Hovnanian Enterprises : Quarterly Report for Quarter Ending July 31, 2026 (Form 10-Q)

About this update from Hovnanian Enterprises, Inc.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Hovnanian Enterprises, Inc. ("HEI") conducts all of its homebuilding and financial services operations through its consolidated subsidiaries (references herein to the "Company," "we," "us" or "our" refer to HEI and its consolidated subsidiaries and should be understood to reflect the consolidated business of HEI's subsidiaries). Key Performance Indicators The following key performance indicators are commonly used in the homebuilding industry and by management as a means to better understand our operating performance and trends affecting our business and compare our performance with the performance of other homebuilders. We believe these key performance indicators also provide useful information to investors in analyzing our performance: ● Net contracts is a volume indicator which represents the number of new contracts executed during the period for the purchase of homes, less cancellations of contracts in the same period. The dollar value of net contracts represents the dollars associated with net contracts executed in the period. These values are an indicator of potential future revenues; ● Contract backlog is a volume indicator which represents the number of homes that are under contract but not yet delivered as of the stated date. The dollar value of contract backlog represents the dollar amount of the homes in contract backlog. These values are an indicator of potential future revenues; ● Active selling communities is a volume indicator which represents the number of communities which are open for sale with ten or more home sites available as of the end of a period. We identify communities based on product type; therefore, at times there are multiple communities at one land site. These values are an indicator of potential revenues; ● Net contracts per active selling community is used to indicate the pace at which homes are being sold (put into contract) in active selling communities and is calculated by dividing the number of net contracts in a period by the number of active selling communities in the same period. Sales pace is an indicator of market strength and demand; and ● Contract cancellation rates is a volume indicator which represents the number of sales contracts cancelled in the period divided by the number of gross sales contracts executed during the period. Contract cancellation rates as a percentage of backlog is calculated by dividing the number of cancelled contracts in the period by the contract backlog at the beginning of the period. Cancellation rates as compared to prior periods can be an indicator of market strength or weakness. On January 1, 2026, we acquired a controlling interest in a previously unconsolidated joint venture in the Kingdom of Saudi Arabia ("KSA"), that operates and markets itself under the trade name HOV Global. Beginning in the first quarter of fiscal 2026, the results from KSA are included in our consolidated financial statements. Consistent with our historical presentation, we will continue to exclude the results of our KSA operations from these key performance indicators generally (unless otherwise indicated) because such operations are not expected to have a material impact on our financial results for fiscal 2026 . Where we have excluded the KSA operations, we refer to such metrics as being for our "domestic" operations. Overview Market Conditions and Operating Results The demand for new and existing homes is dependent on a variety of demographic and economic factors, including job and wage growth, household formation, consumer confidence, mortgage financing, interest rates, inflation and overall housing affordability. During fiscal 2025 and continuing through the first nine months 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. We continue to use our 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. Our focus remains on driving sales pace rather than price. However, higher mortgage rates and concerns about global instability continued to weigh on the housing market contributing to a 4.6% decrease in domestic net contracts in the third quarter of fiscal 2026 compared with the prior year third quarter and a 0.1% decrease for the nine months ended July 31, 2026 compared with the same period in the prior year. During the nine-month period ended July 31, 2026, net contracts varied by month, reflecting changing market conditions and consumer sentiment, including increased buyer hesitancy that we believe was partially attributable to the Iran war. Despite broader political and economic volatility and continued affordability constraints, we raised prices or reduced incentives in approximately 31% of our domestic communities during the third quarter of fiscal 2026 . Although the long-term fundamentals of the new home market remain favorable, significant uncertainty persists due to inflation, tariffs, the potential for an economic recession, employment risk, geopolitical events and the possibility of further increases in mortgage rates. While some supply chain issues continue, we remain focused on shortening construction cycle times and advancing our national initiatives to reduce costs with our materials providers and trade partners. Given changing conditions in the housing market and the broader economy, it remains difficult to predict the extent to which these external factors will affect our business for the remainder of fiscal 2026 and beyond. During the nine months ended July 31, 2026 , our cash position allowed us to spend $644.9 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 $ 379.8 million, including $ 249.1 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, 2026 . Information on our operating results for the three and nine months ended July 31, 2026 are as follows: ● Sale of homes revenues decreased to $ 679.0 million for the three months ended July 31, 2026 from $ 769.1 million for same period in 2025. For the nine months ended July 31, 2026 , sale of homes revenues were $ 1.9 billion compared with $ 2.1 billion in the prior year period. The decreases were primarily due to a 12.0 % decline in home deliveries for both the three and nine month periods of 2026, partially offset by increases in average sales price of 0.4 % and 2.3 %, respectively. ● Gross margin dollars decreased 11.4 % and 28.0 % for the three and nine months ended July 31, 2026 , respectively, compared with the same periods in the prior year, primarily due to a reduction in delivery volume. Gross margin percentage was 11.8 % and 10.8% for the three and nine months ended July 31, 2026 , respectively, compared with 11.7 % and 13.5 % for the corresponding periods in 2025, respectively. Gross margin percentage, before cost of sales interest expense and land charges, decreased to 14.6 % for the three months ended July 31, 2026 from 17.3 % in the prior year period and to 14.2 % for the nine months ended July 31, 2026 from 17.6 % in the prior year period. The decreases were primarily due to increased use of incentives and concessions, including additional mortgage interest rate buydowns, to improve affordability. In the current homebuilding environment, we remain focused on driving financial performance by increasing sales pace rather than achieving a higher gross margin. ● Selling, general and administrative costs, including corporate general and administrative expenses, ("Total SGA") were $ 86.9 million, or 12.3 % of total revenues, for the three months ended July 31, 2026 compared with $ 90.8 million, or 11.3 % of total revenues, in the prior year period. For the nine months ended July 31, 2026, Total SGA was $ 254.9 million, or 12.7 % of total revenues, compared with $ 258.3 million, or 12.0 % of total revenues, in the prior year period. The increase in Total SGA as a percentage of revenues was primarily due to lower sale of homes revenues compared with the prior year periods. ● Loss before income taxes was $ 2.8 million for the three months ended July 31, 2026 compared with income before income taxes of $ 23.8 million in the prior year period. For the nine months ended July 31, 2026, income before income taxes decreased to $ 26.3 million from $ 90.2 million for the same period in the prior year. Net loss available to common stockholders was $4.5 million, or $0.70 per diluted common share, for the three months ended July 31, 2026, compared with net income available to common stockholders of $13.9 million, or $1.99 per diluted common share, for the same period in the prior year. For the nine months ended July 31, 2026, net income available to common shareholders was $10.8 million, or $1.55 per diluted common share, compared with net income available to common stockholders of $56.5 million, or $7.94 per diluted common share, for the same period in the prior year. Basic earnings per share was a loss of $ 0.70 for the three months ended July 31, 2026, compared with basic earnings per share of $ 2.14 in the prior year period. For the nine months ended July 31, 2026, basic earnings per share decreased to $ 1.65 from $ 8.55 in the prior year period. Income before income taxes for the nine months ended July 31, 2026 and 2025 included 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, as well as land sales of $68.2 million and $20.6 million, respectively. ● Net domestic contracts decreased 4.6 % and 0.1 % for the three and nine months ended July 31, 2026 , respectively, compared with the same periods in the prior year. The decreases were primarily driven by more cautious buyer behavior resulting from affordability concerns and an uncertain macroeconomic environment. ● Net domestic contracts per active selling community decreased to 9.4 for the three months ended July 31, 2026 compared to 9.8 for the same period in the prior year and were relatively flat at 31.0 and 30.8 for the nine months ended July 31, 2026 and 2025, respectively. ● Domestic contract backlog increased from 1,491 homes at July 31, 2025 to 1,509 homes at July 31, 2026 , and the dollar value of domestic contract backlog increased to $881.9 million, a 5.1% increase in dollar value compared to the prior year. Although we remain focused on the sale of QMI homes, there has been a subtle shift toward more to-be-built home contracts, which in general have higher gross margins than QMI homes. Results of Operations Total Revenues Compared to the same period in the prior year, revenues (decreased) increased as follows: Three Months Ended Variance 2026 July 31, Compared July 31, (Dollars in thousands) 2026 to 2025 2025 Homebuilding: Sale of homes $ 679,042 $ ( 90,008 ) $ 769,050 Land sales ( 1,183 ) 1,193 Other revenues 3,022 1,248 1,774 Financial services 23,672 ( 4,894 ) 28,566 Total change $ 705,746 $ ( 94,837 ) $ 800,583 Total revenues percent change ( 11.8 ) % Nine Months Ended Variance 2026 July 31, Compared July 31, (Dollars in thousands) 2026 to 2025 2025 Homebuilding: Sale of homes $ 1,858,989 $ ( 207,289 ) $ 2,066,278 Land sales 68,224 47,601 20,623 Other revenue 12,052 5,102 6,950 Financial services 66,078 ( 748 ) 66,826 Total change $ 2,005,343 $ ( 155,334 ) $ 2,160,677 Total revenues percent change ( 7.2 ) % Homebuilding: Sale of Homes For the three months ended July 31, 2026 , sale of homes revenues decreased 11.7 % compared with the prior year period. Sale of homes revenue decreased primarily due to a 12.0% decrease in homes delivered, partially offset by a 0.4% increase in average sales price compared with the prior year period. Average price per home increased to $ 539,350 in the three months ended July 31, 2026 from $ 537,421 in the three months ended July 31, 2025 . For the nine months ended July 31, 2026 , sale of homes revenues decreased 10.0 % compared with the prior year period. Sale of homes revenues decreased primarily due to a 12.0% decrease in homes delivered, partially offset by a 2.3% increase in average sales price compared with the prior year period. Average price per home increased to $ 532,357 in the nine months ended July 31, 2026 from $ 520,473 in the nine months ended July 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. Information on the sale of homes is set forth in the table below: Three Months Ended July 31, Nine Months Ended July 31, (Dollars in thousands, except average sales price) 2026 2025 2026 2025 Consolidated total: Housing revenues $ 679,042 $ 769,050 $ 1,858,989 $ 2,066,278 Homes delivered 1,259 1,431 3,492 3,970 Average sales price $ 539,350 $ 537,421 $ 532,357 $ 520,473 Unconsolidated joint ventures: (1) Housing revenues $ 155,567 $ 165,148 $ 353,872 $ 441,419 Homes delivered Average sales price $ 691,409 $ 671,333 $ 675,328 $ 679,106 (1) Represents housing revenues and home deliveries for our unconsolidated homebuilding joint ventures for the period. We provide this data as a supplement to our consolidated results as an indicator of the volume managed in our unconsolidated joint ventures. See Note 18 to the Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report on Form 10-Q for a further discussion of our unconsolidated joint ventures. Homebuilding: Land Sales and Other Revenues Land sales and other revenues increased $0.1 million and $52.7 million for the three and nine months ended July 31, 2026 , respectively, compared with the same periods in the prior year. Revenue associated with land sales can vary significantly due to the mix of land parcels sold. There were zero and four land sales during the three and nine months ended July 31, 2026 , respectively, and two and five land sales in the three and nine months ended July 31, 2025 , respectively. Land sales revenues decreased $ 1.2 million and increased $ 47.6 million during the three and nine months ended July 31, 2026 , respectively, compared with the same periods in the prior year. Homebuilding: Cost of Sales Cost of sales includes expenses for consolidated housing and land and lot sales, including inventory impairments and land option write-offs (defined as "land charges" in the tables below). A