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. 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.

Current wording

During fiscal 2024 and continuing through the first quarter of fiscal 2025, mortgage rates fluctuated, but still remain at a persistently high level. As a result, affordability generally remains challenging for homebuyers. We have stayed aggressive in our pricing, incentives and concessions in order to align with the current market.

Previous wording

We continue to use our increased inventory of quick move-in homes ("QMI homes") to help meet buyers’ needs for more affordable housing in the recent uncertain interest rate environment. The time between contract signing and closing is shorter with a QMI home as compared to a to be built home, which provides customers with more certainty on their mortgage pricing. The availability of QMI homes also allows us to offer mortgage interest rate buydown assistance, which is a tool we offer through our wholly-owned mortgage banking subsidiary ("K. Hovnanian Mortgage"), to help ease the impact of higher monthly payments from rising interest rates. We pay the cost of interest rate buydowns for customers that qualify through K. Hovnanian Mortgage and decide to use the program. The level of interest rate based incentives utilized differs across our markets and isone of several available options we use to drive sales and close homes.

Current wording

We continue to use our increased inventory of quick move-in homes ("QMI homes") to help meet buyers’ needs for more affordable housing in the existing uncertain interest rate environment. The time between contract signing and closing is shorter with a QMI home as compared to a to be built home, which provides customers with more certainty on their mortgage pricing. The availability of QMI homes also allows us to offer mortgage interest rate buydown assistance, which is a tool we offer through our wholly-owned mortgage banking subsidiary ("K. Hovnanian Mortgage"), to help ease the impact of higher monthly payments from rising interest rates. We pay the cost of interest rate buydowns for customers that qualify through K. Hovnanian Mortgage and decide to use the program. The level of interest rate based incentives utilized differs across our markets and isone of several available options we use to drive sales and close homes.

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. 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.

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 a solid demand for our homes in the first quarter of fiscal 2025 as compared to the same period of the prior year, which led to an increase in net contracts, as compared to the first quarter of fiscal 2024. We were able to increasenet prices in approximately 40% of our communities during the first quarter of fiscal 2025.

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, makes 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, tariffs, the continued possibility of an economic recession, employment risk and the potential for further mortgage rate increases. While we continue to experience some 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 2025 and beyond.

Previous 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.

Current wording

Our cash position allowed us to spend $247.6 million on land purchases and land development for long-term growth during thethree months ended January 31, 2025, and still have total liquidity of $222.4 million, including $94.3 million of homebuilding cash and cash equivalents and $125.0 million of borrowing capacity under our senior secured revolving credit facility as of January 31, 2025.

Previous wording

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

Current wording

Information on our operating results for thethree months ended January 31, 2025 are as follows:

Previous 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.

Current wording

● Sale of homes revenues increased to $646.9 million for thethree months ended January 31, 2025 from $573.6 million for thethree months ended January 31, 2024. There was an 18.0%increase in the number of home deliveries for thethree months ended January 31, 2025 compared to the prior year period, partially offset by a decrease in average prices of 4.4% for thethree months ended January 31, 2025 compared to the prior year period. The decrease in average price was the result ofthe geographic and community mix of our deliveries.

Previous wording

● Gross margin dollars increased 3.5% and 9.0% for thethree and nine months ended July 31, 2024, respectively, as compared to the same periods of the prior year, while gross margin percentage decreased from 20.1% forthe three months ended July 31, 2023 to 19.1% forthe three months ended July 31, 2024, and increased slightly from 18.8%for the nine months ended July 31, 2023 to 18.9% for the nine months ended July 31, 2024. Gross margin percentage, before cost of sales interest expense and land charges, decreased from 23.2%for thethree months ended July 31, 2023 to 22.1% for thethree months ended July 31, 2024, and increased from 21.9% for thenine months ended July 31, 2023 to 22.2% for thenine months ended July 31, 2024. The decrease in gross margin percentage for thethree 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.

Current wording

● Gross margin dollars decreased 6.3% for thethree months ended January 31, 2025 as compared to the same period of the prior year, while gross margin percentage decreased to 15.2% forthe three months ended January 31, 2025 from 18.3% forthe three months ended January 31, 2024. Gross margin percentage, before cost of sales interest expense and land charges, decreased to 18.3%for thethree months ended January 31, 2025 from 21.8% for thethree months ended January 31, 2024. The decrease in gross margin percentagewas primarily due to increased use of incentives and concessions, including additional mortgage interest rate buydowns, to make our homes more affordable. In the current homebuilding environment, we remain focused on driving financial performance by increasing our sales pace versus achieving a higher gross margin.

Previous 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.

