HOVNANIAN ENTERPRISES INC

Previous wording

From January 2022 to October 2023, 30-year mortgage rates more than doubled. The sharp increase in interest rates, persistently high levels of inflation and doubt about the stability of the economy, negatively impacted housing demand beginning in the second half of fiscal 2022 and into fiscal 2023. During the first quarter of fiscal 2024, mortgage rates declined, which had a positive effect on our sales pace, but rates increased slightly again in the second quarter of fiscal 2024 and affordability generally remains challenging for homebuyers. We have been aggressive in our pricing, incentives and concessions in order to align with the current market.

Current wording

From January 2022 to October 2023, 30-year mortgage rates more than doubled. The sharp increase in interest rates, persistently high levels of inflation and doubt about the stability of the economy, negatively impacted housing demand beginning in the second half of fiscal 2022 and into fiscal 2023. During the first quarter of fiscal 2024, mortgage rates declined, which had a positive effect on our sales pace. Rates fluctuated in the second and third quarters of fiscal 2024 and affordability generally remains challenging for homebuyers. We have been aggressive in our pricing, incentives and concessions in order to align with the current market.

Previous wording

The number of existing home sales listings remain at all-time low levels, which limits the supply of homes available for purchase, leading to increased demand for new homes, which leads to improved pricing power. There was strong demand for our homes in the first and second quarters of fiscal 2024 as compared to the same periods of the prior year, which led to a significant increase in net contracts and net contracts per average active selling community, as compared to the first half of fiscal 2023. We were able to increasenet prices in approximately 37% and 59% of our communities during the first and second quarters of fiscal 2024, respectively.

Current wording

The number of existing home sales listings remain at all-time low levels, which limits the supply of homes available for purchase, leading to increased demand for new homes. There was strong demand for our homes in the first and second quarters of fiscal 2024 as compared to the same periods of the prior year, which led to a significant increase in net contracts and net contracts per average active selling community, as compared to the first half of fiscal 2023. However, demand declined during the third quarter of fiscal 2024, partially due to volatility in interest rates impacting homebuyers’ decisions. In addition, we had extended construction disruptions from Hurricane Beryl across our Texas operations, which is our largest state by deliveries. Overall, we were able to increasenet prices in approximately 33% of our communities during the third quarter of fiscal 2024.

Previous wording

There still remains a great degree of uncertainty due to inflation, the continued possibility of an economic recession, employment risk and the potential for further mortgage rate increases. While we continue to experience some lingering supply chain issues, we remain focused on continuing to shorten our construction cycle times and building on our national initiatives to drive down costs with our material providers and trade partners. The changing conditions in the housing market, and in the general economy, make it difficult to predict how strongly our business will be impacted by these external factors over fiscal 2024 and beyond.

Current wording

There still remains a great degree of uncertainty due to inflation, the continued possibility of an economic recession, employment risk and the potential for further mortgage rate increases. While we continue to experience some lingering supply chain issues, we remain focused on continuing to shorten our construction cycle times and building on our national initiatives to drive down costs with our material providers and trade partners. The changing conditions in the housing market, and in the general economy, makes it difficult to predict how strongly our business will be impacted by these external factors over fiscal 2024 and beyond.

Previous wording

Our cash position allowed us to spend $460.9 million on land purchases and land development for long-term growth during the six months ended April 30, 2024, and still have total liquidity of $310.7 million, including $182.0 million of homebuilding cash and cash equivalents and $125.0 million of borrowing capacity under our senior secured revolving credit facility as of April 30,2024.

Current wording

Our cash position allowed us to spend $677.0 million on land purchases and land development for long-term growth during thenine months ended July 31, 2024, and still have total liquidity of $251.3 million, including $122.0 million of homebuilding cash and cash equivalents and $125.0 million of borrowing capacity under our senior secured revolving credit facility as of July 31,2024.

Previous wording

Information on our operating results for thethree and six months ended April 30, 2024 are as follows:

Current wording

Information on our operating results for thethree and nine months ended July 31, 2024 are as follows:

Previous wording

● Sale of homes revenues increased to $686.9 million for thethree months ended April 30, 2024 from $670.7 million for thethree months ended April 30, 2023, and increased to $1.3 billionfor thesix months ended April 30, 2024 from $1.2 billion for thesix months ended April 30, 2023. There was a 4.7%and 8.5% increase in the number of home deliveries for thethree and six months ended April 30, 2024, respectively, compared to the prior year periods, partially offset by a decrease in average prices of 2.2% and 0.7% for thethree and six months ended April 30, 2024, respectively, compared to the prior year periods. The decrease in average price was the result ofthe geographic and community mix of our deliveries.

Current wording

● Sale of homes revenues increased to $687.4 million for thethree months ended July 31, 2024 from $630.4 million for thethree months ended July 31, 2023, andincreased to $1.9 billionfor thenine months ended July 31, 2024 from $1.8 billion for thenine months ended July 31, 2023. There was a 4.8%and 7.1% increase in the number of home deliveries for thethree and nine months ended July 31, 2024, respectively, compared to the prior year periods, as well as an increase in average prices of 4.1% and 1.0% for thethree and nine months ended July 31, 2024, respectively, compared to the prior year periods. The increase in average price was the result ofthe geographic and community mix of our deliveries.

Previous wording

● Selling, general and administrative costs (including corporate general and administrative expenses) ("Total SGA")was $79.0 million, or 11.2% of total revenues, in thethree months ended April 30, 2024 compared with $75.5 million, or 10.7% of total revenues, in thethree months ended April 30, 2023. For thesix months ended April 30, 2024, Total SGA was $165.1 million, or 12.7% of total revenues, compared with $148.9 million, or 12.2% of total revenues, in the same period of the prior fiscal year. The increase in Total SGA dollars is primarily duean increase in compensation expense, mainly related to increased headcount and annual merit increases, along with grants of phantom stock awards under our 2019 and 2023 long-term incentive plans, for which expense is impacted by the change in our stock price each period.

