HOV — Hovnanian Enterprises, Inc.

Summary of Hovnanian Enterprises, Inc. Q4 2025 Earnings Call

1. Key Financial Results and Metrics:

• Revenues: $818 million, surpassing guidance.
• Adjusted Gross Margin: 16.3%, near the high end of guidance but down year-over-year due to increased incentives.
• SG&A Expenses: 11.2%, at the lower end of guidance.
• Income from Unconsolidated Joint Ventures: $13 million, slightly above expectations.
• Adjusted EBITDA: $89 million, exceeding guidance.
• Adjusted Pretax Income: $49 million, close to the midpoint of guidance.
• Year-over-Year Revenue Decline: 17%, attributed to a 13% reduction in deliveries and absence of significant land sales from the previous year.

2. Strategic Updates and Business Highlights:

• The company is focusing on "pace over price," utilizing mortgage rate buy-downs to enhance affordability and drive sales.
• Incentives accounted for 12.2% of the average sales price, significantly impacting margins.
• Hovnanian is transitioning through older, lower-margin lots to prepare for new acquisitions that promise better returns.
• The company ended the quarter with 156 communities open for sale and a controlled lot count of 35,883, representing a 6.5-year supply.
• A successful refinancing resulted in all debt, except for the revolving credit facility, being unsecured, enhancing financial flexibility.

3. Forward Guidance and Outlook:

• Q1 2026 Revenue Guidance: Expected between $550 million and $650 million.
• Adjusted Gross Margin Guidance: Anticipated to be between 13% and 14%, lower than typical due to ongoing incentives.
• Adjusted EBITDA Guidance: Forecasted between $35 million and $45 million.
• The company expects margins to bottom out in Q1 2026 and gradually improve thereafter, contingent on stable market conditions.

4. Challenges and Points of Concern:

• The overall sales environment remains challenging, with contracts down 8% year-over-year and a significant decline in contracts per community.
• The company is experiencing margin compression due to high incentives and a focus on moving older, less profitable inventory.
• Economic and political uncertainties are causing buyer hesitance, impacting sales and contract activity.
• The company has walked away from approximately 15,000 lots during FY 2025, reflecting a cautious approach to land acquisition.

5. Notable Q&A Insights:

• Management is actively negotiating with suppliers to control costs and has seen some success in reducing per square foot costs.
• They plan to promote a seven-year adjustable-rate mortgage option to help buyers qualify at lower rates, potentially improving margins.
• The expected improvement in gross margins is attributed to a mix shift as the company works through older lots and brings on newer, more profitable acquisitions.
• Management expressed cautious optimism about future performance, anticipating a bottoming out of results in the upcoming quarter.

Overall, while Hovnanian Enterprises faced significant challenges in Q4 2025, including declining revenues and margins, the company is strategically positioned to improve its performance through careful inventory management and a focus on more profitable land acquisitions.