 31, 2025 and 2024, respectively, and $20.1 million and $3.6 million during the nine months ended July 31, 2025 and 2024, respectively. Inventory impairments amounted to $7.6 million and $8.8 million during the three and nine months ended July 31, 2025, respectively, and $2.7 million during both the three and nine months ended July 31, 2024. The impairments recorded for fiscal 2025 were for two communities in the Northeast segment and three communities in the West segment. The impairment recorded for fiscal 2024 was for one community in the West segment. We wrote-off residential land option, approval and engineering costs across each of our segments during the first three quarters of both fiscal 2025 and 2024.

Homebuilding: Selling, General and Administrative

Homebuilding selling, general and administrative (“SGA”) expenses increased $4.8 million to $55.8 million for the three months ended July 31, 2025 and increased $14.7 million to $161.1 million for the nine months ended July 31, 2025 compared to the same periods in the prior year. The increase for the three and nine months ended July 31, 2025 compared to the same periods in the prior year was primarily due to an increase in selling overhead from higher advertising costs and an increase in total compensation expense as a result of an increase in headcount from opening more communities along with the cost of annual merit increases.

Homebuilding: Key Performance Indicators

Net Contracts Per Active Selling Community

Net contracts per active selling community for the three and nine months ended July 31, 2025 were 9.8 and 30.8, respectively, compared to 9.5 and 30.4 for the same periods in the prior year, respectively. Our reported level of sales contracts (net of cancellations) was impacted by increasing incentives and concessions to drive customer demand for QMI homes.

Contract Cancellation Rates

The following table provides historical quarterly cancellation rates, which represents the number of cancelled contracts in the quarter divided by the number of gross sales contracts executed in the quarter, excluding unconsolidated joint ventures:

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The following table provides quarterly contract cancellations as a percentage of the beginning backlog, excluding unconsolidated joint ventures:

Most cancellations occur within the legal rescission period, which varies by state but is generally less than two weeks after the signing of the contract. Cancellations also occur as a result of a buyer’s failure to qualify for a mortgage, which generally occurs during the first few weeks after signing. Due to our solid backlog position, our cancellation rate as a percentage of beginning backlog for the third quarter of fiscal 2025 was 17%, which approximates our historical normal rate. When sales pace is increasing, the cancellation rate as a percentage of beginning backlog tends to lag the changes seen in our cancellation rate as a percentage of gross sales. Market conditions still remain uncertain and it is difficult to predict what cancellation rates will be in the future.

Contract Backlog

Our consolidated sales contracts and homes in contract backlog, excluding unconsolidated joint ventures, by segment is set forth below:

(Dollars in thousands)

(1) Reflects the reclassification of eight consolidated homes and $5.0 million of contract backlog as of January 31, 2025, from the West segment to an unconsolidated joint venture. This is related to the assets and liabilities contributed to the joint venture we entered into during the three months ended January 31, 2025.

Contract backlog dollars decreased 27.6% as of July 31, 2025 compared to July 31, 2024, and the number of homes in backlog decreased 26.9% for the same period. The decrease in contract backlog dollars and number of homes as of July 31, 2025 compared to July 31, 2024, was primarily driven by an increase in sales of QMI homes and improved contract backlog conversion.

Homebuilding: Operations by Segment

Financial information relating to our homebuilding operations by segment was as follows:

(Dollars in thousands, except average sales price)

(Dollars in thousands, except average sales price)

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Homebuilding Results by Segment

Northeast - Homebuilding revenue increased 13.3% for the three months ended July 31, 2025 compared to the same period in the prior year. The increase for the three months ended July 31, 2025 was attributed to a 18.6% increase in homes delivered, partially offset by a 4.7% decrease in average sales price. The decrease in average sales price was the result of new communities delivering lower priced, smaller single family homes and townhomes in lower-end submarkets of the segment for the three months ended July 31, 2025 compared to some communities delivering higher priced, larger single family homes and townhomes in higher-end submarkets of the segment for the three months ended July 31, 2024, which were no longer delivering in the second quarter of the current year.

