HOVNANIAN ENTERPRISES INC Q2 FY2025 earnings call

Key Points

• Revenues were $686M, closer to low end of guidance due to delivery mix. Adjusted gross margin 17.3% below guidance range, SG&A 11.7% near midpoint. Income from joint ventures at high end, adjusted EBITDA above high end.
• Contracts down 7% YOY, monthly sales volatile. Contracts per community 11.2, above pre-COVID levels, third highest among public builders.
• 75% of home buyers used mortgage rate buydowns, QMIs 8.6 per community, 79% of sales were QMIs. Raised net prices in 31% of communities, focusing on pace over price.
• Burned through underperforming land, replaced with new land underwriting current incentives. Signed MOU with Saudi Arabia Ministry of Housing.

Revenues for the second quarter were $686 million, closer to the low end of guidance due to delivery mix. Adjusted gross margin was 17.3%, below the low end of the guidance range. SG&A ratio was 11.7%, near the midpoint of guidance. Income from unconsolidated joint ventures was $9 million, at the high end of guidance. Adjusted EBITDA was $61 million, slightly above the high end of guidance range. Adjusted pretax income was $29 million, near the high end of the range.

Third Quarter Guidance

• Total revenues expected between $750 million and $850 million.
• Adjusted gross margin expected in the range of 17% to 18%.
• Adjusted pretax income expected between $30 million and $40 million.
• Income from unconsolidated joint ventures expected between $15 million and $25 million.
• Adjusted EBITDA expected between $60 million and $70 million.

• Political and economic uncertainty during the quarter.
• High mortgage rates impacting affordability and consumer confidence.
• Supply chain delays affecting community openings.
• Material cost fluctuations and potential tariff impacts.
• Volatility in monthly sales and difficulty in accurately projecting margins.

Q: Details on vintage land relative to incentives A: Land sellers adjust prices slowly, but Hovnanian is finding opportunities to replenish land supply with better returns, varying by market.

Q: Incentive structure and spec building A: Incentives include mortgage rate buydowns, still focus on quick move-in homes (QMIs) as they allow affordable buydowns for homes deliverable in 90 days.

Q: May sales, vintage land clearance, gross margin bottom A: May is status quo with April, vintage land clearance varies by community, and Hovnanian hopes to be near a gross margin bottom with current guidance.

Q: Construction costs in back half A: Optimistic about construction costs except potential lumber price changes, with labor costs showing some gains in the slower market