Current wording

● Selling, general and administrative costs (including corporate general and administrative expenses) ("Total SGA")was $89.5 million, or 12.4% of total revenues, in thethree months ended July 31, 2024 compared with $75.1 million, or 11.6% of total revenues, in thethree months ended July 31, 2023. For thenine months ended July 31, 2024, Total SGA was $254.5 million, or 12.6% of total revenues, compared with $224.0 million, or 12.0% of total revenues, in the same period of the prior fiscal year. The increase in Total SGA dollars is primarily duean increase in advertising expenses and compensation expense, mainly related to increased headcount and annual merit increases, along with grants of phantom stock awards under our 2019 and 2023 long-term incentive plans, for which expense is impacted by the change in our stock price each period.

Previous wording

● Other interest decreased to $9.0 million and $19.4 million for thethree and six months ended April 30, 2024, respectively, from $14.5 million and $29.6 million for thethree and six months ended April 30, 2023, respectively, primarilydue to a reduction in principal of our senior notes as a result of redemptions during fiscal 2023 and the first quarter of fiscal 2024.

Current wording

● Other interest decreased to $6.3 million and $25.7 million for thethree and nine months ended July 31, 2024, respectively, from $13.5 million and $43.1 million for thethree and nine months ended July 31, 2023, respectively, primarilydue to a reduction in principal of our senior notes as a result of redemptions during fiscal 2023 and the first quarter of fiscal 2024, and the debt exchange executed in the third quarter of fiscal 2024.

Previous wording

● Net contracts increased 2.4% and 16.5% for thethree and six months ended April 30, 2024, respectively, compared to the same periods of the prior year primarily due to increased demand for new homes resulting fromthe low supply of existing homes for sale, lower mortgage rates than prior periods, job creation in the employment market and overall growth in the broader economy.

Current wording

● Net contracts decreased 17.5% and increased 3.3% for thethree and nine months ended July 31, 2024, respectively, compared to the same periods of the prior year. The decrease for the three months ended July 31, 2024 is primarily due to a historically strong third quarter of fiscal 2023, which included a high number of build for rent contracts. The increase in the nine months is primarily driven by demand for new homes resulting fromthe low supply of existing homes for sale, slightly lower mortgage rates than the prior year, job creation in the employment market and overall growth in the broader economy.

Previous wording

● Contract backlog decreased from 2,318 homes at April 30, 2023 to 2,018 homes at April 30, 2024, and the dollar value of contract backlogde creased to $1.1 billion, a 14.7% decrease in dollar value compared to the prior year. The decreases were primarily attributable to a reduction in the number of active selling communities from 114 at April 30, 2023 to 109 at April 30, 2024. In addition, our backlog conversion ratio has increased from the prior year period due to our focus on having more QMI homes available to sell and deliver.

Current wording

● Contract backlog decreased from 2,403 homes at July 31, 2023 to 2,041 homes at July 31, 2024, and the dollar value of contract backlogde creased to $1.2 billion, a 12.6% decrease in dollar value compared to the prior year, asour backlog conversion ratio has increased from the prior year period due to our focus on having more QMI homes available to sell and deliver.

Previous wording

For thethree and six months ended April 30, 2024, sale of homes revenues increased 2.4% and 7.7%, respectively, compared to the same periods in the prior year. The sale of homes revenue increased due to a 4.7% and 8.5% increase in homes delivered, respectively, slightly offset by a 2.2% and 0.7% decrease in the average price per home for thethree and six months ended April 30, 2024, respectively, compared with the prior year periods. The average price per home decreased to $535,408 in thethree months ended April 30, 2024 from $547,517 in thethree months ended April 30, 2023. The average price per home decreased to $537,325 in thesix months ended April 30, 2024 from $541,079 in thesix months ended April 30, 2023. The decrease in average price was the result of the geographic and community mix of our deliveries. Land sales are ancillary to our homebuilding operations and are expected to continue in the future. For further detail on changes in segment revenues see “Homebuilding: Operations by Segment” below. For further detail on land sales and other revenues, see “Homebuilding: Land Sales and Other Revenues” below.

Current wording

For thethree and nine months ended July 31, 2024, sale of homes revenues increased 9.1% and 8.2%, respectively, compared to the same periods in the prior year. The sale of homes revenue increased due to a 4.8% and 7.1% increase in homes delivered, respectively, as well as a 4.1% and 1.0% increase in the average price per home for thethree and nine months ended July 31, 2024, respectively, compared with the prior year periods. The average price per home increased to $547,748 in thethree months ended July 31, 2024 from $526,186 in thethree months ended July 31, 2023. The average price per home increased to $540,958 in thenine months ended July 31, 2024 from $535,770 in thenine months ended July 31, 2023. The increase in average price was the result of the geographic and community mix of our deliveries. For further detail on changes in segment revenues see “Homebuilding: Operations by Segment” below. For further detail on land sales and other revenues, see “Homebuilding: Land Sales and Other Revenues” below.

Previous wording

Land sales and other revenues decreased $14.5 million and $12.7 million for thethree and six months ended April 30, 2024, respectively, compared to the same periods in the prior year. Revenue associated with land sales can vary significantly due to the mix of land parcels sold. There were zero andone land sale in thethree and six months ended April 30, 2024, respectively, andone andtwo land sales in thethree and six months ended April 30, 2023, respectively. Land sales revenues decreased $15.1 million and $14.1 million during thethree and six months ended April 30, 2024, respectively, compared to the same periods in the prior year.

