HOV

Hovnanian Enterprises, Inc. (“HEI”) conducts all of its homebuilding and financial services operations through its 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 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. 30 Table of Contents 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. 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 the second quarter of fiscal 2026. 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. During the six 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. Information on our operating results for the three and six months ended April 30, 2026 are as follows: ● Sale of homes revenues decreased to $604.2 million for the three months ended April 30, 2026 from $650.3 million for the three months ended April 30, 2025, and was $1.2 billion for the six months ended April 30, 2026 and $1.3 billion for the six months ended April 30, 2025. There was an 11.8% and 12.1% decrease in the number of home deliveries for the three 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 the three and six months ended April 30, 2026, respectively, compared to the same periods of the prior year. ● Gross margin dollars decreased 31.0% and 36.0% for the three 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 the three 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 the three months ended April 30, 2026 from 17.3% for the three months ended April 30, 2025 and decreased to 13.9% for the six months ended April 30, 2026 from 17.8% for the six 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. ● 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. ● 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 and decreased 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. 31 Table of Contents ● Net domestic contracts increased 1.0% and 2.0% for the three 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. ● Net domestic contracts per active selling community increased slightly to 11.3 and 21.2 for the three and six months ended April 30, 2026, respectively, compared to 11.2 and 20.8 in the same periods of the prior year. ● 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. Results of Operations Total Revenues Compared to the same period in the prior year, revenues (decreased) increased as follows: Three Months Ended Variance 2026 April 30, Compared April 30, (Dollars in thousands) 2026 to 2025 2025 Homebuilding: Sale of homes $ 604,188 $ (46,126) $ 650,314 Land sales 33,502 20,898 12,604 Other revenues 6,557 4,322 2,235 Financial services 23,398 2,080 21,318 Total change $ 667,645 $ (18,826) $ 686,471 Total revenues percent change (2.7) % Six Months Ended Variance 2026 April 30, Compared April 30, (Dollars in thousands) 2026 to 2025 2025 Homebuilding: Sale of homes $ 1,179,947 $ (117,281) $ 1,297,228 Land sales 68,214 48,784 19,430 Other revenue 9,030 3,854 5,176 Financial services 42,406 4,146 38,260 Total change $ 1,299,597 $ (60,497) $ 1,360,094 Total revenues percent change (4.4) % Homebuilding: Sale of Homes 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 the six 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 the six 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. 32 Table of Contents Information on the sale of homes is set forth in the table below: Three Months EndedApril 30, Six Months Ended April 30, (Dollars in thousands, except average sales price) 2026 2025 2026 2025 Consolidated total: Housing revenues $ 604,188 $ 650,314 $ 1,179,947 $ 1,297,228 Homes delivered 1,134 1,285 2,233 2,539 Average sales price $ 532,794 $ 506,081 $ 528,413 $ 510,921 Unconsolidated joint ventures: (1) Housing revenues $ 125,914 $ 144,495 $ 198,305 $ 276,271 Homes delivered 181 207 299 404 Average sales price $ 695,657 $ 698,043 $ 663,227 $ 683,839 (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 $25.2 million and $52.6 million for the three 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 the three 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 the three and six months ended April 30, 2026, respectively, compared to 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 Six Months Ended April 30, April 30, (Dollars in thousands) 2026 2025 2026 2025 Sale of homes $ 604,188 $ 650,314 $ 1,179,947 $ 1,297,228 Cost of sales, excluding interest expense and land charges 517,665 537,600 1,016,078 1,066,345 Homebuilding gross margin, before cost of sales interest expense and land charges 86,523 112,714 163,869 230,883 Cost of sales interest expense, excluding land sales interest expense 15,872 19,938 32,439 38,676 Homebuilding gross margin, after cost of sales interest expense, before land charges 70,651 92,776 131,430 192,207 Land charges 8,750 3,056 11,109 4,096 Homebuilding gross margin $ 61,901 $ 89,720 $ 120,321 $ 188,111 Homebuilding gross margin percentage 10.2 % 13.8 % 10.2 % 14.5 % Homebuilding gross margin percentage, before cost of sales interest expense and land charges 14.3 % 17.3 % 13.9 % 17.8 % Homebuilding gross margin percentage, after cost of sales interest expense, before land charges 11.7 % 14.3 % 