HOVNANIAN ENTERPRISES INC

Previous wording

ITEM2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Current wording

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Previous wording

During fiscal 2025 and continuing through thefirst quarter of fiscal 2026, mortgage rates have 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.

Current wording

During fiscal 2025 and continuing through the first half of fiscal 2026, mortgage rates have 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 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.

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 is one of several available options we use to drive sales and close homes.

Previous wording

Our emphasis on maintaining sales pace versus price, resulted in domestic net contracts increasing by 3.1% in thefirst quarter of fiscal 2026 compared to the prior year first quarter. Although we are off to a better start than last year, net contracts fluctuated from month to month, reflecting ongoing shifts in market conditions and consumer sentiment. Even with the volatility in the broader economy and affordability constraints, we were able to raisenet prices in approximately 32% of our domestic communities during the first quarter of fiscal 2026.

Current wording

Our emphasis on driving sales pace versus price resulted in domestic net contracts increasing by 1.0% in the second quarter of fiscal 2026 compared to the prior year second quarter and 2.0% for the six months ended April 30, 2026 compared to the same period of the prior year. Within the six-month period, net contracts fluctuated from month to month, reflecting ongoing shifts in market conditions and consumer sentiment, including increased hesitancy from buyers, which we believe was partially attributed to the Iran war. Even with the volatility in the broader economy and affordability constraints, we were able to raise prices or decrease incentives in approximately 44% of our domestic communities during thesecond quarter of fiscal 2026.

Previous wording

While the long-term fundamentals of the new home market remain favorable, there 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 2026 and beyond.

Current wording

While the long-term fundamentals of the new home market remain favorable, there remains a great degree of uncertainty due to inflation, tariffs, the continued possibility of an economic recession, employment risk, geopolitical events 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 2026 and beyond.

Previous wording

During thethree months ended January 31, 2026, our cash position allowed us to spend $180.7 million on domestic land purchases and land development for long-term growth and repurchase $9.0 million of our common stockand still have total liquidity of $471.4 million, including $339.9 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, 2026.

Current wording

During thesix months ended April 30, 2026, our cash position allowed us to spend $413.0 million on domestic land purchases and land development for long-term growth and repurchase $18.5 million of our common stock and still have total liquidity of $442.0 million, including $310.9 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, 2026.

Previous wording

Information on our operating results for thethree months ended January 31, 2026 are as follows:

Current wording

Information on our operating results for thethree and six months ended April 30, 2026 are as follows:

Previous wording

● Sale of homes revenues decreased to $575.8 million for thethree months ended January 31, 2026 from $646.9 million for thethree months ended January 31, 2025. There was a 12.4% decrease in the number of home deliveries for thethree months ended January 31, 2026, compared to the same period of the prior year, partially offset by an increase in average price of 1.6% for thethree months ended January 31, 2026, compared to the same period of the prior year.

Current wording

● Sale of homes revenues decreased to $604.2 million for thethree months ended April 30, 2026 from $650.3 million for thethree months ended April 30, 2025, and was $1.2 billion for the six months ended April 30, 2026 and $1.3 billion for thesix months ended April 30, 2025. There was an 11.8% and 12.1% decrease in the number of home deliveries for thethree and six months ended April 30, 2026, respectively, compared to the same periods of the prior year, partially offset by an increase in average price of 5.3% and 3.4% for thethree and six months ended April 30, 2026, respectively, compared to the same periods of the prior year.

Previous wording

● Gross margin dollars decreased 40.6% for thethree months ended January 31, 2026, as compared to the same period of the prior year. Gross margin percentage decreased to 10.1% forthe three months ended January 31, 2026 from 15.2% for the three months ended January 31, 2025. Gross margin percentage, before cost of sales interest expense and land charges, decreased to 13.4%for thethree months ended January 31, 2026 from 18.3% for thethree months ended January 31, 2025. 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.