Income before income taxes increased $1.4 million to $41.4 million for the three months ended July 31, 2025 as compared to the same period in the prior year. This was primarily due to the increase in homebuilding revenue discussed above and a $4.0 million increase in income from unconsolidated joint ventures, partially offset by a slight decrease in gross margin percentage.

Homebuilding revenue increased 28.5% for the nine months ended July 31, 2025 compared to the same period in the prior year. The increase for the nine months ended July 31, 2025 was attributed to a 28.8% increase in homes delivered, while the average sales price was relatively flat with a 0.2% decrease.

Income before income taxes increased $5.0 million to $112.7 million for the nine months ended July 31, 2025 as compared to the same period in the prior year. This was primarily due to the increase in homebuilding revenues discussed above, while gross margin percentage was relatively flat.

Southeast – Homebuilding revenue decreased 9.7% for the three months ended July 31, 2025 compared to the same period in the prior year. The decrease for the three months ended July 31, 2025 was attributed to a 15.6% decrease in homes delivered, partially offset by a 6.9% increase in average sales price. The increase in average sales price was the result of new communities delivering higher priced, larger single family homes and townhomes in higher-end submarkets of the segment for the three months ended July 31, 2025 compared to some communities delivering lower priced, smaller single family homes, townhomes and build-for-rent homes in lower-end submarkets of the segment for the three months ended July 31, 2024, which were no longer delivering in the current year.

Income before income taxes decreased $8.8 million to $11.6 million for the three months ended July 31, 2025 compared to the same period in the prior year. This was primarily due to the decrease in homebuilding revenue discussed above and a significant decrease in gross margin percentage. For a discussion of gross margin see “Homebuilding: Cost of Sales” above.

Homebuilding revenue decreased 34.1% for the nine months ended July 31, 2025 compared to the same period in the prior year. The decrease was due to a 29.8% decrease in homes delivered and a 6.2% decrease in average sales price. The decrease in average sales price was the result of new communities delivering lower priced, smaller single family homes in lower-end submarkets of the segment for the nine months ended July 31, 2025 compared to some communities delivering higher priced, larger single family homes and townhomes in mid to higher-end submarkets of the segment for the nine months ended July 31, 2024, which were no longer delivering in the current year.

Income before income taxes decreased $40.6 million to $21.8 million for the nine months ended July 31, 2025 compared to the same period in the prior year. This was primarily due to the decrease in homebuilding revenue discussed above and a significant decrease in gross margin percentage. For a discussion of gross margin see “Homebuilding: Cost of Sales” above.

West – Homebuilding revenue increased 14.0% for the three months ended July 31, 2025 compared to the same period in the prior year. The increase was due to a 22.1% increase in homes delivered, partially offset by a 2.7% decrease in average sales price and a $13.5 million decrease in land sales and other revenue. The decrease in average sales price was the result of new communities delivering lower priced, smaller single family homes in lower-end submarkets of the segment for the three months ended July 31, 2025 compared to some communities delivering higher priced, larger single family homes in higher-end submarkets of the segment for the three months ended July 31, 2024, which were no longer delivering in the current year.

Income before income taxes decreased $27.3 million to a loss of $6.3 million for the three months ended July 31, 2025 compared to the same period in the prior year. This was primarily 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. For a discussion of gross margin see “Homebuilding: Cost of Sales” above.

Homebuilding revenue increased 6.1% for the nine months ended July 31, 2025 compared to the same period in the prior year. The increase was due to a $4.9 million increase in land sales and other revenue and a 14.1% increase in homes delivered, partially offset by a 7.4% decrease in average sales price. The decrease in average sales price was the result of new communities delivering lower priced, smaller single family homes in lower-end submarkets of the segment for the nine months ended July 31, 2025 compared to some communities delivering higher priced, larger single family homes in higher-end submarkets of the segment for the nine months ended July 31, 2024, which were no longer delivering in the current year.

Income before income taxes decreased $61.9 million to $15.3 million for the nine months ended July 31, 2025 compared to the same period in the prior year. This is primarily due to a $9.3 million increase in SGA, a $9.5 million increase in inventory impairments and land option write-offs and a significant decrease in gross margin percentage. For a discussion of gross margin see “Homebuilding: Cost of Sales” above.

