HOVNANIAN ENTERPRISES INC Q3 FY2025 earnings call

• Met or exceeded third quarter guidance despite political and economic uncertainty. - Revenues, adjusted pretax income, and adjusted EBITDA performed within or above guidance ranges. - Contracts showed variability but had positive trends in July. - High percentage of homebuyers using mortgage rate buydowns. - QMIs per community reduced sequentially but remained at a healthy level. - Land and land development spend adjusted for market conditions, with new acquisitions meeting margin hurdles. - 21% of communities saw price increases, primarily in better-performing markets.

Revenues for the third quarter were $801 million, right at the midpoint of guidance. Adjusted gross margin was 17.3%, slightly below the guidance midpoint. SG&A ratio was 11.3%, better than the midpoint. Income from unconsolidated joint ventures was $16 million, within the guidance range but on the lower end. Adjusted EBITDA was $77 million, above the high end of guidance. Adjusted pretax income was $40 million, at the top of guidance. Total revenues increased 11% year-over-year due to more deliveries. Adjusted gross margin declined year-over-year mainly due to increased affordability incentives and focus on pace over price. SG&A improved 110 basis points year-over-year to 11.3%. Contracts for the third quarter increased 1% year-over-year, with monthly variability. Contracts per community increased year-over-year, with July showing a 3% year-over-year increase. 75% of homebuyers used mortgage rate buydowns in the third quarter. QMIs per community were 8.2 at the end of the third quarter, a sequential reduction. Land and land development spend decreased due to market conditions, but new acquisitions met margin and IRR hurdles even with incentives.

• Fourth quarter total revenues expected between $750 million and $850 million. - Adjusted gross margin expected 15% to 16.5%. - SG&A as percentage of total revenues expected 11% to 12%. - Adjusted pretax income expected $45 million to $55 million. - Income from unconsolidated joint ventures expected $8 million to $12 million. - Adjusted EBITDA expected $77 million to $87 million. - Includes income from joint venture consolidation in the fourth quarter.

• Political and economic uncertainty impacting results. - Persistently high mortgage rate environment affecting affordability and margins. - Supply chain issues and construction cycle time variability. - Volatility in projecting margins due to changing market conditions like interest rates and incentives.

Q: Alan Ratner asks about July order activity improvement, whether macro or company-specific.

A: Ara K. Hovnanian says it's more macroeconomic and political uncertainty driven, with slightly higher buydown rates but no major company-specific actions.

Q: Alan Ratner asks about August activity month-to-date.

A: Brad G. O’Connor says it remains choppy.

Q: Jay McCanless asks about balance sheet and debt restructuring opportunities.

A: Brad G. O’Connor mentions looking at refinancing secured debt to unsecured, and Ara K. Hovnanian notes improving high yield market presents opportunities.

Q: Jay McCanless asks about bulk sales of lots.

A: Ara K. Hovnanian says they regularly look at land sales vs walkaways, prefer sharing pain with partners, and have had gains from land sales.

Q: Jay McCanless asks about 21% of communities with price increases and buyer groups.

A: Ara K. Hovnanian says entry-level is tougher, with success in active adult, first-time, and second-time move-up buyers.