Current wording

● Gross margin dollars decreased 31.0% and 36.0% for thethree and six months ended April 30, 2026, respectively, as compared to the same periods of the prior year. Gross margin percentage decreased to 10.2% for both thethree and six months ended April 30, 2026 from 13.8% and 14.5% for the three and six months ended April 30, 2025, respectively. Gross margin percentage, before cost of sales interest expense and land charges, decreased to 14.3% for thethree months ended April 30, 2026 from 17.3% for thethree months ended April 30, 2025 and decreased to 13.9% for thesix months ended April 30, 2026 from 17.8% for thesix months ended April 30, 2025. The decrease in gross margin percentage was 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 $84.0 million, or 13.3% of total revenues, in the three months ended January 31, 2026 compared with $86.9 million, or 12.9% of total revenues, in the three months ended January 31, 2025. The increase in Total SGA percentage is primarily due to the decrease in sale of homes revenue for the period.

Current wording

● Selling, general and administrative costs (including corporate general and administrative expenses) ("Total SGA") was $84.0 million, or 12.6% of total revenues, in the three months ended April 30, 2026 compared with $80.6 million, or 11.7% of total revenues, in the three months ended April 30, 2025, and $168.0 million, or 12.9% of total revenues, in the six months ended April 30, 2026 compared with $167.5 million, or 12.3% of total revenues, in the six months ended April 30, 2025. The increase in Total SGA percentage is primarily due to the decrease in sale of homes revenue for the same periods of the prior year.

Previous wording

● Income before income taxes decreased to $28.7 million for the three months ended January 31, 2026 from $39.9 million for the three months ended January 31, 2025. Net income decreased to $20.9 million for the three months ended January 31, 2026 from $28.2 million for the three months ended January 31, 2025. Included in income before income taxes for the three months ended January 31, 2026 and 2025 was a $26.8 million gain on consolidation of joint ventures and a $22.7 million gain on the contribution of assets to a new joint venture, respectively. Earnings per share, basic and diluted, decreased to $2.80 and $2.62, respectively, for the three months ended January 31, 2026 compared to $3.88 and $3.58, respectively, for the three months ended January 31, 2025.

Current wording

● Income before income taxes decreased to $0.3 million for the three months ended April 30, 2026 from $26.5 million for the three months ended April 30, 2025 and decreased to $29.0 million for the six months ended April 30, 2026 from $66.4 million for the six months ended April 30, 2025. Net income decreased to a loss of $0.6 million for the three months ended April 30, 2026 from $19.7 million for the three months ended April 30, 2025 anddecreased to $20.3 million for the six months ended April 30, 2026 from $47.9 million for the six months ended April 30, 2025. Included in income before income taxes for the three months ended April 30, 2026 and 2025 were land sales of $33.5 million and $12.6 million, respectively. Included in income before income taxes for the six months ended April 30, 2026 and 2025 was a $26.8 million gain on consolidation of joint ventures and a $22.7 million gain on the contribution of assets to a new joint venture, respectively, along with land sales of $68.2 million and $19.4 million, respectively. Earnings per share, both basic and diluted, decreased to a loss of $(0.46) for the three months ended April 30, 2026 compared to $2.64 and $2.43, respectively, for the three months ended April 30, 2025. Earnings per share, basic and diluted, decreased to $2.36 and $2.20, respectively, for the six months ended April 30, 2026 compared to $6.53 and $6.02, respectively, for the six months ended April 30, 2025.

Previous wording

● Net domestic contracts increased 3.1% for thethree months ended January 31, 2026 compared to the same period of the prior year. The increase for the three months ended is primarily due to our current strategy of using increased incentives to drive sales pace.

Current wording

● Net domestic contracts increased 1.0% and 2.0% for thethree and six months ended April 30, 2026, respectively, compared to the same periods of the prior year. The increase for the three and six months ended is primarily due to our current strategy of using increased incentives to drive sales pace, although the incentives needed decreased this quarter from the first quarter of fiscal 2026.