Financial Services

Financial services consists primarily of originating mortgages from our home buyers, selling such mortgages in the secondary market, and title insurance activities. We use mandatory investor commitments and forward sales of mortgage-backed securities (“MBS”) to hedge our mortgage-related interest rate exposure on agency and government loans. For the nine months ended July 31, 2025 and 2024, Federal Housing Administration and Veterans Administration (“FHA/VA”) loans represented 41.0% and 34.1%, respectively, of our total loans. For the nine months ended July 31, 2025 compared to the same period in the prior year, our conforming conventional loan originations as a percentage of our total loans decreased from 65.3% to 58.0%. The origination of loans which exceed conforming conventions increased from 0.6% to 1.0% for the nine months ended July 31, 2025 compared to the same period in the prior year.

During the three and nine months ended July 31, 2025 and 2024, financial services provided $13.9 million and $25.8 million of income before income taxes compared to $6.5 million and $15.5 million for the same periods in the prior year. The increase in financial services income before income taxes for the three and nine months ended July 31, 2025 compared to the same periods in the prior year was primarily due to an increase in the amount of loans closed during the period and an increase in the basis point spread between the loans originated and the implied rate from our sale of the loans. In the markets served by our wholly owned mortgage banking subsidiaries, 80.9% and 81.4% of our non-cash homebuyers obtained mortgages originated by these subsidiaries during the three months ended July 31, 2025 and 2024, respectively, and 79.9% and 79.7% of our non-cash homebuyers obtained mortgages originated by these subsidiaries during the nine months ended July 31, 2025 and 2024, respectively.

Corporate General and Administrative

Corporate general and administrative expenses include operations at our headquarters in New Jersey. These expenses include payroll, stock compensation, facility costs and rent and other costs associated with our executive offices, legal expenses, information services, human resources, corporate accounting, training, treasury, process redesign, internal audit, national and digital marketing, construction services and administration of insurance, quality and safety. Corporate general and administrative expenses decreased to $35.0 million for the three months ended July 31, 2025 compared to $38.5 million for the three months ended July 31, 2024 and decreased to $97.2 million for the nine months ended July 31, 2025 compared to $108.1 million for the nine months ended July 31, 2024. The decrease was primarily due to lower stock compensation expense compared to the same periods in the prior year. During the nine months of fiscal 2024, we had additional expense related to finalizing the value of phantom stock awards granted under our 2019 long-term incentive plan as a result of an increase to our stock price. In addition, for the nine months of fiscal 2025, we recorded a benefit related to our 2024 and 2023 long-term incentive plan phantom stock awards, as a result of a decrease in our stock price during the period.

Income from Unconsolidated Joint Ventures

Income from unconsolidated joint ventures consists of our share of the earnings or losses of our unconsolidated joint ventures. Income from unconsolidated joint ventures increased $4.8 million to $15.5 million for the three months ended July 31, 2025 and decreased $3.1 million to $33.8 million for the nine months ended July 31, 2025 compared to the same periods in the prior year. The increase for the three months ended July 31, 2025 compared to the same period of the prior year was primarily due to the recognition of additional income from two unconsolidated joint ventures; because the joint venture partner achieved certain return hurdles, the Company was able to recognize a higher share of the unconsolidated joint ventures' income than it had in the prior year. The decrease for the nine months ended July 31, 2025 compared to the same period of the prior year was primarily due to the recognition of losses from two unconsolidated joint ventures in which one just started delivering homes in the second quarter of fiscal 2025 and the other is not currently delivering any homes. In addition, we recognized income in the first nine months of the prior year from a joint venture that was subsequently consolidated in fiscal 2024.

Income Taxes

For the three and nine months ended July 31, 2025, we recorded income tax expense of $7.2 million and $25.7 million, respectively, and $24.4 million and $51.6 million for the same periods in the prior year, respectively. In both the current and prior year periods, the expense was primarily driven by federal and state tax expense on income before income taxes and permanent differences, partially offset by the generation of energy home credits. The federal tax expense is not paid in cash as it is offset by the use of our existing NOL carryforwards.