breakout of such expenses for homebuilding and land and lot sales and the gross margins for each is set forth below. Homebuilding gross margin, before cost of sales interest expense and land charges, is a non-GAAP financial measure. This measure should not be considered as an alternative to homebuilding gross margin determined in accordance with U.S. GAAP as an indicator of operating performance. Management believes this non-GAAP measure enables investors to better understand our operating performance. This measure is also useful internally, helping management evaluate our operating results on a consolidated basis and relative to other companies in our industry. In particular, the magnitude and volatility of land charges for the Company, and for other homebuilders, have been significant and, as such, have made comparable financial analysis of our industry more difficult. Homebuilding metrics excluding land charges, as well as interest amortized to cost of sales, and other similar presentations prepared by analysts and other companies are frequently used to assist investors in understanding and comparing the operating characteristics of homebuilding activities by eliminating many of the differences in companies' respective levels of impairments and debt. Three Months Ended Nine Months Ended July 31, July 31, (Dollars in thousands) 2026 2025 2026 2025 Sale of homes $ 679,042 $ 769,050 $ 1,858,989 $ 2,066,278 Cost of sales, excluding interest expense and land charges 579,573 636,015 1,595,651 1,702,360 Homebuilding gross margin, before cost of sales interest expense and land charges 99,469 133,035 263,338 363,918 Cost of sales interest expense, excluding land sales interest expense 19,098 26,868 51,537 65,544 Homebuilding gross margin, after cost of sales interest expense, before land charges 80,371 106,167 211,801 298,374 Land charges 16,045 11,602 20,141 Homebuilding gross margin $ 79,878 $ 90,122 $ 200,199 $ 278,233 Homebuilding gross margin percentage 11.8 % 11.7 % 10.8 % 13.5 % Homebuilding gross margin percentage, before cost of sales interest expense and land charges 14.6 % 17.3 % 14.2 % 17.6 % Homebuilding gross margin percentage, after cost of sales interest expense, before land charges 11.9 % 13.8 % 11.4 % 14.4 % Cost of sales as a percentage of consolidated home sales revenues are presented below: Three Months Ended Nine Months Ended July 31, July 31, 2026 2025 2026 2025 Sale of homes 100.0 % 100.0 % 100.0 % 100.0 % Cost of sales, excluding interest expense and land charges: Housing, land and development costs 73.8 % 71.0 % 73.9 % 71.1 % Commissions 3.3 % 3.2 % 3.2 % 3.2 % Financing concessions 4.6 % 4.4 % 4.3 % 3.8 % Overheads 3.7 % 4.1 % 4.4 % 4.3 % Total cost of sales, excluding interest expense and land charges 85.4 % 82.7 % 85.8 % 82.4 % Cost of sales interest 2.7 % 3.5 % 2.8 % 3.2 % Land charges 0.1 % 2.1 % 0.6 % 0.9 % Homebuilding gross margin percentage 11.8 % 11.7 % 10.8 % 13.5 % Homebuilding gross margin percentage, before cost of sales interest expense and land charges 14.6 % 17.3 % 14.2 % 17.6 % Homebuilding gross margin percentage, after cost of sales interest expense, before land charges 11.9 % 13.8 % 11.4 % 14.4 % We sell a variety of home types across our communities, each yielding a different gross margin. As a result, depending on the mix of communities delivering homes, consolidated gross margin may fluctuate. Total homebuilding gross margin percentage was 11.8 % and 10.8% for the three and nine months ended July 31, 2026 , respectively, compared with 11.7 % and 13.5 % for the prior year periods. Total homebuilding gross margin percentage, before cost of sales interest expense and land charges decreased to 14.6 % and 14.2 % for the three and nine months ended July 31, 2026 , respectively, from 17.3 % and 17.6 % for the corresponding periods in 2025. The slight increase in gross margin percentage for the three months ended July 31, 2026 was primarily due to a modest increase in average price per home. The decrease for the nine months ended July 31, 2026 was primarily due to increased use of incentives and concessions, including additional mortgage interest rate buydowns, to make our homes more affordable. Land and lot sale expenses and gross margins are set forth below: Three Months Ended Nine Months Ended July 31, July 31, (In thousands) 2026 2025 2026 2025 Land and lot sales $ $ 1,193 $ 68,224 $ 20,623 Cost of sales, excluding interest 24,617 10,475 Land and lot sales gross margin, excluding interest 43,607 10,148 Land and lot sales interest expense - - Land and lot sales gross margin, including interest $ $ $ 43,489 $ 9,530 Land sales are ancillary to our homebuilding operations and are expected to continue in the future but may fluctuate significantly. Homebuilding: Inventory Impairments and Land Option Write-Offs Inventory impairments and land option write-offs reflects certain inventories we have either written off or written down to their estimated fair value totaling $ 0.5 million and $ 16.0 million in expense for the three months ended July 31, 2026 and 2025 , respectively, and $ 11.6 million and $ 20.1 million during the nine months ended July 31, 2026 and 2025 , respectively. Inventory impairments amounted to $5.3 million during the nine months ended July 31, 2026 and $7.6 million and $8.8 million during the three and nine months ended July 31, 2025 , respectively. No inventory impairments were recorded during the three months ended July 31, 2026. The impairments recorded for the nine months ended July 31, 2026 related to two communities in the Southeast segment and two communities in the West segment. The impairments recorded for the three and nine months ended July 31, 2025 related to two communities in the Northeast segment and three communities in the West segment. During the first nine months of both fiscal 2026 and 2025, we wrote-off residential land option, approval and engineering costs across each of our segments. Homebuilding: Selling, General and Administrative Homebuilding selling, general and administrative ("SGA") expenses decreased by $ 6.3 million to $ 49.5 million for the three months ended July 31, 2026 and by $ 4.3 million to $ 156.7 million for the nine months ended July 31, 2026 compared with the same periods in the prior year. The decreases were primarily due to a reduction in construction defect reserves based on our annual third-party actuarial analysis of our claims history. Homebuilding: Key Performance Indicators Net Domestic Contracts Per Active Selling Community Net domestic contracts per active selling community were 9.4 and 31.0 for the three and nine months ended July 31, 2026, respectively, compared with 9.8 and 30.8 for the same periods in the prior year. Domestic sales contracts, net of cancellations, continued to be largely driven by customer demand for our available QMI homes. Offering a strong selection of QMI homes enables customers to use available incentives and purchase homes more quickly and affordably. Domestic Contract Cancellation Rates The following table