Previous wording

● Domestic contract backlog decreased from 1,598 homes at January 31, 2025 to 1,335 homes at January 31, 2026, and the dollar value of domestic contract backlog decreased to $782.7 million, a 16.0% decrease in dollar value compared to the prior year, as our domestic backlog conversion ratio has increased from the prior year period due to increased sales of QMI homes.

Current wording

● Domestic contract backlog decreased from 1,711 homes at April 30, 2025 to 1,613 homes at April 30, 2026, and the dollar value of domestic contract backlog decreased to $938.4 million, a 5.0%decrease in dollar value compared to the prior year, as our domestic backlog conversion ratio has increased from the prior year period due to increased sales of QMI homes that were both sold and delivered within the quarter.

Previous wording

For thethree months ended January 31, 2026, sale of homes revenues decreased 11.0%, respectively, compared to the same period in the prior year. Thesale of homes revenue decreased due to a 12.4% decrease in homes delivered, partially offset by a 1.6% increase in the average price per home for the three months ended January 31, 2026 compared with the prior year period. The average price per home increased to $523,894 in thethree months ended January 31, 2026 from $515,880 in thethree months ended January 31, 2025. 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 the three months ended April 30, 2026, sale of homes revenues decreased 7.1% compared to the same period in the prior year. The sale of homes revenue decreased due to an 11.8% decrease in homes delivered, partially offset by a 5.3% increase in the average price per home for the three months ended April 30, 2026 compared with the prior year period. The average price per home increased to $532,794 in the three months ended April 30, 2026 from $506,081 in the three months ended April 30, 2025. For thesix months ended April 30, 2026, sale of homes revenues decreased 9.0% compared to the same period in the prior year. The sale of homes revenues decreased due to a 12.1% decrease in homes delivered, partially offset by a 3.4% increase in the average price per home for thesix months ended April 30, 2026 compared to the same period in the prior year. The average price per home increased to $528,413 in the six months ended April 30, 2026 from $510,921 in the six months ended April 30, 2025. 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 increased $27.4 million for the three months ended January 31, 2026 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 was oneland sale during both thethree months ended January 31, 2026 and 2025. Land sales revenues increased $27.9 million during thethree months ended January 31, 2026 compared to the same period in the prior year.

Current wording

Land sales and other revenues increased $25.2 million and $52.6 million for thethree and six months ended April 30, 2026, 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 three and four land sales during thethree and six months ended April 30, 2026, respectively, and two and three land sales in the three and six months ended April 30, 2025, respectively. Land sales revenues increased $20.9 million and $48.8 million during thethree and six months ended April 30, 2026, respectively, compared to the same periods in the prior year.

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 10.1% for thethree months ended January 31, 2026, compared to 15.2%for the prior year period. Total homebuilding gross margin percentage, before cost of sales interest expense and land charges decreased to 13.4% for the three months ended January 31, 2026, compared to 18.3% for the three months ended January 31, 2025. The decrease in gross margin percentage for thethree months ended January 31, 2026 was primarily due to increased use of incentives and concessions, including additional mortgage interest rate buydowns, to make our homes more affordable.

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 10.2% for both thethree and six months ended April 30, 2026, compared to 13.8% and 14.5% for the prior year periods. Total homebuilding gross margin percentage, before cost of sales interest expense and land charges decreased to 14.3% and 13.9% for thethree and six months ended April 30, 2026, respectively, compared to 17.3% and 17.8% for thethree and six months ended April 30, 2025, respectively. The decrease in gross margin percentage for thethree and six months ended April 30, 2026 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 $2.4 million and $1.0 million in expense for thethree months ended January 31, 2026 and 2025, respectively. There were no inventory impairments during both the three months ended January 31, 2026 and 2025. We wrote-off residential land option, approval and engineering costs across each of our segments during the first quarters ofboth fiscal 2026 and 2025.