Current wording

Land sales and other revenues increased $11.5 million and decreased $1.3 million for thethree and nine months ended July 31, 2024, respectively, compared to the same periods in the prior year. Revenue associated with land sales can vary significantly due to the mix of land parcels sold. There wereone andtwo land sales in thethree and nine months ended July 31, 2024, respectively, andzero andtwo land sales in thethree and nine months ended July 31, 2023, respectively. Land sales revenues increased $13.8 million and decreased $0.3 million during thethree and nine months ended July 31, 2024, respectively, compared to the same periods in the prior year.

Previous wording

Cost of sales includes expenses for consolidated housing and land and lot sales, including inventory impairments and land option write-offs (defined as “land charges” in the tables below). A breakout of such expenses for homebuilding and land and lot sales and the gross margins for each is set forth below.

Current wording

Cost of sales includes expenses for homebuilding and land and lot sales, including inventory impairments and land option write-offs (defined as “land charges” in the tables below). A breakout of such expenses for homebuilding and land and lot sales and the gross margins for each is set forth below.

Previous wording

We sell a variety of home types in various communities, each yielding a different gross margin. As a result, depending on the mix of communities delivering homes, consolidated gross margin may fluctuate up or down. Total homebuilding gross margin percentage increased to 19.5% and 18.9% for thethree and six months ended April 30, 2024, respectively, compared to 17.8% and 18.1% for the prior year periods, respectively. Total homebuilding gross margin percentage, before cost of sales interest expense and land charges increased to 22.6% and 22.3% for thethree and six months ended April 30, 2024, respectively, compared to 20.9% and 21.2% for thethree and six months ended April 30, 2023, respectively. The increase in gross margin percentage for thethree and six months ended April 30, 2024 was primarily due to decreases in base construction costs per square foot across each of our segments.

Current wording

We sell a variety of home types in various communities, each yielding a different gross margin. As a result, depending on the mix of communities delivering homes, consolidated gross margin may fluctuate up or down. Total homebuilding gross margin percentage decreased to 19.1% and increased to 18.9% for thethree and nine months ended July 31, 2024, respectively, compared to 20.1% and 18.8% for the prior year periods, respectively. Total homebuilding gross margin percentage, before cost of sales interest expense and land charges decreased to 22.1% and increased to 22.2% for thethree and nine months ended July 31, 2024, respectively, compared to 23.2% and 21.9% for thethree and nine months ended July 31, 2023, respectively. The decrease in gross margin percentage for the three months ended July 31, 2024 was primarily due to increased use of incentives and concessions, including additional mortgage interest rate buydowns, to make our homes more affordable. The increase in gross margin percentage for the nine months ended July 31, 2024 was primarily due to decreases in base construction costs per square foot across each of our segments.

Previous wording

Land sales are ancillary to our residential homebuilding operations and are expected to continue in the future but may fluctuate significantly.

Current wording

Land sales are ancillary to our homebuilding operations and are expected to continue in the future but may fluctuate significantly.

Previous wording

Inventory impairments and land option write-offs reflects certain inventories we have either written off or written down to their estimated fair value totaling $0.2 million and $0.1 million in expense for thethree months ended April 30, 2024 and 2023, respectively, and $0.5 million and $0.6 million during thesix months ended April 30, 2024 and 2023, respectively. There were no inventory impairments during thethree and six months ended April 30, 2024 and 2023. During thethree and six months ended April 30, 2024 and 2023, we wrote-off residential land option, approval and engineering costs. Such write-offs occurred across each of our segments in the first half of fiscal 2024 and 2023, respectively.

Current wording

Inventory impairments and land option write-offs reflects certain inventories we have either written off or written down to their estimated fair value totaling $3.1 million and $0.3 million in expense for thethree months ended July 31, 2024 and 2023, respectively, and $3.6 million and $0.9 million in expense for thenine months ended July 31, 2024 and 2023, respectively. Inventory impairments amounted to $2.7 million and zero during thethree and nine months ended July 31, 2024 and 2023, respectively. The impairment recorded for fiscal 2024 was for one community in the West segment. We wrote-off residential land option, approval and engineering costs across each of our segments during the first nine months of fiscal 2024 and 2023.

Previous wording

Homebuilding selling, general and administrative (“SGA”) expenses decreased $4.0 million to $46.5 million for thethree months ended April 30, 2024 and decreased $2.9 million to $95.4 million for thesix months ended April 30, 2024 compared to the same periods in the prior year. The decrease for the three andsix months ended April 30, 2024 compared to the same periods in the prior year was primarily due to an increase in unconsolidated joint venture deliveries, as we receive a management fee on each delivery, which offsets our SGA expenses incurred.

Current wording

Homebuilding selling, general and administrative (“SGA”) expenses increased $3.3 million to $51.0 million for thethree months ended July 31, 2024 and increased $0.3 million to $146.4 million for thenine months ended July 31, 2024 compared to the same periods in the prior year. The increase for the three andnine months ended July 31, 2024 compared to the same periods in the prior year was primarily due to an increase in selling overhead from higher advertising costs and an increase in total compensation expense as a result of an increase in headcount and bonuses related to positive overall market conditions and specific company performance, slightly offset by an increase in unconsolidated joint venture deliveries, where we receive a management fee on each delivery, which offsets our SGA expenses incurred.

Previous wording

Most cancellations occur within the legal rescission period, which varies by state but is generally less thantwo weeks after the signing of the contract. Cancellations also occur as a result of a buyer’s failure to qualify for a mortgage, which generally occurs during the first few weeks after signing. Due to our solid backlog position, our cancellation rate as a percentage of beginning backlog for the second quarter of fiscal 2024 was 13%, which is equal to our historical normal rate. When sales pace is increasing, the cancellation rate as a percentage of beginning backlog tends to lag the changes seen in our cancellation rate as a percentage of gross sales. Market conditions, although improving, still remain uncertain and it is difficult to predict what cancellation rates will be in the future.