provides historical quarterly cancellation rates, which represents the number of cancelled domestic contracts in the quarter divided by the number of gross domestic sales contracts executed in the quarter, excluding unconsolidated joint ventures: Quarter 2026 2025 2024 2023 2022 First % % % % % Second % % % % % Third % % % % % Fourth % % % % The following table provides quarterly domestic contract cancellations as a percentage of the beginning domestic backlog, excluding unconsolidated joint ventures: Quarter 2026 2025 2024 2023 2022 First % % % % % Second % % % % % Third % % % % % Fourth % % % % 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 because 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. Contract Backlog Our consolidated sales contracts and homes in contract backlog, excluding unconsolidated joint ventures, is set forth below: Net Contracts for the Net Contracts for the Three Months Ended Nine Months Ended Contract Backlog as of July 31, July 31, July 31, (Dollars in thousands) 2026 2025 2026 2025 2026 2025 Northeast: Dollars $ 267,902 $ 226,020 $ 793,811 $ 739,452 $ 486,756 $ 444,862 Number of homes 1,419 1,353 Southeast: Dollars $ 82,767 $ 79,267 $ 255,440 $ 239,237 $ 109,688 $ 130,678 Number of homes West (1): Dollars $ 271,884 $ 314,349 $ 998,065 $ 990,833 $ 285,462 $ 263,272 Number of homes 1,865 2,000 Domestic subtotal: Dollars $ 622,553 $ 619,636 $ 2,047,316 $ 1,969,522 $ 881,906 $ 838,812 Number of homes 1,155 1,211 3,809 3,814 1,509 1,491 KSA: Dollars $ 5,481 $ - $ 9,978 $ - $ 191,445 $ - Number of homes - - - Consolidated total (1): Dollars $ 628,034 $ 619,636 $ 2,057,294 $ 1,969,522 $ 1,073,351 $ 838,812 Number of homes 1,178 1,211 3,851 3,814 2,297 1,491 (1) Excludes eight consolidated homes and $5.0 million of contract backlog related to the assets and liabilities contributed from the West segment to a joint venture we entered into during the three months ended January 31, 2025. Domestic contract backlog dollars increased 5.1% as of July 31, 2026 compared with July 31, 2025 , while the number of homes in domestic backlog increased 1.2%. These increases were driven by a modest decline in QMI home sales, offset by higher to-be-built home sales, which are generally more profitable. Homebuilding: Results by Reportable Segment Financial information relating to our homebuilding operations by reportable segment was as follows: Three Months Ended July 31, (Dollars in thousands, except average sales price) 2026 2025 Variance Variance % Northeast Homebuilding revenue $ 232,559 $ 289,180 $ ( 56,621 ) ( 19.6 ) % Income before income taxes $ 30,741 $ 47,322 $ ( 16,581 ) ( 35.0 ) % Homes delivered ( 56 ) ( 11.7 ) % Average sales price $ 549,121 $ 601,269 $ ( 52,148 ) ( 8.7 ) % Southeast Homebuilding revenue $ 93,345 $ 104,747 $ ( 11,402 ) ( 10.9 ) % Income before income taxes $ $ 7,745 $ ( 7,532 ) ( 97.2 ) % Homes delivered ( 17 ) ( 8.7 ) % Average sales price $ 522,994 $ 535,862 $ ( 12,868 ) ( 2.4 ) % West Homebuilding revenue $ 353,975 $ 377,185 $ ( 23,210 ) ( 6.2 ) % Loss before income taxes $ ( 5,304 ) $ ( 3,179 ) $ ( 2,125 ) ( 66.8 ) % Homes delivered ( 99 ) ( 13.1 ) % Average sales price $ 537,494 $ 497,423 $ 40,071 8.1 % Nine Months Ended July 31, (Dollars in thousands, except average sales price) 2026 2025 Variance Variance % Northeast Homebuilding revenue $ 759,239 $ 830,209 $ ( 70,970 ) ( 8.5 ) % Income before income taxes $ 129,514 $ 127,115 $ 2,399 1.9 % Homes delivered 1,226 1,374 ( 148 ) ( 10.8 ) % Average sales price $ 561,822 $ 601,216 $ ( 39,394 ) ( 6.6 ) % Southeast Homebuilding revenue $ 240,863 $ 231,025 $ 9,838 4.3 % (Loss) income before income taxes $ ( 8,383 ) $ 8,351 $ ( 16,734 ) ( 200.4 ) % Homes delivered 2.8 % Average sales price $ 495,911 $ 488,417 $ 7,494 1.5 % West Homebuilding revenue $ 932,724 $ 1,029,524 $ ( 96,800 ) ( 9.4 ) % (Loss) income before income taxes $ ( 28,022 ) $ 19,234 $ ( 47,256 ) ( 245.7 ) % Homes delivered 1,781 2,124 ( 343 ) ( 16.1 ) % Average sales price $ 521,998 $ 475,364 $ 46,634 9.8 % Northeast - Homebuilding revenue decreased 19.6 % for the three months ended July 31, 2026 compared to the same period in the prior year. The decrease for the three months ended July 31, 2026 was attributed to an 11.7% decrease in homes delivered and an 8.7% decrease in average sales price. The decrease in average sales price was the result of new communities delivering lower priced, smaller single family homes and townhomes in lower-end submarkets of the segment for the three months ended July 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 July 31, 2025, which we are no longer delivering in the current year. Income before income taxes decreased $ 16.6 million to $ 30.7 million for the three months ended July 31, 2026 as compared to the same period in the prior year. This was primarily due to the decrease in homebuilding revenue discussed above and a $3.6 million decrease in income from unconsolidated joint ventures, while gross margin percentage was relatively flat. For a discussion of gross margin see "Homebuilding: Cost of Sales" above. Homebuilding revenue decreased 8.5 % for the nine months ended July 31, 2026 compared to the same period in the prior year. The decrease for the nine months ended July 31, 2026 was attributed to a 10.8% decrease in homes delivered and a 6.6% decrease in average sales price, partially offset by a $66.3 million increase in land sales and other revenue. The decrease in the 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 nine months ended July 31, 2026 compared to some communities delivering higher priced, larger single family homes and townhomes in higher-end submarkets of the segment for the nine months ended July 31, 2025, which we are no longer delivering in the current year. Income before income taxes increased $ 2.4 million to $ 129.5 million for the nine months ended July 31, 2026 as compared to the same period in the prior year. This was primarily due to the $66.3 million increase in land sales and other revenue discussed above, partially offset by a decrease in gross margin percentage. Southeast - Homebuilding revenue decreased 10.9 % for the three months ended July 31, 2026 compared to the same period in the prior year. The decrease for the three months ended July 31, 2026 was attributed to an 8.7% decrease in homes delivered and a 2.4% 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 July 31, 2026 compared to some communities delivering higher priced, larger single family homes in higher-end submarkets of the segment for the three months ended July 31, 2025, which were no longer delivering in the current year. Income before income taxes decreased $ 7.5 million to $ 0.2 million for the three months ended July 31, 2026 compared to the same period in the prior year. This was primarily due to the decrease in homebuilding revenue discussed above, a $2.6 million decrease in income from unconsolidated joint ventures and a decrease in gross margin percentage. For a discussion of gross margin see "Homebuilding: Cost of Sales" above. Homebuilding