Capital Resources and Liquidity

Overview

Our total liquidity at July 31, 2025 was $277.9 million, including $146.6 million in homebuilding cash and cash equivalents and $125.0 million of borrowing capacity under our senior secured revolving credit facility. We believe that our cash on hand together with available borrowings on our senior secured revolving credit facility will be sufficient for at least the next 12 months to finance our working capital requirements.

We have historically funded our homebuilding and financial services operations with cash flows from operating activities, borrowings under our credit facilities, the issuance of new debt and equity securities, and other financing activities. We may not be able to obtain desired financing even if market conditions, including then-current market available interest rates (in recent years, we have not been able to access the traditional capital and bank lending markets at competitive interest rates due to our highly leveraged capital structure), would otherwise be favorable, which could impact our ability to grow our business.

Operating, Investing and Financing Cash Flow Activities

We spent $660.0 million on land and land development during the first three quarters of fiscal 2025. After land and land development spending and all other operating activities, including revenue received from deliveries, cash from operations was $19.2 million. During the first three quarters of fiscal 2025, cash used in investing activities was $60.6 million, primarily due to new joint ventures entered into during fiscal 2025, along with spending on capitalized software, partially offset by distributions of capital from existing unconsolidated joint ventures. Cash used in financing activities was $30.5 million during the first three quarters of fiscal 2025, primarily due to the redemption of our 13.5% Senior Notes, along with net payments for our mortgage warehouse lines of credit, net payments for nonrecourse mortgage financings, treasury stock purchases and payments of preferred dividends, partially offset by net proceeds for land banking financings and model sale leaseback financings. We intend to continue to use nonrecourse mortgages, model sale leasebacks, joint ventures, and, subject to covenant restrictions in our debt instruments, land banking programs as our business needs dictate.

Our cash uses during the nine months ended July 31, 2025 and 2024 were for operating expenses, land purchases, land deposits, land development, construction spending, investments in unconsolidated joint ventures, land banking transactions, state income taxes, debt reductions, interest payments, preferred dividends, treasury stock purchases and litigation matters. During these periods, we provided for our cash requirements from available cash on hand, housing and land sales, nonrecourse mortgage transactions, income from unconsolidated joint ventures, financial service revenues and other revenues.

Our net income historically does not approximate cash flow from operating activities. The difference between net income and cash flow from operating activities is primarily caused by changes in inventory levels together with changes in receivables, prepaid expenses and other assets, mortgage loans held for sale, accrued interest, deferred income taxes, accounts payable and other liabilities, and noncash charges relating to depreciation, stock compensation and impairments. When we are expanding our operations, inventory levels, prepaid expenses and other assets increase causing cash flow from operating activities to decrease. Certain liabilities also increase as operations expand and partially offset the negative effect on cash flow from operations caused by the increase in inventory, prepaid expenses and other assets. Similarly, as our mortgage operations expand, net income from these operations increases, but for cash flow purposes, net income is partially offset by the net change in mortgage assets and liabilities. The opposite is true as our investment in new land purchases and development of new communities decrease, causing us to generate positive cash flow from operations.

Debt Transactions

Senior notes and credit facilities balances as of July 31, 2025 and October 31, 2024, were as follows:

(In thousands)

(1) At July 31, 2025, provides for up to $125.0 million in aggregate amount of senior secured first lien revolving loans. The revolving loans thereunder have a maturity of June 30, 2026 and borrowings bear interest, at K. Hovnanian’s option, at either (i) a term secured overnight financing rate (subject to a floor of 3.00%) plus an applicable margin of 4.50% or (ii) an alternate base rate (subject to a floor of 4.00%) plus an applicable margin of 3.50%. In addition, K. Hovnanian will pay an unused commitment fee on the undrawn revolving commitments at a rate of 1.00% per annum.

Except for K. Hovnanian, the issuer of the notes and borrower under the credit agreements governing our term loans and revolving credit facilities (collectively, the "Credit Facilities"), our home mortgage subsidiaries, certain of our title insurance subsidiaries, joint ventures and subsidiaries holding interests in our joint ventures, we and each of our subsidiaries are guarantors of the Credit Facilities, the senior secured notes and senior notes outstanding at July 31, 2025 (collectively, the “Notes Guarantors”).

