- Q4 Revenue and Margin Performance Achieved $818M in revenue, adjusted gross margin of 16.3%, and adjusted EBITDA of $89M, meeting/exceeding guidance despite 17% YoY revenue decline.
- Margin Pressure from Incentives Adjusted gross margin fell due to 12.2% of average sales price allocated to affordability incentives, a key factor in the 13% delivery reduction.
- Strong Liquidity and Debt Reduction Closed with $4B in liquidity and a 44.2% net debt-to-capital ratio, reflecting $1.3B equity growth and $754M debt reduction over recent years.
- Land Position and Inventory Management Maintains 35,883 controlled lots (6.5-year supply), with 85% under option, and reduced QMI homes by 22% to 907 units by October 2025.
- 2026 Margin Recovery Outlook Expects gross margins to bottom in Q1 2026 (13-14%) and improve, supported by cost discipline and reduced reliance on mortgage rate buydowns over time.
Revenue Decline and Margin Pressure
The total revenues declined by 17% year-over-year, primarily due to a 13% reduction in deliveries and the absence of a significant land sale. The adjusted gross margin decreased, mainly driven by higher incentives offered to support affordability, which accounted for 12.2% of the average sales price. The company used mortgage rate incentives to support sales, with contracts declining by 8% compared to the previous year.
Operational Performance and Land Acquisition
The company had 6.5 quick move-in homes (QMIs) per community, and the number of QMIs decreased by 22% to 907 at the end of October 2025. Hovnanian ended the quarter with 156 communities open for sale and 35,883 controlled lots, equivalent to a 6.5-year supply. The company spent $199 million on land and land development during the quarter, with 85% of lots controlled via options, up from 46% in fiscal 2015.
Balance Sheet and Liquidity
The company finished the quarter with $4 billion in liquidity, well above its targeted range, and a net debt-to-capital ratio of 44.2%. Equity has grown by $1.3 billion, and debt has been reduced by $754 million over the past few years. The recent refinancing has decreased the cost of debt, with all debt, except for the revolving credit facility, being unsecured.
Outlook and Valuation
The company expects its gross margin percentage to bottom in the first quarter of fiscal 2026 and gradually improve in the following quarters. For the first quarter, total revenues are expected to be between $550 million and $650 million, with an adjusted gross margin of 13% to 14%. Analysts estimate next year's revenue growth at 6.7%. With a P/E Ratio of 10.5 and an ROE of 7.75%, the company's valuation appears reasonable. Additionally, the Free Cash Flow Yield is 21.35%, indicating a potentially attractive return for investors.