Current wording

● Selling, general and administrative costs (including corporate general and administrative expenses) ("Total SGA")was $86.9 million, or 12.9% of total revenues, in thethree months ended January 31, 2025 compared with $86.1 million, or 14.5% of total revenues, in thethree months ended January 31, 2024. The decrease in Total SGA percentage is primarily due to the increase in sale of homes revenue for the period.

Previous 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.

Current wording

● Contract backlog decreased from 1,888 homes at January 31, 2024 to 1,598 homes at January 31, 2025, and the dollar value of contract backlog decreased to $931.9 million, a 16.1% 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 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.

Current wording

For thethree months ended January 31, 2025, sale of homes revenues increased 12.8% compared to the same period in the prior year. The sale of homes revenue increased due to a 18.0% increase in homes delivered, partially offset by a 4.4% decrease in the average price per home for thethree months ended January 31, 2025, compared with the prior year period. The average price per home decreased to $515,880 in thethree months ended January 31, 2025 from $539,639 in thethree months ended January 31, 2024. The increase in deliveries was primarily the result of an increase in community count. The decrease 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 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.

Current wording

Land sales and other revenues increased $4.5 million for thethree months ended January 31, 2025, compared to the same period in the prior year. Revenue associated with land sales can vary significantly due to the mix of land parcels sold. There wasone land sale for each of thethree months ended January 31, 2025 and 2024. Land sales revenues increased $5.5 million during thethree months ended January 31, 2025 compared to the same period in the prior year. Other revenues, which includes interest income, decreased due to lower rates on our cash and cash equivalent accounts during the first quarter of fiscal 2025, partially offsetting the increase in land sales revenues.

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 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.

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 15.2% for thethree months ended January 31, 2025, compared to 18.3% for the prior year period. Total homebuilding gross margin percentage, before cost of sales interest expense and land charges decreased to 18.3% for thethree months ended January 31, 2025, compared to 21.8% for thethree months ended January 31, 2024. The decrease in gross margin percentage for thethree months ended January 31, 2025 was primarily due to increased use of incentives and concessions, including additional mortgage interest rate buydowns, to make our homes more affordable.

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 $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.

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 $1.0 million and $0.3 million in expense for thethree months ended January 31, 2025 and 2024, respectively. There were no inventory impairments during either of thethree months ended January 31, 2025 and 2024. We wrote-off residential land option, approval and engineering costs across each of our segments during the first quarter of fiscal 2025, and in our Northeast and Southeast segments during the first quarter of fiscal 2024.

Previous 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.

Current wording

Homebuilding selling, general and administrative (“SGA”) expenses increased $5.3 million to $54.3 million for thethree months ended January 31, 2025 compared to the same period in the prior year. The increase for thethree months ended January 31, 2025 compared to the same period 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 improved overall market conditions and specific company performance.

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 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.

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 thefirst quarter of fiscal 2025 was 14%, 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 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.

Current wording

Contract backlog dollars decreased 16.1% as of January 31, 2025 compared to January 31, 2024, and the number of homes in backlog decreased 15.4%for the same period. The decrease in contract backlog dollars and number of homes as of January 31, 2025 compared to January 31, 2024, was primarily driven by an increase in sales of QMI homes and improved contract backlog conversion.

Previous wording

Northeast - Homebuilding revenue increased 26.5% for thethree months ended July 31, 2024 compared to the same period in the prior year. The increase for thethree months ended July 31, 2024 was attributed to a 13.2% increase in homes delivered and a 12.1% increase in average sales price. The increase in average sales price was theresult of new communities delivering higher priced, larger single family homes andtownhomes in higher-endsubmarkets of the segment for the three months ended July 31, 2024 compared to some communities delivering lower priced, smaller single family homes andtownhomes in lower-endsubmarkets of the segment in the three months ended July 31, 2023, which were no longer delivering in the current year.

Current wording

Northeast - Homebuilding revenue increased 48.2% for thethree months ended January 31, 2025 compared to the same period in the prior year. The increase for thethree months ended January 31, 2025 was attributed to a 34.0% increase in homes delivered and a 10.6% increase in average sales price. The increase in average sales price was theresult of new communities delivering higher priced, larger single family homes, townhomes and condos in higher-endsubmarkets of the segment for the three months ended January 31, 2025 compared to some communities delivering lower priced, smaller single family homes andtownhomes in lower-endsubmarkets of the segment in the three months ended January 31, 2024, which were no longer delivering in the current year.

Previous 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.