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 $8.8 million and $3.1 million in expense for thethree months ended April 30, 2026 and 2025, respectively, and $11.1 million and $4.1 million during thesix months ended April 30, 2026 and 2025, respectively. Inventory impairments amounted to $5.3 million during both the three and six months ended April 30, 2026 and $1.2 million during both thethree and six months ended April 30, 2025. The impairments recorded for fiscal 2026 were for two communities in the Southeast segment and two communities in the West segment. The impairment recorded for fiscal 2025 was for one community in the Northeast segment. We wrote-off residential land option, approval and engineering costs across each of our segments during the first half of both fiscal 2026 and 2025.

Previous wording

Homebuilding selling, general and administrative (“SGA”) expenses decreased $4.0 million to $50.3 million for thethree months ended January 31, 2026 compared to the same period in the prior year. The decrease for thethree months ended January 31, 2026 compared to the same period in the prior year was primarily due to a decrease in compensation expense as a result of estimating lower fiscal 2026 bonuses, partially offset by the cost of annual merit increases.

Current wording

Homebuilding selling, general and administrative (“SGA”) expenses increased $5.9 million to $57.0 million for thethree months ended April 30, 2026 and increased $2.0 million to $107.3 million for the six months ended April 30, 2026 compared to the same periods in the prior year. The increase for the three and six months ended April 30, 2026 compared to the same periods in the prior year was primarily due to the cost of annual merit increases and a decrease in unconsolidated joint venture deliveries, where we receive a management fee on each delivery, which offsets our SGA expenses incurred with respect to the applicable joint venture.

Previous wording

Net domestic contracts per active selling community for thethree months ended January 31, 2026 were 9.5 compared to 9.6 for the same period in the prior year. Our reported level of domestic sales contracts (net of cancellations) continues to be driven by customer demand for our available QMI homes. This approach of offering a strong selection of QMI homes allows customers to take advantage of available incentives and purchase homes quickly and affordably.

Current wording

Net domestic contracts per active selling community for thethree and six months ended April 30, 2026 were 11.3 and 21.2, respectively, compared to 11.2 and 20.8 for the same periods in the prior year, respectively. Our reported level of domestic sales contracts (net of cancellations) continues to be driven by customer demand for our available QMI homes. This approach of offering a strong selection of QMI homes allows customers to take advantage of available incentives and purchase homes quickly and affordably.

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 first quarter of fiscal 2026 was 16%, which approximates our historical normal rate. Generally, 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 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 than two 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. Generally, 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 still remain uncertain and it is difficult to predict what cancellation rates will be in the future.

Previous wording

Domestic contract backlog dollars decreased 16.0% as of January 31, 2026 compared to January 31, 2025, and the number of homes in domestic backlog decreased 16.5%for the same period. The decrease in domestic contract backlog dollars and number of homes as of January 31, 2026 compared to January 31, 2025, was primarily driven by an increase in sales of QMI homes and improved domestic contract backlog conversion.******

Current wording

Domestic contract backlog dollars decreased 5.0% as of April 30, 2026 compared to April 30, 2025, and the number of homes in domestic backlog decreased 5.7%for the same period. The decrease in domestic contract backlog dollars and number of homes as of April 30, 2026 compared to April 30, 2025, was primarily driven by an increase in sales of QMI homes and improved domestic contract backlog conversion.

Previous wording

Northeast - Homebuilding revenue decreased 3.2% for thethree months ended January 31, 2026 compared to the same period in the prior year. The decrease for thethree months ended January 31, 2026 was attributed to a 6.3% decrease in homes delivered and a 9.1% decrease in average sales price. The decrease in average sales price was the result of new communities delivering lower priced, smaller single family homes, townhomes and affordable-housing homes in lower-end submarkets of the segment for the three months ended January 31, 2026 compared to some communities delivering higher priced, larger single family homes and townhomes in higher-end submarkets of the segment for the three months ended January 31, 2025, which were no longer delivering in the first quarter of the current year.