The credit agreements governing the Credit Facilities and the indentures governing the senior secured and senior notes (together, the “Debt Instruments”) outstanding at July 31, 2025 do not contain any financial maintenance covenants, but do contain restrictive covenants that limit, among other things, the ability of HEI and certain of its subsidiaries, including K. Hovnanian, to incur (including through exchange or certain other types of transactions) indebtedness, pay dividends and make distributions on common and preferred stock, repay/repurchase certain indebtedness prior to its respective stated maturity, repurchase common and preferred stock, make other restricted payments (including investments), sell certain assets (including in certain land banking transactions), incur liens, consolidate, merge, sell or otherwise dispose of all or substantially all of their assets and enter into certain transactions with affiliates. The Debt Instruments also contain customary events of default which would permit the lenders or holders thereof to exercise remedies with respect to the collateral (as applicable), declare the loans (the "Secured Term Loans") made under the Senior Secured 1.75 Lien Term Loan Credit Facility due January 31, 2028, and loans (the "Secured Revolving Loans") made under the Senior Secured Revolving Credit Agreement due June 30, 2026, or notes to be immediately due and payable if not cured within applicable grace periods, including the failure to make timely payments on the Secured Term Loans, Secured Revolving Loans or notes or other material indebtedness, cross default to other material indebtedness, the failure to comply with agreements and covenants and specified events of bankruptcy and insolvency, with respect to the Secured Term Loans and Secured Revolving Loans, material inaccuracy of representations and warranties and with respect to the Secured Term Loans and Secured Revolving Loans, a change of control, and, with respect to the Secured Term Loans, Secured Revolving Loans and senior secured notes, the failure of the documents granting security for the obligations under the secured Debt Instruments to be in full force and effect, and the failure of the liens on any material portion of the collateral securing the obligations under the secured Debt Instruments to be valid and perfected. As of July 31, 2025, we believe we were in compliance with the covenants of the Debt Instruments.

Under the terms of our Debt Instruments, we have the right to make certain redemptions and prepayments and, depending on market conditions, our strategic priorities and covenant restrictions, may do so from time to time. We also continue to actively analyze and evaluate our capital structure and explore transactions to simplify our capital structure and to strengthen our balance sheet, including those that reduce leverage, interest rates and/or extend maturities, and will seek to do so in the near term with the right opportunity. We may also continue to make debt or equity purchases and/or exchanges from time to time through tender offers, exchange offers, redemptions, open market purchases, private transactions, or otherwise, or seek to raise additional debt or equity capital, depending on market conditions and covenant restrictions.

Any liquidity-enhancing or other capital raising or refinancing transaction will depend on identifying counterparties, negotiation of documentation and applicable closing conditions and any required approvals. Due to covenant restrictions in our Debt Instruments, we are currently limited in the amount of debt we can incur, even if market conditions, including then-current market available interest rates (in recent years, we have not been able to access the traditional capital and bank lending markets at competitive interest rates due to our highly leveraged capital structure), would otherwise be favorable, which could also impact our ability to grow our business.

See Note 12 to the Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report on Form 10-Q for a further discussion of K. Hovnanian’s Credit Facilities, senior secured notes and senior notes, including information with respect to the collateral securing our secured Debt Instruments.

Mortgages and Notes Payable

We had nonrecourse mortgage loans for certain communities totaling $53.5 million and $90.7 million, net of debt issuance costs, at July 31, 2025 and October 31, 2024, respectively, which are secured by the related real property, including any improvements, with an aggregate book value of $123.8 million and $249.7 million, respectively. The weighted-average interest rate on these obligations was 8.1% and 8.7% at July 31, 2025 and October 31, 2024, respectively, and the mortgage loan payments on each community primarily correspond to home deliveries.

Our wholly owned mortgage banking subsidiary, K. Hovnanian Mortgage, originates mortgage loans primarily from the sale of our homes. Such mortgage loans and related servicing rights are sold in the secondary mortgage market within a short period of time. K. Hovnanian Mortgage finances the origination of mortgage loans through various master repurchase agreements, which are recorded in "Financial services" liabilities on the Condensed Consolidated Balance Sheets. The loans are secured by the mortgages held for sale and are repaid when we sell the underlying mortgage loans to permanent investors. As of July 31, 2025 and October 31, 2024, we had an aggregate of $110.0 million and $131.4 million, respectively, outstanding under several of K. Hovnanian Mortgage’s short-term borrowing facilities.