Current wording

Most cancellations occur within the legal rescission period, which varies by state but is generally less thantwo weeks after the signing of the contract. Cancellations also occur as a result of a buyer’s failure to qualify for a mortgage, which generally occurs during the first few weeks after signing. Due to our solid backlog position, our cancellation rate as a percentage of beginning backlog for the third quarter of fiscal 2024 was 12%, which approximates our historical normal rate. When sales pace is increasing, the cancellation rate as a percentage of beginning backlog tends to lag the changes seen in our cancellation rate as a percentage of gross sales. Market conditions, although improving, still remain uncertain and it is difficult to predict what cancellation rates will be in the future.

Previous wording

Contract backlog dollars decreased 14.7% as of April 30, 2024 compared to April 30, 2023, and the number of homes in backlog decreased 12.9% as of April 30, 2024 compared to April 30, 2023. The decrease in contract backlog dollars and number of homes as of April 30, 2024 compared to April 30, 2023 was primarily driven by our lower community count in the first half of fiscal 2024 as compared to the same period in the prior year and improved contract backlog conversion.

Current wording

Contract backlog dollars decreased 12.6% as of July 31, 2024 compared to July 31, 2023, and the number of homes in backlog decreased 15.1% as of July 31, 2024 compared to July 31, 2023. The decrease in contract backlog dollars and number of homes as of July 31, 2024 compared to July 31, 2023 was primarily driven by an increase in sales of QMI homes and improved contract backlog conversion.

Previous wording

Income before income taxes increased $3.0 million to $31.7 million for thethree months ended April 30, 2024 as compared to the same period in the prior year. This was primarily due to a $0.7 million increase in income from unconsolidated joint ventures and a $5.2 million decrease in SGA, while gross margin percentage was relatively flat.

Current wording

Income before income taxes increased $21.3 million to $107.6 million for thenine months ended July 31, 2024 as compared to the same period in the prior year. This was primarily due to the increase in homebuilding revenue discussed above, a $12.3 million increase in income from unconsolidated joint ventures and a $3.6 million decrease in SGA, while gross margin percentage was relatively flat.

Previous wording

Southeast – Homebuilding revenue increased 27.4% for thethree months ended April 30, 2024 compared to the same period in the prior year. The increase was due to a 41.4% increase in homes delivered, partially offset by a 10.0% decrease in average sales price. The decrease in average sales price was the result of new communities delivering lower priced, smaller single family homes and townhomes in lower-end submarkets of the segment for the three months ended April 30, 2024 compared to some communities delivering higher priced, larger single family homes and townhomes in mid to higher-end submarkets of the segment in the three months ended April 30, 2023, which were no longer delivering in the current year.

Current wording

Southeast – Homebuilding revenue decreased 4.4% for thethree months ended July 31, 2024 compared to the same period in the prior year. The decrease was due toa 4.8% decrease in average sales price, partially offset bya 0.4% increase in homes delivered. The decrease in average sales price was the result of new communities delivering lower priced, smaller single family homes and townhomes in lower-end submarkets of the segment for the three months ended July 31, 2024 compared to some communities delivering higher priced, larger single family homes and townhomes in mid to higher-endsubmarkets of the segmentin the three months ended July 31, 2023, which were no longer delivering in the current year.

Previous wording

Homebuilding revenue increased 34.3% for thesix months ended April 30, 2024 compared to the same period in the prior year. The increase was due to a 40.0% increase in homes delivered, partially offset by a 4.3% decrease in average sales price. The decrease in average sales price was the result of new communities delivering lower priced, smaller single family homes and townhomes in lower-end submarkets of the segment in the six months ended April 30, 2024 compared to some communities for the six months ended April 30, 2023 that had higher priced, larger single family homes and townhomes in mid to higher-end submarkets, which were no longer delivering in the current year.

Current wording

Homebuilding revenue increased 18.5% for thenine months ended July 31, 2024 compared to the same period in the prior year. The increase was due to a 23.3% increase in homes delivered, partially offset by a 4.1% decrease in average sales price. The decrease in average sales price was the result of new communities delivering lower priced, smaller single family homes and townhomes in lower-end submarkets of the segment in the nine months ended July 31, 2024 compared to some communities for the nine months ended July 31, 2023 that had higher priced, larger single family homes and townhomes in mid to higher-end submarkets, which were no longer delivering in the current year.

Previous wording

Income before income taxes increased $15.5 million to $41.9 million for thesix months ended April 30, 2024 compared to the same period in the prior year. This was primarily due to the increase in homebuilding revenue discussed above, and a $3.2 million increase in income from unconsolidated joint ventures, while gross margin percentage was relatively flat.

Current wording

Income before income taxes increased $12.5 million to $62.4 million for thenine months ended July 31, 2024 compared to the same period in the prior year. This was primarily due to the increase in homebuilding revenue discussed above, and a $2.2 million increase in income from unconsolidated joint ventures, while gross margin percentage was relatively flat.

Previous wording

West – Homebuilding revenue decreased 3.4% for thethree months ended April 30, 2024 compared to the same period in the prior year. The decrease was due to a $15.4 million decrease in land sales and other revenue, while average sales price was essentially flat with a 1.1% decrease. The decrease in homebuilding revenue was partially offset bya 1.9% increase in homes delivered.

Current wording

West – Homebuilding revenue increased 7.1% for thethree months ended July 31, 2024 compared to the same period in the prior year. The increase was due to a $13.5 million increase in land sales and other revenue and a 1.5% increase in homes delivered, while average sales price increased by 1.2%.

Previous wording

Income before income taxes increased $12.2 million to $27.1 million for thethree months ended April 30, 2024 compared to the same period in the prior year. This was primarily due to the increase in homebuilding revenue discussed above, a $4.7 million increase in income from unconsolidated joint ventures and a slight increase in gross margin percentage.