revenue increased 4.3 % for the nine months ended July 31, 2026 compared to the same period in the prior year. The increase was due to a 2.8% increase in homes delivered and a 1.5% 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 nine months ended July 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 the nine months ended July 31, 2025 , which we are no longer delivering in the current year. Income before income taxes decreased $ 16.7 million to a loss of $ 8.4 million for the nine months ended July 31, 2026 compared to the same period in the prior year. This was primarily due to a $7.7 million decrease in income from unconsolidated joint ventures, a $4.3 million increase in inventory impairments and land option write-offs, along with a decrease in gross margin percentage. For a discussion of gross margin see "Homebuilding: Cost of Sales" above. West - Homebuilding revenue decreased 6.2 % for the three months ended July 31, 2026 compared to the same period in the prior year. The decrease was due to a 13.1% decrease in homes delivered, partially offset by an 8.1% 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 July 31, 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 July 31, 2025 , which we are no longer delivering in the current year. Loss before income taxes increased $ 2.1 million to a loss of $ 5.3 million for the three months ended July 31, 2026 compared to the same period in the prior year. This is primarily due to the decrease in homebuilding revenue discussed above, a $5.9 million increase in loss from unconsolidated joint ventures, partially offset by an increase in gross margin percentage. For a discussion of gross margin see "Homebuilding: Cost of Sales" above. Homebuilding revenue decreased 9.4 % for the nine months ended July 31, 2026 compared to the same period in the prior year. The decrease was due to a 16.1% decrease in homes delivered and a $16.8 million decrease in land sales and other revenue, partially offset by a 9.8% 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 nine months ended July 31, 2026 compared to some communities delivering lower priced, smaller single family homes and townhomes in lower-end submarkets of the segment for the nine months ended July 31, 2025 , which we are no longer delivering in the current year. Income before income taxes decreased $ 47.3 million to a loss of $ 28.0 million for the nine months ended July 31, 2026 compared to the same period in the prior year. This is primarily due to the decrease in homebuilding revenue discussed above, a $13.0 million increase in loss from unconsolidated joint ventures and a decrease in gross margin percentage. For a discussion of gross margin see "Homebuilding: Cost of Sales" above. Financial Services 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 the nine months ended July 31, 2026 and 2025 , Federal Housing Administration and Veterans Administration ("FHA/VA") loans represented 36.4% and 41.0%, respectively, of our total loans. For the nine months ended July 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 58.0% to 62.1%. The origination of loans which exceed conforming conventions increased from 1.0% to 1.5% for the nine months ended July 31, 2026 compared to the same period in the prior year. During the three and nine months ended July 31, 2026 and 2025 , financial services provided $9.7 million and $25.5 million of income before income taxes, respectively, compared to $13.9 million and $25.8 million for the same periods in the prior year. The decrease in financial services income before income taxes for the three and nine months ended July 31, 2026 compared to the same periods in the prior year was primarily due to a decrease in the volume of loans closed. In the markets served by our wholly owned mortgage banking subsidiaries, 84.2% and 80.9% of our non-cash homebuyers obtained mortgages originated by these subsidiaries during the three months ended July 31, 2026 and 2025 , respectively, and 82.5% and 79.9% of our non-cash homebuyers obtained mortgages originated by these subsidiaries during the nine months ended July 31, 2026 and 2025 , respectively. Corporate General and Administrative Corporate general and administrative expenses include costs related to operations at our headquarters in New Jersey and New York, including 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 $ 37.4 million for the three months ended July 31, 2026 from $ 35.0 million in the prior year period and to $ 98.1 million for the nine months ended July 31, 2026 from $ 97.2 million in the prior year period. The increases were primarily due to higher compensation expense, driven mainly by increased headcount and annual merit increases, as well as higher depreciation expense related to completed software projects and certain leasehold improvements depreciated in the current fiscal year. Income from Unconsolidated Joint Ventures Income from unconsolidated joint ventures represents our share of earnings or losses from those ventures. Income from unconsolidated joint ventures decreased $ 12.1 million to $ 3.4 million for the three months ended July 31, 2026, and by $ 28.0 million to $ 5.7 million for the nine months ended July 31, 2026 , compared with the same periods in the prior year. The decreases were primarily due to fewer unconsolidated joint ventures communities open for sale, which resulted in fewer deliveries. In addition, several joint venture communities are in the early stages of development and are incurring typical start-up costs before initial deliveries. Other Interest Other interest increased by $ 4.2 million to $ 11.4 million for the three months ended July 31, 2026 and by $ 10.2 million to $ 36.0 million for the nine months ended July 31, 2026 , compared with the same periods in the prior year. The increases were primarily due to a higher number of communities in planning and increased model lease financing activity during the periods. Income Taxes For the three months ended July 31, 2026 and 2025 , we recorded income tax benefit of $ 0.6 million and income tax expense of $ 7.2 million, respectively. For the nine months ended July 31, 2026 and 2025 , we recorded income tax expense of $ 8.2 million and $ 25.7 million, respectively. The income tax expense or benefit for each period was primarily driven by federal and state taxes on income or loss before income taxes and permanent differences, partially offset by home energy credits. Federal tax expense did not result in cash tax payments because it was offset by the use of our existing NOL carryforwards. Capital Resources and Liquidity Overview Our total liquidity at July 31, 2026 was $379.8 million, including $ 249.1 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. We have historically funded our homebuilding and financial services operations with cash flows from operating activities, borrowings under our credit facilities, the issuance of new debt and equity securities, and other financing activities. We may not be able to obtain desired financing even if market