HOVNANIAN ENTERPRISES INC (HOV)·Q3 2025 Earnings Summary

Executive Summary

• Revenue grew 10.8% year over year to $800.6M on 14% higher deliveries; however diluted EPS fell to $1.99 vs $9.75 in Q3’24 as gross margin compressed on elevated mortgage rate buydowns and land charges .
• Management met or exceeded Q3 guidance on all metrics: adjusted pre-tax income was at the top of the range ($39.8M excl. land-related charges), and adjusted EBITDA came in above the high end ($77.1M) .
• Q4 guidance introduced: revenues $750–$850M, adjusted GM 15.0%–16.5%, adjusted pre-tax $45–$55M, adjusted EBITDA $77–$87M; management also expects other income from consolidation of a JV in Q4 (historically ~$30M on similar transactions) .
• Strategic posture: land-light at a record 86% optioned lots, liquidity $277.9M above target range, and TTM ROE 18.7% with Adjusted EBIT ROI 22.1%; stock narrative focused on undervaluation versus peers and potential refinancing to unsecured debt as high-yield market improves .

What Went Well and What Went Wrong

What Went Well

• Delivered revenue growth and stronger sales pace per community (9.8 vs 9.5) despite volatility; contracts increased modestly YoY and adjusted EBITDA exceeded guidance high end ($77.1M) .
• Executed land-light strategy: 86% of lots optioned (highest ever), put ~3,500 lots under option/acquisition, and maintained liquidity above target ($277.9M) to support disciplined growth .
• Management emphasized focus on pace versus price and clearing lower-margin vintage lots to make room for higher-margin land purchases; “we met or exceeded the guidance range for all the metrics” (CEO Ara Hovnanian) .

What Went Wrong

• Homebuilding gross margin fell to 11.7% (from 19.1% YoY) with incentives at 11.6% of ASP, mostly mortgage buydowns; EPS compressed sharply to $1.99 diluted from $9.75 YoY .
• Land-related charges rose to $16.0M (vs $0.4M YoY), with impairments concentrated in the West and walkaways from ~4,059 lots as underwriting discipline tightened .
• Backlog dollars declined 27.6% YoY (to $838.8M consolidated) as reliance on QMIs increased; cancellation rates rose to 19% vs 17% YoY .

Financial Results

Segment breakdown (Deliveries and ASP):

KPIs:

Guidance Changes

Reference: Prior quarter guidance (for Q3 2025) vs actual:

Earnings Call Themes & Trends

Management Commentary

• “We met or exceeded the guidance range for all the metrics provided for the third quarter” (Ara Hovnanian) .
• “Incentives were 11.6% of the average sales price…The majority of this cost is related to buying down mortgage rates” (CEO) .
• “We are selling through some of the lower margin homes and land to make room for newer land purchases with better margins” (CEO) .
• “We walked away from about 6,500 lots during the last two quarters, including 4,059 lots in the third quarter” (CFO) .
• “Our interest expense as a percentage of total revenues increased…predominantly due to a year over year increase in land banking arrangements under inventory not owned” (CFO) .
• “We expect…other income from the consolidation of a joint venture in the fourth quarter” (CFO) .

Q&A Highlights

• Orders: July improved, driven more by macro sentiment than specific actions; August remained choppy week-to-week (Zelman) .
• Margins: Headwinds tied to geography (West/TX/FL slower) and vintage; working with land sellers to share pain; preference to build through rather than bulk land sales; occasional gains from land sales .
• Buyer mix: Entry-level toughest; active adult and move-up segments performing better (Wedbush) .
• Capital markets: Monitoring opportunity to refinance secured to unsecured; high-yield improving; guidance excludes phantom stock expense from stock price changes .

Estimates Context

Notes:

• Coverage is very limited (# of estimates = 1), and SPGI “Primary EPS” methodology may differ from the company’s diluted EPS (e.g., preferred dividends, normalization), so comparability is limited [GetEstimates].
• Values retrieved from S&P Global.*

Key Takeaways for Investors

• Revenue growth and sales pace improved, but margins compressed materially due to elevated mortgage rate buydowns and land charges; expect continued margin pressure into Q4 given guidance at 15.0%–16.5% adjusted GM .
• Q3 execution beat adjusted EBITDA guidance; Q4 guide implies stronger adjusted pre-tax vs Q3 and potential JV consolidation other income—an upside catalyst if realized .
• Land-light strategy is deepening (86% optioned lots), with disciplined underwriting leading to walkaways and selective acquisitions; this should improve future margin quality once lower-vintage land is cleared .
• Liquidity above target ($277.9M) and shrinking leverage provide flexibility for growth and refinancing; management is evaluating unsecured refinancing and subsequently priced $900M senior notes for ladder improvement .
• Operational KPIs show higher cancellation rates and lower backlog dollars due to QMI focus; expect continued choppiness in orders tied to macro headlines, but QMI strategy supports faster backlog conversion .
• Regional mix matters: West remains a headwind (impairments/walkaways), while Mid-Atlantic markets allowed price increases; positioning toward resilient regions may support pace .
• With sparse sell-side coverage and methodology differences in SPGI EPS, focus on company GAAP/non-GAAP reconciliations (adjusted pre-tax, adjusted GM, adjusted EBITDA) for tracking execution .