See Note 11 to the Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report on Form 10-Q for a further discussion of these agreements.

Equity

On December 18, 2024, our Board of Directors (the "Board") authorized an incremental increase to our repurchase program and on April 11, 2025, the Board authorized another increase to our repurchase program, such that, inclusive of any amounts remaining under the existing repurchase authorization, as of April 11, 2025, we were authorized to repurchase up to $30.6 million of our Class A common stock. Under the program, repurchases may be made from time to time in open market transactions, in privately negotiated transactions or otherwise. The timing and the actual dollar amount repurchased will depend on a variety of factors, including legal requirements, price, future tax implications and economic and market conditions. The repurchase program may be changed, suspended or discontinued at any time and does not have a specified expiration date.

During the nine months ended July 31, 2025, we repurchased 257,908 shares under the stock repurchase program, with a market value of $30.1 million, or $116.70 per share. During the nine months ended July 31, 2024, we repurchased 188,800 shares under the stock repurchase program, with a market value of $26.5 million, or $140.31 per share. As of July 31, 2025, $26.4 million of our Class A common stock was available to be purchased under the stock repurchase program.

On July 12, 2005, we issued 5,600 shares of 7.625% Series A preferred stock, with a liquidation preference of $25,000 per share. Dividends on the Series A preferred stock are not cumulative and are payable at an annual rate of 7.625%. The Series A preferred stock is not convertible into the Company’s common stock and is redeemable in whole or in part at our option at the liquidation preference of the shares. The Series A preferred stock is traded as depositary shares, with each depositary share representing 1/1000th of a share of Series A preferred stock. We paid dividends of $2.7 million and $8.0 million on the Series A preferred stock for the three and nine months ended July 31, 2025 and 2024, respectively.

Unconsolidated Joint Ventures

We have investments in unconsolidated joint ventures in various markets where our homebuilding operations are located. Investments in and advances to unconsolidated joint ventures increased $75.4 million to $218.4 million at July 31, 2025 compared to October 31, 2024. The increase was primarily due to new joint ventures entered into during the first and third quarters of fiscal 2025, along with increases in our share of income recognized for two of our existing unconsolidated joint ventures during the period, partially offset by an increase in our share of loss recognized for one of our existing unconsolidated joint ventures, and partner distributions. As of July 31, 2025 and October 31, 2024, we had investments in eight and six unconsolidated homebuilding joint ventures, respectively. We have no guarantees associated with our unconsolidated joint ventures, other than guarantees limited to performance and completion of development activities, environmental indemnification and standard warranty and representation against fraud, misrepresentation and similar actions, including a voluntary bankruptcy.

Inventories

Total inventory, excluding consolidated inventory not owned, decreased $70.6 million to $1.4 billion at July 31, 2025 compared to October 31, 2024. Total inventory, excluding consolidated inventory not owned, decreased by $67.1 million in the Northeast and $73.4 million in the West, partially offset by an increase of $69.9 million in the Southeast. The net decrease was primarily attributable to home deliveries, inventory impairments and land option write-offs, land sales, and inventory contributed to new unconsolidated joint ventures during the period, partially offset by new land purchases and land development. Substantially all homes under construction or completed and included in inventory at July 31, 2025 are expected to be delivered during the next six to nine months.