Current wording

Income before income taxes increased $11.2 million to $77.2 million for thenine months ended July 31, 2024 compared to the same period in the prior year. The increase is primarily due to the increase in homebuilding revenue discussed above, along with a $1.3 million increase in income from unconsolidated joint ventures and a slight increase in gross margin percentage.

Previous wording

Financial services consists primarily of originating mortgages from our home buyers, selling such mortgages in the secondary market, and title insurance activities. We use mandatory investor commitments and forward sales of mortgage-backed securities (“MBS”) to hedge our mortgage-related interest rate exposure on agency and government loans. For thesix months ended April 30, 2024 and 2023, Federal Housing Administration and Veterans Administration (“FHA/VA”) loans represented 34.2% and 30.1%, respectively, of our total loans. For thesix months ended April 30, 2024 compared to the same period in the prior year, our conforming conventional loan originations as a percentage of our total loans decreased from 69.2% to 65.5%, respectively. The origination of loans which exceed conforming conventions decreased from 0.7% to 0.3% for thesix months ended April 30, 2024 compared to the same period in the prior year.

Current wording

Financial services consists primarily of originating mortgages from our home buyers, selling such mortgages in the secondary market, and title insurance activities. We use mandatory investor commitments and forward sales of mortgage-backed securities (“MBS”) to hedge our mortgage-related interest rate exposure on agency and government loans. For thenine months ended July 31, 2024 and 2023, Federal Housing Administration and Veterans Administration (“FHA/VA”) loans represented 34.1% and 30.4%, respectively, of our total loans. For thenine months ended July 31, 2024 compared to the same period in the prior year, our conforming conventional loan originations as a percentage of our total loans decreased from 68.8% to 65.3%. The origination of loans which exceed conforming conventions decreased from 0.8% to 0.6% for thenine months ended July 31, 2024 compared to the same period in the prior year.

Previous wording

During thethree and six months ended April 30, 2024 and 2023, financial services provided $5.1 million and $8.9 million of income before income taxes, respectively, compared to $4.1 million and $7.2 million for the same periods in the prior year, respectively. The increase in financial services income before income taxes for thethree and six months ended April 30, 2024 compared to the same periods in the prior year was primarily due to an increase in the amount of loans closed and a slight increase in the average size of the loans settled. In the markets served by our wholly owned mortgage banking subsidiaries,78.6% and 69.1% of our non-cash homebuyers obtained mortgages originated by these subsidiaries during thethree months ended April 30, 2024 and 2023, respectively, and 78.7% and 66.6% ofour non-cash homebuyers obtained mortgages originated by these subsidiaries during thesix months ended April 30, 2024 and 2023, respectively.

Current wording

During thethree and nine months ended July 31, 2024 and 2023, financial services provided $6.5 million and $15.5 million of income before income taxes, respectively, compared to $4.3 million and $11.5 million for the same periods in the prior year, respectively. The increase in financial services income before income taxes for thethree and nine months ended July 31, 2024 compared to the same periods in the prior year was primarily due to an increase in the volume of loans closed and an increase in the average size of the loans settled. In the markets served by our wholly owned mortgage banking subsidiaries, 81.4% and 70.1% of our non-cash homebuyers obtained mortgages originated by these subsidiaries during thethree months ended July 31, 2024 and 2023, respectively, and 79.7% and 67.8% ofour non-cash homebuyers obtained mortgages originated by these subsidiaries during thenine months ended July 31, 2024 and 2023, respectively.

Previous wording

Corporate general and administrative expenses include operations at our headquarters in New Jersey. These expenses include payroll, stock compensation, facility costs and rent and other costs associated with our executive offices, legal expenses, information services, human resources, corporate accounting, training, treasury, process redesign, internal audit, national and digital marketing, construction services and administration of insurance, quality and safety. Corporate general and administrative expenses increased to $32.5 million for thethree months ended April 30, 2024 compared to $25.1 million for thethree months ended April 30, 2023 andincreased to $69.7 million for thesix months ended April 30, 2024 compared to $50.6 million for thesix months ended April 30, 2023. The increase for thethree months ended April 30, 2024 was primarily due to an increase in compensation expense, mainly related to increased headcount and annual merit increases. The increase for the six months ended April 30, 2024 was also impacted by increased expense related to grants of phantom stock awards under our 2019 and 2023 long-term incentive plans, for which expense is impacted by the change in our stock price each period. During the first half of fiscal 2024, equity awards including phantom stock were also granted under a new long-term incentive program, which increased stock compensation expense compared to the first half of fiscal 2023.

Current wording

Corporate general and administrative expenses include operations at our headquarters in New Jersey. These expenses include payroll, stock compensation, facility costs and rent and other costs associated with our executive offices, legal expenses, information services, human resources, corporate accounting, training, treasury, process redesign, internal audit, national and digital marketing, construction services and administration of insurance, quality and safety. Corporate general and administrative expenses increased to $38.5 million for thethree months ended July 31, 2024 compared to $27.4 million for thethree months ended July 31, 2023 andincreased to $108.1 million for thenine months ended July 31, 2024 compared to $77.9 million for thenine months ended July 31, 2023. The increase for thethree months ended July 31, 2024 was primarily due to an increase in compensation expense, mainly related to increased headcount and annual merit increases and by increased expense related to grants of phantom stock awards under our 2019 and 2023 long-term incentive plans, for which expense is impacted by the change in our stock price each period. During the nine months of fiscal 2024, equity awards including phantom stock were also granted under a new long-term incentive program, which increased stock compensation expense compared to the same period in the prior year.

Previous wording

Other interest decreased $5.5 million to $9.0 million for thethree months ended April 30, 2024 anddecreased $10.2 million to $19.4 million for thesix months ended April 30, 2024 compared to the same periods in the prior year, respectively. Our assets that qualify for interest capitalization (inventory under development) are less than our debt, and therefore the portion of interest not covered by qualifying assets is directly expensed. Other interest decreased for thethree and six months ended April 30, 2024, primarily due to a reduction in principal of our senior notes as a result of redemptions during fiscal 2023 and the first quarter of fiscal 2024.