Current wording

Northeast - Homebuilding revenue decreased 2.0% for thethree months ended April 30, 2026 compared to the same period in the prior year. The decrease for thethree months ended April 30, 2026 was attributed to a 14.2% decrease in homes delivered and a 1.5% decrease in average sales price, partially offset by a $34.5 million increase in land sales and other revenue. 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 thethree months ended April 30, 2026 compared to some communities delivering higher priced, larger single family homes and townhomes in higher-end submarkets of the segment for thethree months ended April 30, 2025, which were no longer delivering in the second quarter of the current year.

Previous wording

Income before income taxes increased $15.5 million to $57.8 million for thethree months ended January 31, 2026 as compared to the same period in the prior year. This was primarily due to a $37.6 million increase in land sales and other revenue, partially offset by a decrease in gross margin percentage. For a discussion of gross margin see “Homebuilding: Cost of Sales” above.

Current wording

Income before income taxes increased $3.5 million to $41.0 million for thethree months ended April 30, 2026 as compared to the same period in the prior year. This was primarily due to the $34.5 million increase in land sales and other revenue, partially offset by a decrease in gross margin percentage. For a discussion of gross margin see “Homebuilding: Cost of Sales” above.

Previous wording

Southeast – Homebuilding revenue increased 44.0% for thethree months ended January 31, 2026 compared to the same period in the prior year. The increase for thethree months ended January 31, 2026 was attributed to a 27.4% increase in homes delivered and a 13.3% increase in average sales price. The increase in average sales price was the result of new communities delivering higher priced, larger single family homes in higher-end submarkets of the segment for thethree months ended January 31, 2026 compared to some communities delivering lower priced, smaller single family homes and build-for-rent homes in lower-end submarkets of the segment for thethree months ended January 31, 2025, which were no longer delivering in the current year.

Current wording

Homebuilding revenue increased 16.8% for the six months ended April 30, 2026 compared to the same period in the prior year. The increase was due to a 10.8% increase in homes delivered and a 5.5% increase in average sales price. The increase in average sales price was the result of new communities delivering higher priced, larger single family homes in higher-end submarkets of the segment for the six months ended April 30, 2026 compared to some communities delivering lower priced, smaller single family homes and build-for-rent homes in lower-end submarkets of the segment for the six months ended April 30, 2025, which we are no longer delivering in the current year.

Previous wording

West – Homebuilding revenue decreased 18.1% for thethree months ended January 31, 2026 compared to the same period in the prior year. The decrease was due to a 23.5% decrease in homes delivered, partially offset by a 9.0% increase in average sales price. The increase in average sales price was the result of new communities delivering higher priced, larger single family homes in higher-end submarkets of the segment for thethree months ended January 31, 2026 compared to some communities delivering lower priced, smaller single family homes and townhomes in lower-end submarkets of the segment for thethree months ended January 31, 2025, which were no longer delivering in the current year.

Current wording

West – Homebuilding revenue decreased 4.7% for thethree months ended April 30, 2026 compared to the same period in the prior year. The decrease was due to a 12.2% decrease in homes delivered and a $10.7 million decrease in land sales and other revenue, partially offset by a 12.1% increase in average sales price. The increase in average sales price was the result of new communities delivering higher priced, larger single family homes in higher-end submarkets of the segment for the three months ended April 30, 2026 compared to some communities delivering lower priced, smaller single family homes and townhomes in lower-end submarkets of the segment for the three months ended April 30, 2025, which we are no longer delivering in the current year.

Previous wording

Income before income taxes decreased $9.6 million to a loss of $3.5 million for thethree months ended January 31, 2026 compared to the same period in the prior year. This was primarily due to a $3.3 million decrease in income from unconsolidated joint ventures, a $1.3 million increase in inventory impairments and land option write-offs, and a decrease in gross margin percentage. For a discussion of gross margin see“Homebuilding: Cost of Sales” above.