Consolidated inventory not owned, which consists of options related to land banking and model financing, increased $118.7 million from October 31, 2024 to July 31, 2025. The increase was primarily due to increases in land banking transactions, along with an increase in the sale and leaseback of certain model homes during the period. We have land banking arrangements, whereby we sell land parcels to land bankers and they provide us with an option to purchase finished lots on a predetermined schedule. Because of our options to repurchase these parcels, these transactions are considered a financing rather than a sale. Our Condensed Consolidated Balance Sheet, at July 31, 2025, included inventory of $263.8 million recorded to “Consolidated inventory not owned,” with a corresponding amount of $167.9 million (net of debt issuance costs) recorded to “Liabilities from inventory not owned” for the amount of net cash received from the transactions. In addition, we sell and lease back certain of our model homes with the right to participate in the potential profit when each home is sold to a third-party at the end of the respective lease. As a result of our continued involvement and the ability to repurchase model homes with below market options, these sale and leaseback transactions are considered a financing rather than a sale. Therefore, our Condensed Consolidated Balance Sheet, at July 31, 2025, included inventory of $65.9 million recorded to “Consolidated inventory not owned,” with a corresponding amount of $68.7 million (net of debt issuance costs) recorded to “Liabilities from inventory not owned” for the amount of net cash received from the transactions.

The following tables summarize home sites included in our total residential real estate. The decrease in total home sites available at July 31, 2025 compared to October 31, 2024 is attributable to delivering homes and terminating certain option agreements, partially offset by acquiring new land parcels during the period.

(1) Active selling communities are open for sale communities with ten or more home sites available. We identify communities based on product type. Therefore, at times there are multiple communities at one land site.

(2) Represents active selling communities and home sites for our unconsolidated homebuilding joint ventures for the period. We provide this data as a supplement to our consolidated results as an indicator of the volume managed in our unconsolidated joint ventures. See Note 18 to the Condensed Consolidated Financial Statements for a further discussion of our unconsolidated joint ventures.

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The following table summarizes our started or completed unsold homes and models, excluding unconsolidated joint ventures, in active selling communities and substantially completed communities. The decrease in started or completed unsold homes from October 31, 2024 to July 31, 2025 is due to a concerted effort to align our starts pace with the sales pace during the third quarter of fiscal 2025.

(1) Active selling communities (which are communities that are open for sale with ten or more home sites available) were 124 at July 31, 2025 and 130 at October 31, 2024. This ratio does not include substantially completed communities, which are communities with less than ten home sites available.

Financial Services Assets and Liabilities

Financial services assets decreased $29.8 million to $173.8 million at July 31, 2025, compared to October 31, 2024. Financial services assets consist primarily of residential mortgage receivables held for sale of which $129.4 million and $147.2 million at July 31, 2025 and October 31, 2024, respectively, were being temporarily warehoused and are awaiting sale in the secondary mortgage market. The decrease in mortgage loans held for sale from October 31, 2024 was primarily related to a decrease in the volume of loans originated during the third quarter of fiscal 2025 compared to the fourth quarter of fiscal 2024, partially offset by an increase in the average loan value.

Financial services liabilities decreased $30.8 million to $152.4 million at July 31, 2025 compared to October 31, 2024. The decrease was primarily due to a decrease in amounts outstanding under our mortgage warehouse lines of credit and directly correlates to the decrease in the volume of mortgage loans held for sale during the period.

Inflation

The annual rate of inflation in the United States was 2.7% in July 2025, as measured by the Consumer Price Index, which is slightly higher than October 2024, but much improved from its peak of 9.1% in June 2022. Inflation has a long-term effect, because higher costs for land, materials and labor results in increasing sales prices of our homes. Historically, these price increases have been commensurate with the general rate of inflation in our housing markets and have not had a significant adverse effect on the sale of our homes. A significant risk faced by the housing industry generally is that rising house construction costs, including land and interest costs, could substantially outpace increases in the income of potential purchasers and therefore limit our ability to raise home sale prices, which may result in lower gross margins.

Inflation has a lesser short-term effect, because we generally negotiate fixed-price contracts with many, but not all, of our subcontractors and material suppliers for the construction of our homes. These prices usually are applicable for a specified number of residential buildings or for a time period of between three to 12 months. Construction costs for residential buildings represented approximately 50.3% of our homebuilding cost of sales for the nine months ended July 31, 2025.

Critical Accounting Policies

As disclosed in our Annual Report on Form 10-K for the fiscal year ended October 31, 2024, our most critical accounting policies relate to inventories, unconsolidated joint ventures, warranty and construction defect reserves and income taxes. Since October 31, 2024, there have been no significant changes to those critical accounting policies.