Current wording

Other interest decreased $7.2 million to $6.3 million for thethree months ended July 31, 2024 anddecreased $17.4 million to $25.7 million for thenine months ended July 31, 2024 compared to the same periods in the prior year, respectively. Our assets that qualify for interest capitalization (inventory under development) exceeded our debt during the third quarter of fiscal 2024, therefore, all of the related interest incurred during fiscal 2024 qualified for interest capitalization instead of being directly expensed. Also, contributing to the decrease in Other interest for thethree and nine months ended July 31, 2024, was the reduction in principal of our senior notes as a result of redemptions during fiscal 2023 and the first quarter of fiscal 2024, and the debt exchange executed in the third quarter of fiscal 2024.

Previous wording

On November 15, 2023, K. Hovnanian redeemed in full all of the $113.5 million aggregate principal amount of its 10.0% Senior Secured 1.75 Lien Notes due 2025 for a redemption price of $119.2 million, which included accrued and unpaid interest. This redemption resulted in a gain on extinguishment of debt of $1.4 million for the six months ended April 30, 2024, including the write-off of unamortized premium, debt issuance costs and fees.

Current wording

On November 15, 2023, K. Hovnanian redeemed in full all of the $113.5 million aggregate principal amount of its 10.0% Senior Secured 1.75 Lien Notes due 2025 for a redemption price of $119.2 million, which included accrued and unpaid interest. This redemption resulted in a gain on extinguishment of debt of $1.4 million for the nine months ended July 31, 2024, including the write-off of unamortized premium, debt issuance costs and fees.

Previous wording

Income from unconsolidated joint ventures consists of our share of the earnings or losses of our unconsolidated joint ventures. Income from unconsolidated joint ventures increased $5.8 millionto $11.2 million for thethree months ended April 30, 2024 andincreased $13.5 million to $26.1 million for thesix months ended April 30, 2024 compared to the same periods in the prior year, respectively. The increase for the three and six months ended April 30, 2024 compared to the same periods of the prior year was primarily due to the recognition of additional income from three of our unconsolidated joint ventures; because the joint venture partner achieved certain return hurdles, the Company was able to recognize a higher share of the unconsolidated joint ventures' income than it had in the prior year.

Current wording

Income from unconsolidated joint ventures consists of our share of the earnings or losses of our unconsolidated joint ventures. Income from unconsolidated joint ventures increased $2.3 millionto $10.7 million for thethree months ended July 31, 2024 andincreased $15.8 million to $36.8 million for thenine months ended July 31, 2024 compared to the same periods in the prior year, respectively. The increase for the three and nine months ended July 31, 2024 compared to the same periods of the prior year was primarily due to the recognition of additional income from three of our unconsolidated joint ventures; because the joint venture partner achieved certain return hurdles, the Company was able to recognize a higher share of the unconsolidated joint ventures' income than it had in the prior year.

Previous wording

Income tax expense for thethree and six months ended April 30, 2024 was $18.6 million and $27.2 million, respectively, and $12.0 millionand $11.3 millionfor the same periods in the prior year, respectively. The expense was primarily driven by federal and state tax expense on income before income taxes and permanent differences, partially offset by the generation of energy efficient home tax credits. The federal tax expense is not paid in cash as it is offset by the use of our existing net operating loss carryforwards. Income tax expense for the first half of fiscal 2023 included the benefit of lower income before income taxes and recording more energy efficient home tax credits for the period.

Current wording

Income tax expense for thethree and nine months ended July 31, 2024 was $24.4 million and $51.6 million, respectively, and $14.6 millionand $25.9 millionfor the same periods in the prior year, respectively. For both the three and nine months ended July 31, 2024, and both prior year periods, the expense was primarily driven by federal and state tax expense on income before income taxes and permanent differences, partially offset by the generation of energy efficient home tax credits. Income tax expense for the three and nine months ended July 31, 2024 was impacted by discrete net tax expenses related to the gain on consolidation of a joint venture, cancellation of debt income from the debt exchanges executed in the third quarter of fiscal 2024 and stock-based compensation as a result of current period activity. The state tax expense for the three and nine months ended July 31, 2023 included the release of a valuation allowance as a result of a change in tax law. The federal tax expense is not paid in cash as it is offset by the use of our existing NOL carryforwards.

Previous wording

Our total liquidity at April 30, 2024 was $310.7 million, including $182.0 million in homebuilding cash and cash equivalents and $125.0 million of borrowing capacity under our senior secured revolving credit facility. We believe that our cash on hand together with available borrowings on our senior secured revolving credit facility will be sufficient for at least the next 12 months to finance our working capital requirements.

Current wording

Our total liquidity at July 31, 2024 was $251.3 million, including $122.0 million in homebuilding cash and cash equivalents and $125.0 million of borrowing capacity under our senior secured revolving credit facility. We believe that our cash on hand together with available borrowings on our senior secured revolving credit facility will be sufficient for at least the next 12 months to finance our working capital requirements.

Previous wording

We spent $460.9 million on land and land development during the first half of fiscal 2024, along with $113.5 million for the redemption of our 10.0% Senior Secured 1.75 Lien Notes due 2025. After land and land development spending and all other operating activities, including revenue received from deliveries, cash provided from operations was $0.1 million. During the first half of fiscal 2024, cash used in investing activities was $37.2 million, primarily due to a new joint venture entered into during the second quarter of fiscal 2024, along with spending on capitalized software, partially offset by distributions of capital from existing unconsolidated joint ventures. Cash used in financing activities was $209.5 million during the first half of fiscal 2024, which in addition to the $113.5 million debt redemption mentioned above, was primarily due to net payments related to our mortgage warehouse lines of credit, net payments for land banking financings and model sale leaseback financings, net payments fornonrecourse mortgage financings, treasury stock purchases and the payment of preferred dividends. We intend to continue to use nonrecourse mortgages, model sale leasebacks, joint ventures, and, subject to covenant restrictions in our debt instruments, land banking programs as our business needs dictate.