Current wording

Southeast – Homebuilding revenue decreased 51.3% for thethree months ended January 31, 2025 compared to the same period in the prior year. The decrease was due toa 36.4% decrease in homes delivered and a 23.4% decrease in average sales price. The decrease in average sales price was the result of new communities delivering lower priced, smaller single family homes in lower-end submarkets of the segment for the three months ended January 31, 2025 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 January 31, 2024, which were no longer delivering in the current year.

Previous wording

Income before income taxes decreased $3.0 million to $20.4 million for thethree months ended July 31, 2024 compared to the same period in the prior year. This was primarily due to the decrease in homebuilding revenue discussed above, a $1.5 million increase in SGA anda $1.1 million decrease in income from unconsolidated joint ventures, while gross margin percentage was relatively flat.

Current wording

Income before income taxes decreased $5.2 million to $9.7 million for thethree months ended January 31, 2025 compared to the same period in the prior year. This was primarily due to the decrease in homebuilding revenue discussed above and a significant decrease in gross margin percentage.

Previous 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%.

Current wording

West – Homebuilding revenue increased 14.9% for thethree months ended January 31, 2025 compared to the same period in the prior year. The increase was due to a $5.7 million increase in land sales and other revenue and a 27.8% increase in homes delivered, while average sales price decreased by 11.7%. The decrease in average sales price was the result of new communities delivering lower priced, smaller single family homes in lower-end submarkets of the segment for the three months ended January 31, 2025 compared to some communities delivering higher priced, larger single family homes in higher-end submarkets of the segment in the three months ended January 31, 2024, which were no longer delivering in the current year.

Previous wording

Income before income taxes decreased $6.9 million to $21.0 million for thethree months ended July 31, 2024 compared to the same period in the prior year. This was primarily due to a $2.8 million increase in inventory impairments and land option write offs and a decrease in gross margin percentage.

Current wording

Income before income taxes decreased $18.0 million to $2.6 million for thethree months ended January 31, 2025 compared to the same period in the prior year. This was primarily due to a $4.4 million increase in SGA and a decrease 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 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.

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 thethree months ended January 31, 2025 and 2024, Federal Housing Administration and Veterans Administration (“FHA/VA”) loans represented 41.1% and 32.5%, respectively, of our total loans. For thethree months ended January 31, 2025 compared to the same period in the prior year, our conforming conventional loan originations as a percentage of our total loans decreased from 67.4% to 58.4%. The origination of loans which exceed conforming conventions increased from 0.1% to 0.5% for thethree months ended January 31, 2025 compared to the same period in the prior year.

Previous 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.

Current wording

During thethree months ended January 31, 2025 and 2024, financial services provided $3.5 million and $3.8 million of income before income taxes, respectively. The decrease in financial services income before income taxes for thethree months ended January 31, 2025 compared to the same period in the prior year was primarily due to a decrease in the basis point spread between the loans originated and the implied rate from our sale of the loans and an increase in commission and total compensation expenses due to the increase in the volume of loans closed during the period. In the markets served by our wholly owned mortgage banking subsidiaries,80.4% and 78.8% of our non-cash homebuyers obtained mortgages originated by these subsidiaries during thethree months ended January 31, 2025 and 2024, 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 $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.

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 decreased to $32.7 million for thethree months ended January 31, 2025 compared to $37.1 million for thethree months ended January 31, 2024. The decrease was primarily due to lower stock compensation expense compared to the same period in the prior year. During the first quarter of fiscal 2024, we had additional expense related to finalizing the value of phantom stock awards granted under our 2019 long-term incentive plan as a result of an increase to our stock price.

Previous 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.

Current wording

Other interest decreased $0.9 million to $9.5 million for thethree months ended January 31, 2025 compared to the same period in the prior year. Our assets that qualify for interest capitalization (inventory under development) exceeded our debt during the first quarter of fiscal 2025, therefore, all of the related interest incurred during the period qualified for interest capitalization instead of being directly expensed.

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 $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.

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 decreased $5.7 millionto $9.2 million for thethree months ended January 31, 2025. The decrease for the three months ended January 31, 2025 compared to the same period of the prior year was primarily due to a decrease in joint venture deliveries and the recognition of income in the first quarter of the prior year period from a joint venture that was subsequently consolidated in fiscal 2024.

Previous 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.

Current wording

For thethree months ended January 31, 2025 and 2024, we recorded income tax expense of $11.7 million and $8.7 million, respectively. In both the current and 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 home credits. 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 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.

Current wording

Our total liquidity at January 31, 2025 was $222.4 million, including $94.3 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 $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.