conditions, including then-current market available interest rates (in recent years, we have not been able to access the traditional capital and bank lending markets at competitive interest rates due to our highly leveraged capital structure), would otherwise be favorable, which could impact our ability to grow our business. Operating, Investing and Financing Cash Flow Activities We spent $644.9 million on domestic land and land development during the first three quarters of fiscal 2026 . After land and land development spending and all other operating activities, including revenue received from deliveries, cash from operations was $ 49.8 million. During the first three quarters of fiscal 2026 , cash used in investing activities was $ 38.3 million, primarily due to a new joint venture entered into during the first three quarters of fiscal 2026 , along with spending on capitalized software, partially offset by net cash acquired through acquisitions. Cash used in financing activities was $ 39.1 million during the first three quarters of fiscal 2026 , primarily due to net payments for nonrecourse mortgage financings, net payments for model sale leaseback financings and land bank financings, treasury stock purchases and payments of preferred dividends, partially offset by net proceeds from our mortgage warehouse lines of credit. 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. Our cash uses during the nine months ended July 31, 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. Our net income historically does not approximate cash flow from operating activities. The difference between net income and cash flow from operating activities is primarily caused by changes in inventory levels together with changes in receivables, prepaid expenses and other assets, mortgage loans held for sale, accrued interest, deferred income taxes, accounts payable and other liabilities, and noncash charges relating to depreciation, stock compensation and impairments. When we are expanding our operations, inventory levels, prepaid expenses and other assets increase, causing cash flow from operating activities to decrease. Certain liabilities also increase as operations expand and partially offset the negative effect on cash flow from operations caused by the increase in inventory, prepaid expenses and other assets. Similarly, as our mortgage operations expand, net income from these operations increases, but for cash flow purposes, net income is partially offset by the net change in mortgage assets and liabilities. The opposite is true as our investment in new land purchases and development of new communities decrease, causing us to generate positive cash flow from operations. Debt Transactions Senior notes and credit facilities balances as of July 31, 2026 and October 31, 2025, were as follows: July 31, October 31, (In thousands) 2026 2025 Senior Notes $ 924,968 $ 924,968 Senior Secured Revolving Credit Facility (1) - - Less: Net (discounts), premiums and unamortized debt issuance costs ( 22,476 ) ( 24,250 ) Total senior notes and credit facilities, net of discounts, premiums and unamortized debt issuance costs $ 902,492 $ 900,718 (1) At July 31, 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. 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 July 31, 2026 (collectively, the "Notes Guarantors"). The credit agreement governing the Secured Credit Facility and the indentures governing the senior notes (together, the "Debt Instruments") outstanding at July 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 July 31, 2026 , we believe we were in compliance with the covenants of the Debt Instruments. Under the terms of our Debt Instruments, we have the right to make certain redemptions and prepayments and, depending on market conditions, our strategic priorities and covenant restrictions, may do so from time to time. We also continue to analyze and evaluate our capital structure and explore transactions to strengthen our balance sheet, including those that reduce leverage, interest rates and/or extend maturities, and will seek to do so with the right opportunity. We may also continue to make debt or equity purchases and/or exchanges from time to time through tender offers, exchange offers, redemptions, open market purchases, private transactions, or otherwise, or seek to raise additional debt or equity capital, depending on market conditions and covenant restrictions. Due to covenant restrictions in our Debt Instruments, we may be limited in the amount of debt we can incur, even if market conditions, including then-current market available interest rates (prior to the fourth quarter of fiscal 2025, we had not been able to access the traditional capital and bank lending markets at competitive interest rates for some time due to our highly leveraged capital structure), would otherwise be favorable, which could also impact our ability to grow our business. 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. Mortgages and Notes Payable We had nonrecourse mortgage loans for certain communities totaling $ 32.4 million and $29.5 million, net of debt issuance costs, as of July 31, 2026 and October 31, 2025 , respectively, which are secured by the related real property, including any improvements, with an aggregate book value of $48.0 million and $113.9 million, respectively. The weighted-average interest rate on these obligations was 7.2% and 7.4% at July 31, 2026 and October 31, 2025 , respectively, and the mortgage loan payments primarily correspond to home deliveries. 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 July 31, 2026 and October 31, 2025 , we had an aggregate of $101.7 million and $94.3 million, respectively, outstanding under several of K. Hovnanian Mortgage's short-term borrowing facilities. See Note 11 to the Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report on Form 10-Q for a further discussion of these agreements. Equity On December 18, 2024, our Board of Directors (the "Board") authorized an incremental increase to our repurchase program and on April 11, 2025, the Board authorized another increase to our repurchase program, such that, inclusive of any amounts remaining under the existing repurchase authorization, as of April 11, 2025, we were authorized to repurchase up to $30.6 million of our Class A common stock. On February 27, 2026, the Board further authorized an incremental increase of $50.0 million to our repurchase program, such that, inclusive of any amounts remaining under the existing repurchase authorization, as of February 27, 2026, we were authorized to repurchase up to $67.4 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. During the nine months ended July 31, 2026 , we repurchased 175,905 shares under the stock repurchase program, with a market value of $18.5 million, or $104.98 per share. During the nine months ended July 31, 2025 , we repurchased 257,908 shares under the stock repurchase program, with a market value of $30.1 million, or $116.70 per share. As of July 31, 2026 , $57.9 million of our Class A common stock was available to be purchased under the stock repurchase program. 