Current wording

We spent $677.0 million on land and land development during the first three quarters of fiscal 2024, along with $113.5 million for the redemption of our 10.0% Senior Secured 1.75 Lien Notes due 2025. After land and land development spending and all other operating activities, including revenue received from deliveries, cash used in operations was $92.2 million. During the first three quarters of fiscal 2024, cash used in investing activities was $40.3 million, primarily due to a new joint venture entered into during the second quarter of fiscal 2024, along with spending on capitalized software, partially offset by distributions of capital from existing unconsolidated joint ventures. Cash used in financing activities was $161.2 million during the first three quarters of fiscal 2024, which in addition to the $113.5 million debt redemption mentioned above, was primarily due to cash payments of $31.5 million related to the May 2024 debt exchange, net payments fornonrecourse mortgage financings, treasury stock purchases and payments of preferred dividends, partially offset bynet proceeds related to our mortgage warehouse lines of credit, and net proceeds for land banking financings and model sale leaseback financings. We intend to continue to use nonrecourse mortgages, model sale leasebacks, joint ventures, and, subject to covenant restrictions in our debt instruments, land banking programs as our business needs dictate.

Previous wording

Our cash uses during thesix months ended April 30, 2024 and 2023 were for operating expenses, land purchases, land deposits, land development, construction spending, investments in unconsolidated joint ventures, land banking transactions, state income taxes, debt reductions, interest payments, preferred dividends, treasury stock purchases and litigation matters. During these periods, we provided for our cash requirements from available cash on hand, housing and land sales, nonrecourse mortgage transactions, income from unconsolidated joint ventures, financial service revenues and other revenues.

Current wording

Our cash uses during thenine months ended July 31, 2024 and 2023 were for operating expenses, land purchases, land deposits, land development, construction spending, investments in unconsolidated joint ventures, land banking transactions, state income taxes, debt reductions, interest payments, preferred dividends, treasury stock purchases and litigation matters. During these periods, we provided for our cash requirements from available cash on hand, housing and land sales, nonrecourse mortgage transactions, income from unconsolidated joint ventures, financial service revenues and other revenues.

Previous wording

(1)At April 30, 2024, provides for up to $125.0 million in aggregate amount of senior securedfirst* lien revolving loans.The revolving loans thereunder have a maturity of June 30, 2026 and borrowings bear interest, at K. Hovnanian’s option, at either (i) a term secured overnight financing rate (subject to a floor of 3.00%) plus an applicable margin of 4.50% or (ii) an alternate base rate (subject to a floor of 4.00%) plus an applicable margin of 3.50%. In addition, K. Hovnanian will pay an unused commitment fee on the undrawn revolving commitments at a rate of 1.00% per annum.*

Current wording

(2) At July 31, 2024*, provides for up to $125.0 million in aggregate amount of senior securedfirst lien revolving loans.The revolving loans thereunder have a maturity of June 30, 2026 and borrowings bear interest, at K. Hovnanian’*s option, at either (i) a term secured overnight financing rate (subject to a floor of 3.00%) plus an applicable margin of 4.50% or (ii) an alternate base rate (subject to a floor of 4.00%) plus an applicable margin of 3.50%. In addition, K. Hovnanian will pay an unused commitment fee on the undrawn revolving commitments at a rate of 1.00% per annum.

Previous wording

The credit agreements governing the Credit Facilities and the indentures governing the senior secured and senior notes (together with the Credit Facilities, the “Debt Instruments”) outstanding at April 30, 2024 do not contain any financial maintenance covenants, but do contain restrictive covenants that limit, among other things, the ability of HEI and certain of its subsidiaries, including K. Hovnanian, to incur additional indebtedness, pay dividends and make distributions on common and preferred stock, repay/repurchase certain indebtedness prior to its respective stated maturity, repurchase (including through exchanges) common and preferred stock, make other restricted payments (including investments), sell certain assets (including in certain land banking transactions), incur liens, consolidate, merge, sell or otherwise dispose of all or substantially all of their assets and enter into certain transactions with affiliates. The Debt Instruments also contain customary events of default which would permit the lenders or holders thereof to exercise remedies with respect to the collateral (as applicable), declare the loans (the "Unsecured Term Loans") made under the Senior Unsecured Term Loan Credit Facility due February 1, 2027, loans (the "Secured Term Loans") made under the Senior Secured 1.75 Lien Term Loan Credit Facility due January 31, 2028, and loans (the "Secured Revolving Loans") made under the Senior Secured Revolving Credit Agreement due June 30, 2026, or notes to be immediately due and payable if not cured within applicable grace periods, including the failure to make timely payments on the Unsecured Term Loans, Secured Term Loans, Secured Revolving Loans or notes or other material indebtedness, cross default to other material indebtedness, the failure to comply with agreements and covenants and specified events of bankruptcy and insolvency, with respect to the Unsecured Term Loans, Secured Term Loans and Secured Revolving Loans, material inaccuracy of representations and warranties and with respect to the Unsecured Term Loans, Secured Term Loans and Secured Revolving Loans, a change of control, and, with respect to the Secured Term Loans, Secured Revolving Loans and senior secured notes, the failure of the documents granting security for the obligations under the secured Debt Instruments to be in full force and effect, and the failure of the liens on any material portion of the collateral securing the obligations under the secured Debt Instruments to be valid and perfected. As of April 30, 2024, we believe we were in compliance with the covenants of the Debt Instruments.