Current wording

We spent $247.6 million on land and land development during the first quarter of fiscal 2025. After land and land development spending and all other operating activities, including revenue received from deliveries, cash used in operations was $55.9 million. During the first quarter of fiscal 2025, cash used in investing activities was $25.0 million, primarily due to a new joint venture entered into during the first quarter of fiscal 2025, along with spending on capitalized software, partially offset by distributions of capital from existing unconsolidated joint ventures. Cash used in financing activities was $41.6 million during the first quarter of fiscal 2025, primarily due to net payments for our mortgage warehouse lines of credit, net payments fornonrecourse mortgage financings, treasury stock purchases and payments of preferred dividends, partially offset bynet 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 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.

Current wording

Our cash uses during thethree months ended January 31, 2025 and 2024 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

(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.

Current wording

(1)AtJanuary 31, 2025, 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 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.

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 January 31, 2025 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 "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 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 Secured Term Loans and Secured Revolving Loans, material inaccuracy of representations and warranties and with respect to the 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 January 31, 2025, we believe we were in compliance with the covenants of the Debt Instruments.

Previous 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.

Current wording

We had nonrecourse mortgage loans for certain communities totaling $87.6 million and $90.7 million, net of debt issuance costs, at January 31, 2025 and October 31, 2024, respectively, which are secured by the related real property, including any improvements, with an aggregate book value of $219.4 million and $249.7 million, respectively. The weighted-average interest rate on these obligations was 8.2% and 8.7% at January 31, 2025 and October 31, 2024, respectively, and the mortgage loan payments on each community primarily correspond to home deliveries.

Previous wording

Our wholly owned mortgage banking subsidiary, K. Hovnanian American Mortgage, LLC (“K. Hovnanian Mortgage”), originates mortgage loans primarily from the sale of our homes. Such mortgage loans and related servicing rights are sold in the secondary mortgage market within a short period of time. K. Hovnanian Mortgage finances the origination of mortgage loans through various master repurchase agreements, which are recorded in "Financial services" liabilities on the Condensed Consolidated Balance Sheets. The loans are secured by the mortgages held for sale and are repaid when we sell the underlying mortgage loans to permanent investors. As of July 31, 2024 and October 31, 2023, we had an aggregate of $134.4 million and $110.8 million, respectively, outstanding under several of K. Hovnanian Mortgage’s short-term borrowing facilities.

Current wording

Our wholly owned mortgage banking subsidiary, K. Hovnanian Mortgage, originates mortgage loans primarily from the sale of our homes. Such mortgage loans and related servicing rights are sold in the secondary mortgage market within a short period of time. K. Hovnanian Mortgage finances the origination of mortgage loans through various master repurchase agreements, which are recorded in "Financial services" liabilities on the Condensed Consolidated Balance Sheets. The loans are secured by the mortgages held for sale and are repaid when we sell the underlying mortgage loans to permanent investors. As of January 31, 2025 and October 31, 2024, we had an aggregate of $98.6 million and $131.4 million, respectively, outstanding under several of K. Hovnanian Mortgage’s short-term borrowing facilities.

Previous wording

On September 1, 2022, our Board of Directors authorized a repurchase program for up to $50.0 million of our Class A common stock. Under the program, repurchases may be made from time to time in open market transactions, in privately negotiated transactions or otherwise. The timing and the actual dollar amount repurchased will depend on a variety of factors, including legal requirements, price, future tax implications and economic and market conditions. The repurchase program may be changed, suspended or discontinued at any time and does not have a specified expiration date.

Current wording

On September 1, 2022, our Board of Directors (the "Board") authorized a repurchase program for up to $50.0 million of our Class A common stock. Under the program, repurchases may be made from time to time in open market transactions, in privately negotiated transactions or otherwise. As of October 31, 2024, $6.5 million of our Class A common stock was available to be purchased under the stock repurchase program. On December 18, 2024, our Board of Directors authorized an incremental increase to our repurchase program. Under the repurchase program, as increased by the Board of Directors, inclusive of any amounts remaining under the existing repurchase authorization initially authorized by the Board of Directors on September 1, 2022, we are authorized to repurchase up to $26.5 million of our Class A common stock. The timing and the actual dollar amount repurchased will depend on a variety of factors, including legal requirements, price, future tax implications and economic and market conditions. The repurchase program may be changed, suspended or discontinued at any time and does not have a specified expiration date.

Previous wording

During thenine months ended July 31, 2024, we repurchased 188,800 shares under the stock repurchase program, with a market value of $26.5 million, or $140.31 per share, and during thenine months ended July 31, 2023*,* we repurchased 118,478 shares, with a market value of $4.8 million, or $40.51 per share. As of July 31, 2024, $6.5 million of our Class A common stock is available to be purchased under the stock repurchase program.