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 1/1000th 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 each of the three and nine months ended July 31, 2026 and 2025 , respectively. Unconsolidated Joint Ventures We have investments in unconsolidated joint ventures in various markets where we conduct homebuilding operations. Investments in and advances to unconsolidated joint ventures decreased by $ 8.4 million to $ 155.1 million at July 31, 2026 compared with October 31, 2025 . The decrease was primarily due to the consolidation of a previously unconsolidated joint venture and an increase in our share of losses from an existing unconsolidated joint venture, partially offset by a new joint venture entered into during the first quarter of fiscal 2026 and increased income from two existing unconsolidated joint ventures. As of July 31, 2026 and October 31, 2025 , we had investments in five and six unconsolidated homebuilding joint ventures, respectively. Inventories Total inventory, excluding consolidated inventory not owned, increased by $ 141.6 million to $ 1.4 billion at July 31, 2026 compared with October 31, 2025 . The increase included $150.6 million from the acquisition of a controlling interest and the resulting consolidation of KSA, as well as increases of $33.2 million in the Northeast segment and $11.8 million in the West segment. These increases were partially offset by a decrease of $53.9 million in the Southeast segment. The net change in domestic inventory was primarily attributable to home deliveries, inventory impairments and land option write-offs, land sales, and inventory contributed to new unconsolidated joint ventures, partially offset by new land purchases and land development. Substantially all homes under construction or completed and included in inventory at July 31, 2026 are expected to be delivered within the next six to nine months. Consolidated inventory not owned, which consists of options related to land banking and model financing, increased by $15.4 million from October 31, 2025 to July 31, 2026 . The increase was primarily due to higher land banking activity, partially offset by a decrease in sale and leaseback transactions for certain model homes. We have land banking arrangements, whereby we sell land parcels to land bankers and they provide us with an option to purchase finished lots on a predetermined schedule. Because of our options to repurchase these parcels, these transactions are considered a financing rather than a sale. Our Condensed Consolidated Balance Sheet, at July 31, 2026 , included inventory of $285.1 million recorded to "Consolidated inventory not owned," with a corresponding amount of $164.9 million (net of debt issuance costs) recorded to "Liabilities from inventory not owned" for the amount of net cash received from the transactions. In addition, we sell and lease back certain of our model homes with the right to participate in the potential profit when each home is sold to a third-party at the end of the respective lease. As a result of our continued involvement and the ability to repurchase model homes with below market options, these sale and leaseback transactions are considered a financing rather than a sale. Therefore, our Condensed Consolidated Balance Sheet, at July 31, 2026 , included inventory of $63.1 million recorded to "Consolidated inventory not owned," with a corresponding amount of $63.7 million (net of debt issuance costs) recorded to "Liabilities from inventory not owned" for the amount of net cash received from the transactions. The following tables summarize home sites included in our total residential real estate. The slight decrease in total domestic home sites available at July 31, 2026 compared to October 31, 2025 is attributable to delivering homes and terminating certain option agreements, partially offset by acquiring new land parcels during the period. Active Selling Proposed Active Selling Communities Developable Total Communities(1) Homes Homes Homes July 31, 2026: Northeast 4,939 13,159 18,098 Southeast 2,029 4,140 6,169 West 5,549 4,570 10,119 Domestic subtotal 12,517 21,869 34,386 KSA 1,241 1,827 3,068 Consolidated total 13,758 23,696 37,454 Unconsolidated joint ventures (2) 2,297 2,764 Domestic Owned 3,304 1,304 4,608 Domestic Optioned 9,200 20,565 29,765 KSA Owned - KSA Optioned 1,241 1,487 2,728 Construction to permanent financing lots - Consolidated total 13,758 23,696 37,454 Active Selling Proposed Active Selling Communities Developable Total Communities(1) Homes Homes Homes October 31, 2025: Northeast 4,844 14,138 18,982 Southeast 2,218 3,863 6,081 West 6,853 3,969 10,822 Consolidated total 13,915 21,970 35,885 Unconsolidated joint ventures (2) 3,631 2,294 5,925 Owned 3,982 1,514 5,496 Optioned 9,931 20,456 30,387 Construction to permanent financing lots - Consolidated total 13,915 21,970 35,885 (1) Active selling communities are open for sale communities with ten or more home sites available. We identify communities based on product type. Therefore, at times there are multiple communities at one land site. (2) Represents active selling communities and home sites for our unconsolidated homebuilding joint ventures for the period. We provide this data as a supplement to our consolidated results as an indicator of the volume managed in our unconsolidated joint ventures. See Note 18 to the Condensed Consolidated Financial Statements for a further discussion of our unconsolidated joint ventures. The following table summarizes our started or completed unsold homes and models, excluding unconsolidated joint ventures, in substantially completed communities. The decrease in started or completed unsold homes from October 31, 2025 to July 31, 2026 is due to a concerted effort to manage inventory levels by aligning our starts pace with sales pace at each community. July 31, 2026 October 31, 2025 Unsold Unsold Homes Models Total Homes Models Total Northeast Southeast West Domestic total (1) Started or completed unsold homes and models per domestic active selling communities (2) 6.7 0.5 7.2 6.5 0.4 6.9 (1) At July 31, 2026 , KSA had no started unsold homes or models. (2) Domestic active selling communities (which are communities that are open for sale with ten or more home sites available) were 123 at July 31, 2026 and 140 at October 31, 2025. This ratio does not include substantially completed communities, which are communities with less than ten home sites available. Other Balance Sheet Fluctuations Goodwill Goodwill increased to $31.7 million at July 31, 2026 as a result of the acquisition of a controlling interest in KSA during the first quarter of fiscal 2026. No goodwill was recorded at October 31, 2025. See Note 18 to the Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report on Form 10-Q for further details on the KSA purchase price allocation. Customer Deposits Customer deposits increased by $189.0 million to $235.4 million at July 31, 2026 compared with