Current wording

Income before income taxes decreased $24.6 million to a loss of $11.3 million for thethree months ended April 30, 2026 compared to the same period in the prior year. This is primarily due to the decrease in homebuilding revenue discussed above, a $3.6 million decrease in income from unconsolidated joint ventures, a $3.3 million increase in inventory impairments and land option write-offs and a significant decrease in gross margin percentage. For a discussion of gross margin see “Homebuilding: Cost of Sales” above.

Previous wording

Income before income taxes decreased $13.9 million to a loss of $11.4 million for thethree months ended January 31, 2026 compared to the same period in the prior year. This was primarily due to the decrease in homebuilding revenue discussed above, a $3.5 million decrease in income from unconsolidated joint ventures and a significant decrease in gross margin percentage. For a discussion of gross margin see “Homebuilding: Cost of Sales” above.

Current wording

Income before income taxes decreased $45.1 million to a loss of $22.7 million for the six months ended April 30, 2026 compared to the same period in the prior year. This is primarily due to the decrease in homebuilding revenue discussed above, a $7.1 million decrease in income from unconsolidated joint ventures, a $3.1 million increase in inventory impairments and land option write-offs and a significant decrease in gross margin percentage. For a discussion of gross margin see “Homebuilding: Cost of Sales” above.

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 thethree months ended January 31, 2026 and 2025, Federal Housing Administration and Veterans Administration (“FHA/VA”) loans represented 39.4% and 41.1%, respectively, of our total loans. For the three months ended January 31, 2026 compared to the same period in the prior year, our conforming conventional loan originations as a percentage of our total loans increased from 58.4% to 59.2%. The origination of loans which exceed conforming conventions increased from 0.5% to 1.4% for thethree months ended January 31, 2026 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 thesix months ended April 30, 2026 and 2025, Federal Housing Administration and Veterans Administration (“FHA/VA”) loans represented 35.5% and 40.6%, respectively, of our total loans. For thesix months ended April 30, 2026 compared to the same period in the prior year, our conforming conventional loan originations as a percentage of our total loans increased from 58.5% to 62.9%. The origination of loans which exceed conforming conventions increased from 0.9% to 1.6% for the six months ended April 30, 2026 compared to the same period in the prior year.

Previous wording

During thethree months ended January 31, 2026 and 2025, financial services provided $5.8 million and $3.5 million of income before income taxes, respectively. The increase in financial services income before income taxes for thethree months ended January 31, 2026 compared to the same periods in the prior year was primarily due to an increase in the basis point spread between the loans originated and the implied rate from our sale of the loans. In the markets served by our wholly owned mortgage banking subsidiaries,79.6% and 80.4% of our non-cash homebuyers obtained mortgages originated by these subsidiaries during the three months ended January 31, 2026 and 2025, respectively.

Current wording

During thethree and six months ended April 30, 2026 and 2025, financial services provided $10.0 million and $15.8 million of income before income taxes, respectively, compared to $8.4 million and $11.9 million for the same periods in the prior year. The increase in financial services income before income taxes for thethree and six months ended April 30, 2026 compared to the same periods in the prior year was primarily due to an increase in the basis point spread between the loans originated and the implied rate from our sale of the loans. In the markets served by our wholly owned mortgage banking subsidiaries, 83.6% and 78.1% of our non-cash homebuyers obtained mortgages originated by these subsidiaries during the three months ended April 30, 2026 and 2025, respectively, and 81.6% and 79.2% of our non-cash homebuyers obtained mortgages originated by these subsidiaries during the six months ended April 30, 2026 and 2025, 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 remained relatively flat at $33.7 million for thethree months ended January 31, 2026 compared to $32.7 million for thethree months ended January 31, 2025.