Current wording

During thethree months ended January 31, 2025, we repurchased 131,460 shares under the stock repurchase program, with a market value of $17.9 million, or $135.95 per share. There were no shares repurchased during thethree months ended January 31, 2024. As of January 31, 2025, $8.6 million of our Class A common stock is available to be purchased under the stock repurchase program.

Previous wording

On July 12, 2005, we issued 5,600 shares of 7.625% Series A preferred stock, with a liquidation preference of $25,000 per share. Dividends on the Series A preferred stock are not cumulative and are payable at an annual rate of 7.625%. The Series A preferred stock is not convertible into the Company’s common stock and is redeemable in whole or in part at our option at the liquidation preference of the shares. The Series A preferred stock is traded as depositary shares, with each depositary share representing 1/1000 th of a share of Series A preferred stock. We paid dividends of $2.7 million and $8.0 million on the Series A preferred stock for the three and nine months ended July 31, 2024 and 2023, respectively.

Current wording

On July 12, 2005, we issued 5,600 shares of 7.625% Series A preferred stock, with a liquidation preference of $25,000 per share. Dividends on the Series A preferred stock are not cumulative and are payable at an annual rate of 7.625%. The Series A preferred stock is not convertible into the Company’s common stock and is redeemable in whole or in part at our option at the liquidation preference of the shares. The Series A preferred stock is traded as depositary shares, with each depositary share representing 1/1000 th of a share of Series A preferred stock. We paid dividends of $2.7 million on the Series A preferred stock for each of thethree months ended January 31, 2025 and 2024, respectively.

Previous wording

We have investments in unconsolidated joint ventures in various markets where our homebuilding operations are located. Investments in and advances to unconsolidated joint ventures increased $28.4 million to $126.3 million at July 31, 2024 compared to October 31, 2023. The increase was primarily due a new joint venture entered into during the second quarter of fiscal 2024, along with increases in our share of income recognized forthree of our existing unconsolidated joint ventures during the period, partially offset by the consolidation of a previously unconsolidated joint venture in the third quarter of fiscal 2024, and partner distributions. As of July 31, 2024 and October 31, 2023, we had investments insix andseven unconsolidated homebuilding joint ventures andone unconsolidated land development joint venture, respectively. We have no guarantees associated with our unconsolidated joint ventures, other than guarantees limited to performance and completion of development activities, environmental indemnification and standard warranty and representation against fraud, misrepresentation and similar actions, including a voluntary bankruptcy.

Current wording

We have investments in unconsolidated joint ventures in various markets where our homebuilding operations are located. Investments in and advances to unconsolidated joint ventures increased $29.8 million to $172.7 million at January 31, 2025 compared to October 31, 2024. The increase was primarily due a new joint venture entered into during the first quarter of fiscal 2025, along with increases in our share of income recognized fortwo of our existing unconsolidated joint ventures during the period, partially offset by an increase in our share of loss recognized for one of our existing unconsolidated joint ventures, and partner distributions. As of January 31, 2025 and October 31, 2024, we had investments inseven andsix unconsolidated homebuilding joint ventures, respectively. We have no guarantees associated with our unconsolidated joint ventures, other than guarantees limited to performance and completion of development activities, environmental indemnification and standard warranty and representation against fraud, misrepresentation and similar actions, including a voluntary bankruptcy.

Previous wording

Total inventory, excluding consolidated inventory not owned, increased $309.6 million to $1.4 billion at July 31, 2024 compared to October 31, 2023. Total inventory, excluding consolidated inventory not owned, increased by $114.2 million in the West, $5.3 million in the Southeast and $190.1 million in the Northeast. The increases were primarily attributable tonew land purchases and land development during the period, partially offset byhome deliveries. In the last few years, we have been able to acquire new land parcels at prices that we believe will generate reasonable returns under current homebuilding market conditions. This trend may not continue in either the near or the long term. Substantially all homes under construction or completed and included in inventory at July 31, 2024 are expected to be delivered during the nextsix tonine months.

Current wording

Total inventory, excluding consolidated inventory not owned, decreased $4.2 million to $1.4 billion at January 31, 2025 compared to October 31, 2024. Total inventory, excluding consolidated inventory not owned, decreased by $14.9 million in the Northeast and $25.6 million in the West, partially offset by an increase of $36.3 million in the Southeast. The net decrease was primarily attributable to home deliveries, along with inventory contributed to a new unconsolidated joint venture, partially offset bynew land purchases and land development during the period. In the last few years, we have been able to acquire new land parcels at prices that we believe will generate reasonable returns under current homebuilding market conditions. This trend may not continue in either the near or the long term. Substantially all homes under construction or completed and included in inventory at January 31, 2025 are expected to be delivered during the nextsix tonine months.