Safe Harbor Statement

All statements in this Quarterly Report on Form 10-Q 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. 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. Such forward-looking statements include but are not limited to statements related to the Company's goals and expectations with respect to its financial results for future financial periods. Although we believe that our plans, intentions and expectations reflected in, or suggested by, such forward-looking statements are reasonable, we can give no assurance that such plans, intentions or expectations will be achieved. By their nature, forward-looking statements: (i) speak only as of the date they are made, (ii) are not guarantees of future performance or results and (iii) are subject to risks, uncertainties and assumptions that are difficult to predict or quantify. Therefore, actual results could differ materially and adversely from those forward-looking statements as a result of a variety of factors. Such risks, uncertainties and other factors include, but are not limited to:

• Changes in general and local economic, industry and business conditions and impacts of a significant homebuilding downturn;
• Shortages in, and price fluctuations of, raw materials and labor, including due to geopolitical events, changes in trade policies, including the imposition of tariffs and duties on homebuilding materials and products, and related trade disputes with, and retaliatory measures taken by other countries, and because of changes in immigration laws and trends in labor migration;
• Fluctuations in interest rates and the availability of mortgage financing, including as a result of instability in the banking sector;
• Increases in inflation;
• Adverse weather and other environmental conditions and natural disasters;
• The seasonality of the Company’s business;
• The availability and cost of suitable land and improved lots and sufficient liquidity to invest in such land and lots;
• Reliance on, and the performance of, subcontractors;
• Regional and local economic factors, including dependency on certain sectors of the economy, and employment levels affecting home prices and sales activity in the markets where the Company builds homes;
• Increases in cancellations of agreements of sale;
• Changes in tax laws affecting the after-tax costs of owning a home;
• Legal claims brought against us and not resolved in our favor, such as product liability litigation, warranty claims and claims made by mortgage investors;
• Levels of competition;
• Utility shortages and outages or rate fluctuations;
• Information technology failures and data security breaches;
• Negative publicity;
• Global economic and political instability;
• High leverage and restrictions on the Company’s operations and activities imposed by the agreements governing the Company’s outstanding indebtedness;
• Availability and terms of financing to the Company;
• The Company’s sources of liquidity;
• Changes in credit ratings;
• Government regulation, including regulations concerning development of land, the home building, sales and customer financing processes, tax laws and the environment;
• Potential liability as a result of the past or present use of hazardous materials;
• Operations through unconsolidated joint ventures with third parties;
• Significant influence of the Company’s controlling stockholders;
• Availability of net operating loss carryforwards; and
• Loss of key management personnel or failure to attract qualified personnel.

Certain risks, uncertainties and other factors are described in detail in Part I, Item 1 “Business” and Part I, Item 1A “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended October 31, 2024. Except as otherwise required by applicable securities laws, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, changed circumstances or any other reason after the date of this Quarterly Report on Form 10-Q.

Table of Content

Substantially all of our long-term debt requires fixed interest payments and we have limited exposure to variable rates. In connection with our mortgage operations, mortgage loans held for sale and the associated mortgage warehouse lines of credit under our Master Repurchase Agreements are subject to interest rate risk; however, such obligations reprice frequently and are short-term in duration. In addition, we are able to hedge the interest rate risk on mortgage loans by obtaining forward commitments from private investors. Accordingly, the interest rate risk from mortgage loans is not significant. We do not use financial instruments to hedge interest rate risk except with respect to mortgage loans. The following table sets forth as of July 31, 2025, our long-term debt obligations, principal cash flows by scheduled maturity, weighted-average interest rates and estimated fair value (“FV”).

(Dollars in thousands)

(1) Does not include:

• the mortgage warehouse lines of credit made under our Master Repurchase Agreements;
• $53.5 million of nonrecourse mortgages secured by inventory, which have various maturities spread over the next two to three years and are paid off as homes are delivered; and
• our $125.0 million Secured Credit Facility under which there were no borrowings outstanding as of July 31, 2025.

The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Company’s reports under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures. Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of July 31, 2025. Based upon that evaluation and subject to the foregoing, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the design and operation of the Company’s disclosure controls and procedures are effective to accomplish their objectives.

There was no change in the Company’s internal control over financial reporting that occurred during the quarter ended July 31, 2025, that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.