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 $27.0 million for thethree months ended April 30, 2026 compared to $29.5 million for thethree months ended April 30, 2025 and decreased to $60.7 million for the six months ended April 30, 2026 compared to $62.2 million for the six months ended April 30, 2025. The decrease for the three months ended April 30, 2026 was primarily due to a decrease in bonus expense due to lower profitability. The decrease in the six months ended April 30, 2026 compared to the same period in the prior year was primarily due to lower stock compensation expense compared to the same period in the prior year and.

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 decreased $5.8 millionto $3.4 million for thethree months ended January 31, 2026 compared to the same period in the prior year. The decrease was primarily due to less open for sale unconsolidated joint venture communities leading to fewer deliveries.

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 $10.1 million to a loss of $1.1 million for the three months ended April 30, 2026 and decreased $15.9 million to $2.3 million for the six months ended April 30, 2026 compared to the same periods in the prior year. The decrease was primarily due to less open for sale unconsolidated joint venture communities leading to fewer deliveries. Additionally, several joint venture communities are currently in the early stages of development and incurring typical start-up costs ahead of first deliveries.

Previous wording

** Other interest increased $2.6 million to $12.2 million for the three months ended January 31, 2026 compared to the same period of the prior year. The increase in Other interest was primarily due to an increase in communities in planning, along with an increase in model lease financing activities during the period.

Current wording

Other interest increased $3.3 million to $12.5 million for thethree months ended April 30, 2026 compared to the same quarter of the prior year andincreased $6.0 million to $24.6 million for thesix months ended April 30, 2026 compared to the same period of the prior year. Other interest increased primarily due to an increase in communities in planning, along with higher model lease financing activity during the period.

Previous wording

For thethree months ended January 31, 2026 and 2025, we recorded income tax expense of $7.8 million and $11.7 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.

Current wording

For the three months ended April 30, 2026 and 2025, we recorded income tax expense of $0.9 million and $6.8 million, respectively. For the six months ended April 30, 2026 and 2025, we recorded income tax expense of $8.8 million and $18.5 million, respectively. For both the three and six months ended April 30, 2026 and 2025, the expense was primarily due to federal and state tax expense on income (loss) before income taxes and permanent differences, partially offset by energy home credits. 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 January 31, 2026 was $471.4 million, including $339.9 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 April 30, 2026 was $442.0 million, including $310.9 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 $180.7 million on land and land development during the first quarter of fiscal 2026. After land and land development spending and all other operating activities, including revenue received from deliveries, cash from operations was $140.9 million. During the first quarter of fiscal 2026, cash used in investing activities was $29.1 million, primarily due to a new joint venture entered into during the first quarter of fiscal 2026, along with spending on capitalized software, partially offset by net cash acquired through acquisitions. Cash used in financing activities was $52.6 million during the first quarter of fiscal 2026, primarily due to net payments for our mortgage warehouse lines of credit, net payments fornonrecourse mortgage financings, net payments forland banking financings, treasury stock purchases and payments of preferred dividends, partially offset bynet proceeds formodel 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 $413.0 million on domestic land and land development during the first half of fiscal 2026. After land and land development spending and all other operating activities, including revenue received from deliveries, cash from operations was $73.8 million. During the first half of fiscal 2026, cash used in investing activities was $31.3 million, primarily due to a new joint venture entered into during the first half of fiscal 2026, along with spending on capitalized software, partially offset by net cash acquired through acquisitions. Cash used in financing activities was $10.8 million during the first half of fiscal 2026, primarily due to net payments for nonrecourse mortgage financings, net payments for model sale leaseback financings, treasury stock purchases and payments of preferred dividends, partially offset by net proceeds from our mortgage warehouse lines of credit and net proceeds from land banking 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 thethree months ended January 31, 2026 and 2025 were for operating expenses, land purchases, land deposits, land development, construction spending, model sale leasebacks, land banking transactions, state income taxes, interest payments, preferred dividends, equity repurchases, investments in unconsolidated joint ventures and acquisitions. During these periods, we provided for our cash requirements from available cash on hand, home and land sales, nonrecourse mortgage transactions, income from unconsolidated joint ventures, financial service revenues and other revenues.

