Hovnanian Enterprises, Inc. Q4 FY2025 earnings call

Bullet points:

• Despite political and economic uncertainty, team delivered results meeting or beating guidance across key metrics.
• Traffic per community increased in three of the four months in Q4, showing positive buyer interest but hesitation due to uncertainty.
• QMI sales comprised 73% of total sales in Q4, down from prior quarters but still above historical norms. QMIs fell 22% from prior period, demonstrating alignment of supply with demand.
• Net prices increased in 36% of communities in Q4, with strength in certain markets. Focus remains on sales pace but capitalizing on price opportunities when market strength is evident.
• Successfully refinanced debt, making all debt except revolving credit facility unsecured, strengthening balance sheet.

Revenues reached $818 million, surpassing the midpoint of guidance. Adjusted gross margin was 16.3% for the quarter, near the high end of guidance. SG&A was 11.2% near the lower end of guidance. Income from unconsolidated joint ventures totaled $13 million slightly above expectations. Adjusted EBITDA for the quarter was $89 million, exceeding guidance range and adjusted pretax income was $49 million, close to the midpoint of guidance.

Bullet points:

• Guidance for first quarter of fiscal 2026: total revenues between $550,000,000 and $650,000,000; adjusted gross margin expected to be 13% to 14%; SG&A as % of total revenues between 14.5%; income from unconsolidated joint ventures breakeven to $10,000,000; adjusted EBITDA between $35,000,000 and $45,000,000; adjusted pretax income between $10,000,000 and $20,000,000.
• Margin expected to bottom in Q1 2026 and gradually improve if market conditions remain stable.

Bullet points:

• Persistent political and economic uncertainty at home and abroad impacting results.
• Difficult market conditions affecting sales pace and margin predictability.
• Volatility in mortgage rates and other economic factors that could impact performance.

Q: Are you doing anything to offset some of the pressure from gross margins? Have you seen any cost improvements, maybe cost improvements? Have you been able to negotiate anything lower with your vendors?

A: We have consistently gone back in existing communities and certainly for new communities to rebid with suppliers, trade partners, etc. We've had some success controlling costs and reducing costs in some places. We're down pretty significantly in costs on a per square foot basis from two years ago. Over this year, we're basically holding steady. So any increases are being caused by tariffs or other things have been offset by savings elsewhere. So we've been able to manage costs flat we'll continue to pursue ways to reduce costs either with trades or change in material suppliers, etcetera. I'll mention one additional thing. We have seen several of our peers have success with buying down a seven-year arm versus a thirty-year fixed. That has two benefits. One, you can qualify buyers at a lower rate and at the same time actually save cost which helps margins. So we're going to begin advertising and promoting that program more aggressively starting this weekend, and if it's as successful as we're seeing, you know, that incremental portion of our buyers that use a seven-year arm will help our margins.

Q: When you expect gross margin to take higher year, is that driven by a mix impact, or is it because you think you will be done selling to underperforming assets at that point?

A: It's a mix because you're working through the older stuff. So, yeah, as we continue to work through the older, more challenging property and bring on deals we identified in 2024 and 2025 that mix shift to newer land will help our margins improve.