October 31, 2025 . The increase was primarily due to KSA stage payments received as a home is constructed, which are recorded as deferred revenue. Financial Services Assets and Liabilities Financial services assets increased by $ 11.5 million to $ 162.7 million at July 31, 2026 , compared with October 31, 2025 . These assets consist primarily of residential mortgage receivables held for sale, of which $120.5 million and $109.8 million at July 31, 2026 and October 31, 2025 , respectively, were temporarily warehoused pending sale in the secondary mortgage market. The increase in mortgage loans held for sale was primarily due to higher loan origination volume in the third quarter of fiscal 2026 compared with the fourth quarter of fiscal 2025, as well as an increase in average loan value. Financial services liabilities increased by $ 10.8 million to $ 141.7 million at July 31, 2026 compared with October 31, 2025 . The increase was primarily due to higher amounts outstanding under our mortgage warehouse lines of credit, which corresponded with the increase in mortgage loans held for sale during the period. Inflation The annual rate of inflation in the United States was 3.4% in July 2026, as measured by the Consumer Price Index, which is a decrease from April 2026, and much improved from its peak of 9.1% in June 2022. Inflation has a long-term effect, because higher costs for land, materials and labor results in increasing sales prices of our homes. Historically, these price increases have been commensurate with the general rate of inflation in our housing markets and have not had a significant adverse effect on the sale of our homes. A significant risk faced by the housing industry generally is that rising house construction costs, including land and interest costs, could substantially outpace increases in the income of potential purchasers and therefore limit our ability to raise home sale prices, which may result in lower gross margins. Inflation has a lesser short-term effect, because we generally negotiate fixed-price contracts with many, but not all, of our subcontractors and material suppliers for the construction of our homes. These prices usually are applicable for a specified number of residential buildings or for a time period of between three to 12 months. Construction costs for residential buildings represented approximately 48.2% of our homebuilding cost of sales for the nine months ended July 31, 2026 . Critical Accounting Policies As disclosed in our Annual Report on Form 10-K for the fiscal year ended October 31, 2025 , our most critical accounting policies relate to inventories, unconsolidated joint ventures, warranty and construction defect reserves and income taxes. Since October 31, 2025 , there have been no significant changes to those critical accounting policies. Safe Harbor Statement All statements in this Quarterly Report on Form 10-Q that are not historical facts should be considered as "Forward-Looking Statements" within the meaning of the "Safe Harbor" provisions of the Private Securities Litigation Reform Act of 1995. Such statements involve known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Such forward-looking statements include but are not limited to statements related to the Company's goals and expectations with respect to its financial results for future financial periods. Although we believe that our plans, intentions and expectations reflected in, or suggested by, such forward-looking statements are reasonable, we can give no assurance that such plans, intentions or expectations will be achieved. By their nature, forward-looking statements: (i) speak only as of the date they are made, (ii) are not guarantees of future performance or results and (iii) are subject to risks, uncertainties and assumptions that are difficult to predict or quantify. Therefore, actual results could differ materially and adversely from those forward-looking statements as a result of a variety of factors. Such risks, uncertainties and other factors include, but are not limited to: ● Changes in general and local economic, industry and business conditions and impacts of a significant homebuilding downturn; ● Shortages in, and price fluctuations of, raw materials and labor, including due to geopolitical events (such as the Iran war), changes in trade policies, including the imposition of tariffs and duties on homebuilding materials and products, and related trade disputes with, and retaliatory measures taken by other countries, and changes in immigration laws or the enforcement thereof and trends in labor migration; ● Fluctuations in interest rates and the availability of mortgage financing, including as a result of instability in the banking sector; ● Increases in inflation; ● Adverse weather and other environmental conditions and natural or man-made disasters; ● The seasonality of the Company's business; ● The availability and cost of suitable land and improved lots and sufficient liquidity to invest in such land and lots; ● Reliance on, and the performance of, subcontractors; ● Regional and local economic factors, including dependency on certain sectors of the economy, and employment levels affecting home prices and sales activity in the markets where the Company builds homes; ● Increases in cancellations of agreements of sale; ● Changes in tax laws affecting the after-tax costs of owning a home; ● Legal claims brought against us and not resolved in our favor, such as product liability litigation, warranty claims and claims made by mortgage investors; ● Levels of competition; ● Utility shortages and outages or rate fluctuations; ● Information technology failures and data security breaches; ● Negative publicity; ● Global economic and political instability; ● High leverage and restrictions on the Company's operations and activities imposed by the agreements governing the Company's outstanding indebtedness; ● Availability and terms of financing to the Company; ● The Company's sources of liquidity; ● Changes in credit ratings; ● Government regulation, including regulations concerning the development of land, the home building, sales and customer financing processes, tax laws and environmental, health and safety matters; ● Potential liability as a result of the past or present use of hazardous materials; ● Operations through unconsolidated joint ventures with third parties; ● Significant influence of the Company's controlling stockholders; ● Availability of net operating loss carryforwards; and ● Loss of key management personnel or failure to attract qualified personnel. Certain risks, uncertainties and other factors are described in detail in Part I, Item 1 "Business" and Part I, Item 1A "Risk Factors" in our Annual Report on Form 10-K for the fiscal year ended October 31, 2025 . Except as otherwise required by applicable securities laws, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, changed circumstances or any other reason after the date of this Quarterly Report on Form 10-Q.

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