Current wording

Our cash uses during thesix months ended April 30, 2026 and 2025 were for operating expenses, land purchases, land deposits, land development, construction spending, nonrecourse mortgage transactions, model sale leasebacks, state income taxes, interest payments, preferred dividends, equity repurchases, investments in unconsolidated joint ventures and acquisitions. During these periods, we provided for our cash requirements from available cash on hand, home and land sales, land banking transactions, income from unconsolidated joint ventures, financial service revenues and other revenues.

Previous wording

(1)At January 31, 2026, provides for up to $125.0 million in aggregate amount of senior securedfirst lien revolving loans.The revolving loans under the revolving credit facility have a maturity of June 30, 2028 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 3.00%) 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)At April 30, 2026, provides for up to $125.0 million in aggregate amount of senior secured first lien revolving loans. The revolving loans under the revolving credit facility have a maturity of June 30, 2028 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 3.00%) 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

Except for K. Hovnanian, the issuer of the notes and borrower under the credit agreements governing our secured revolving credit facility (the "Secured Credit Facility"), our home mortgage subsidiaries, certain of our title insurance subsidiaries, joint ventures and subsidiaries holding interests in our joint ventures, we and each of our subsidiaries are guarantors of the Secured Credit Facility and senior notes outstanding at January 31, 2026 (collectively, the “Notes Guarantors”).

Current wording

Except for K. Hovnanian, the issuer of the notes and borrower under the credit agreement governing our secured revolving credit facility (the "Secured Credit Facility"), our home mortgage subsidiaries, certain of our title insurance subsidiaries, joint ventures and subsidiaries holding interests in our joint ventures, we and each of our subsidiaries are guarantors of the Secured Credit Facility and senior notes outstanding at April 30, 2026 (collectively, the “Notes Guarantors”).

Previous wording

The credit agreements governing the Secured Credit Facility and the indentures governing the senior notes (together, the “Debt Instruments”) outstanding at January 31, 2026 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 exchanges 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 Revolving Loans”) made under the Credit Agreement, dated as of October 31, 2019, as amended, by and among K. Hovnanian, the Company, the other guarantors party thereto, Wilmington Trust, National Association, as administrative agent, and the lenders party thereto (the “Secured Credit Agreement”) 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 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 and, with respect to the Secured Revolving Loans, material inaccuracy of representations and warranties, a change of control, the failure of the documents granting security for the obligations under the Secured Credit Agreement 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 Credit Agreement to be valid and perfected. As of January 31, 2026, we believe we were in compliance with the covenants of the Debt Instruments.

Current wording

The credit agreement governing the Secured Credit Facility and the indentures governing the senior notes (together, the “Debt Instruments”) outstanding at April 30, 2026 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 exchanges 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 Revolving Loans”) made under the Credit Agreement, dated as of October 31, 2019, as amended, by and among K. Hovnanian, the Company, the other guarantors party thereto, Wilmington Trust, National Association, as administrative agent, and the lenders party thereto (the “Secured Credit Agreement”) 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 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 and, with respect to the Secured Revolving Loans, material inaccuracy of representations and warranties, a change of control, the failure of the documents granting security for the obligations under the Secured Credit Agreement 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 Credit Agreement to be valid and perfected. As of April 30, 2026, we believe we were in compliance with the covenants of the Debt Instruments.

Previous 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 Debt Instruments, including information with respect to the collateral securing our Secured Credit Agreement.

Current wording

See Note 12 to the Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report on Form 10-Q for a further discussion of K. Hovnanian’s Debt Instruments, including information with respect to the collateral securing our Secured Credit Agreement.