Current wording

The credit agreements governing the Credit Facilities and the indentures governing the senior secured and senior notes (together with the Credit Facilities, the “Debt Instruments”) outstanding at July 31, 2024 do not contain any financial maintenance covenants, but do contain restrictive covenants that limit, among other things, the ability of HEI and certain of its subsidiaries, including K. Hovnanian, to incur (including through exchange or certain other types of transactions) indebtedness, pay dividends and make distributions on common and preferred stock, repay/repurchase certain indebtedness prior to its respective stated maturity, repurchase common and preferred stock, make other restricted payments (including investments), sell certain assets (including in certain land banking transactions), incur liens, consolidate, merge, sell or otherwise dispose of all or substantially all of their assets and enter into certain transactions with affiliates. The Debt Instruments also contain customary events of default which would permit the lenders or holders thereof to exercise remedies with respect to the collateral (as applicable), declare the loans (the "Unsecured Term Loans") made under the Senior Unsecured Term Loan Credit Facility due February 1, 2027, loans (the "Secured Term Loans") made under the Senior Secured 1.75 Lien Term Loan Credit Facility due January 31, 2028, and loans (the "Secured Revolving Loans") made under the Senior Secured Revolving Credit Agreement due June 30, 2026, or notes to be immediately due and payable if not cured within applicable grace periods, including the failure to make timely payments on the Unsecured Term Loans, Secured Term Loans, Secured Revolving Loans or notes or other material indebtedness, cross default to other material indebtedness, the failure to comply with agreements and covenants and specified events of bankruptcy and insolvency, with respect to the Unsecured Term Loans, Secured Term Loans and Secured Revolving Loans, material inaccuracy of representations and warranties and with respect to the Unsecured Term Loans, Secured Term Loans and Secured Revolving Loans, a change of control, and, with respect to the Secured Term Loans, Secured Revolving Loans and senior secured notes, the failure of the documents granting security for the obligations under the secured Debt Instruments to be in full force and effect, and the failure of the liens on any material portion of the collateral securing the obligations under the secured Debt Instruments to be valid and perfected. As of July 31, 2024, we believe we were in compliance with the covenants of the Debt Instruments.

Previous wording

If our consolidated fixed charge coverage ratio is less than 2.0 to 1.0, as defined in the applicable Debt Instrument, we are restricted from making certain payments and dividends (in the case of certain of such payments, our secured debt leverage ratio must also be less than 4.0 to 1.0), and from incurring indebtedness other than certain permitted indebtedness and nonrecourse indebtedness. Beginning as of October 31, 2021, as a result of our improved operating results, we were no longer restricted from paying dividends. As such, we made dividend payments of $2.7 million to preferred shareholders in every quarter since the first quarter of fiscal 2022. We currently believe our ratios will permit us to continue to make dividend payments on our preferred stock. However, with general economic uncertainty, it is difficult to predict long-term market conditions and the effects on our business and if and when we may be restricted under our Debt Instruments from continuing to pay dividends on our Series A preferred stock. Dividends on the Series A preferred stock are not cumulative and, accordingly, if for any reason we do not declare a dividend on the Series A preferred stock for a quarterly dividend period (regardless of our availability of funds), holders of the Series A Preferred Stock will have no right to receive a dividend for that period, and we will have no obligation to pay a dividend for that period.

Current wording

If our consolidated fixed charge coverage ratio is less than 2.0 to 1.0, as defined in the applicable Debt Instrument, we are restricted from making certain payments and dividends (in the case of certain of such payments, our secured debt leverage ratio must also be less than 4.0 to 1.0), and from incurring indebtedness other than certain permitted indebtedness and nonrecourse indebtedness. Beginning as of October 31, 2021, as a result of our improved operating results, we were no longer restricted from paying dividends. As such, we have made dividend payments of $2.7 million to preferred shareholders in every quarter since the first quarter of fiscal 2022. We currently believe our ratios will permit us to continue to make dividend payments on our preferred stock. However, with general economic uncertainty, it is difficult to predict long-term market conditions and the effects on our business and if and when we may be restricted under our Debt Instruments from continuing to pay dividends on our Series A preferred stock. Dividends on the Series A preferred stock are not cumulative and, accordingly, if for any reason we do not declare a dividend on the Series A preferred stock for a quarterly dividend period (regardless of our availability of funds), holders of the Series A Preferred Stock will have no right to receive a dividend for that period, and we will have no obligation to pay a dividend for that period.

Previous wording

See Notes 12 and 22 to the Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report on Form 10-Qfor a further discussion of K. Hovnanian’s Credit Facilities, senior secured notes and senior notes, including information with respect to the collateral securing our secured Debt Instruments.

Current wording

See Note 12 to the Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report on Form 10-Qfor a further discussion of K. Hovnanian’s Credit Facilities, senior secured notes and senior notes, including information with respect to the collateral securing our secured Debt Instruments.

Previous wording

We have nonrecourse mortgage loans for certain communities totaling $85.6 million and $91.5 million, net of debt issuance costs, at April 30, 2024 and October 31, 2023, respectively, which are secured by the related real property, including any improvements, with an aggregate book value of $261.7 million and $331.6 million, respectively. The weighted-average interest rate on these obligations was 8.8% and 8.5% at April 30, 2024 and October 31, 2023, respectively, and the mortgage loan payments on each community primarily correspond to home deliveries.

Current wording

We have nonrecourse mortgage loans for certain communities totaling $115.4 million and $91.5 million, net of debt issuance costs, at July 31, 2024 and October 31, 2023, respectively, which are secured by the related real property, including any improvements, with an aggregate book value of $336.7 million and $331.6 million, respectively. The weighted-average interest rate on these obligations was 9.1% and 8.5% at July 31, 2024 and October 31, 2023, respectively, and the mortgage loan payments on each community primarily correspond to home deliveries.