11.1 % 14.8 % 33 Table of Contents Cost of sales as a percentage of consolidated home sales revenues are presented below: Three Months Ended Six Months Ended April 30, April 30, 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 73.9 % 71.5 % 73.9 % 71.2 % Commissions 3.3 % 3.2 % 3.2 % 3.1 % Financing concessions 4.3 % 3.7 % 4.2 % 3.5 % Overheads 4.2 % 4.3 % 4.8 % 4.4 % Total cost of sales, excluding interest expense and land charges 85.7 % 82.7 % 86.1 % 82.2 % Cost of sales interest 2.6 % 3.0 % 2.8 % 3.0 % Land charges 1.5 % 0.5 % 0.9 % 0.3 % Homebuilding gross margin percentage 10.2 % 13.8 % 10.2 % 14.5 % Homebuilding gross margin percentage, before cost of sales interest expense and land charges 14.3 % 17.3 % 13.9 % 17.8 % Homebuilding gross margin percentage, after cost of sales interest expense, before land charges 11.7 % 14.3 % 11.1 % 14.8 % 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 the three 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 the three and six months ended April 30, 2026, respectively, compared to 17.3% and 17.8% for the three and six months ended April 30, 2025, respectively. The decrease in gross margin percentage for the three 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. Land and lot sale expenses and gross margins are set forth below: Three Months Ended Six Months Ended April 30, April 30, (In thousands) 2026 2025 2026 2025 Land and lot sales $ 33,502 $ 12,604 $ 68,214 $ 19,430 Cost of sales, excluding interest 13,396 5,689 24,614 10,234 Land and lot sales gross margin, excluding interest 20,106 6,915 43,600 9,196 Land and lot sales interest expense 94 - 118 618 Land and lot sales gross margin, including interest $ 20,012 $ 6,915 $ 43,482 $ 8,578 Land sales are ancillary to our homebuilding operations and are expected to continue in the future but may fluctuate significantly. 34 Table of Contents 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 $8.8 million and $3.1 million in expense for the three months ended April 30, 2026 and 2025, respectively, and $11.1 million and $4.1 million during the six 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 the three 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. Homebuilding: Selling, General and Administrative Homebuilding selling, general and administrative (“SGA”) expenses increased $5.9 million to $57.0 million for the three 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. Homebuilding: Key Performance Indicators Net Domestic Contracts Per Active Selling Community Net domestic contracts per active selling community for the three 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. 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 14 % 16 % 14 % 30 % 14 % Second 17 % 15 % 14 % 18 % 17 % Third 19 % 17 % 16 % 27 % Fourth 17 % 18 % 25 % 41 % 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 16 % 14 % 10 % 16 % 8 % Second 21 % 15 % 13 % 16 % 9 % Third 17 % 12 % 12 % 8 % Fourth 17 % 15 % 13 % 13 % 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. 35 Table of Contents 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 Six Months Ended Contract Backlog as of April 30, April 30, April 30, (Dollars in thousands) 2026 2025 2026 2025 2026 2025 Northeast: Dollars $ 299,449 $ 261,796 $ 525,909 $ 513,432 $ 451,132 $ 506,850 Number of homes 539 497 951 937 775 824 Southeast: Dollars $ 81,333 $ 83,871 $ 172,673 $ 159,970 $ 120,014 $ 155,904 Number of homes 166 168 348 304 212 266 West (1): Dollars $ 379,146 $ 360,952 $ 726,181 $ 676,484 $ 367,249 $ 325,472 Number of homes 707 733 1,355 1,362 626 621 Domestic subtotal: Dollars $ 759,928 $ 706,619 $ 1,424,763 $ 1,349,886 $ 938,395 $ 988,226 Number of homes 1,412 1,398 2,654 2,603 1,613 1,711 KSA: Dollars $ 4,497 $ - $ 4,497 $ - $ 185,964 $ - Number of homes 19 - 19 - 765 - Consolidated total (1): Dollars $ 764,425 $ 706,619 $ 1,429,260 $ 1,349,886 $ 1,124,359 $ 988,226 Number of homes 1,431 1,398 2,673 2,603 2,378 1,711 (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 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. Homebuilding: Results by Reportable Segment Financial information relating to our homebuilding operations by reportable segment was as follows: Three Months Ended April 30, (Dollars in thousands, except average sales price) 2026 2025 Variance Variance % Northeast Homebuilding revenue $ 252,083 $ 257,281 $ (5,198) (2.0) % Income before income taxes $ 41,010 $ 37,519 $ 3,491 9.3 % Homes delivered 386 450 (64) (14.2) % Average sales price $ 561,435 $ 569,811 $ (8,376) (1.5) % Southeast Homebuilding revenue $ 73,226 $ 74,676 $ (1,450) (1.9) % (Loss) income before income taxes $ (5,054) $ 1,160 $ (6,214) (535.7) % Homes delivered 149 153 (4) (2.6) % Average sales price $ 491,228 $ 487,601 $ 3,627 0.7 % West Homebuilding revenue $ 316,692 $ 332,385 $ (15,693) (4.7) % (Loss) income before income taxes $ (11,323) $ 13,310 $ (24,633) (185.1) % Homes delivered 599 682 (83) (12.2) % Average sales price $ 524,676 $ 468,176 $ 56,500 12.1 % 36 Table of Contents Six Months Ended April 30, (Dollars in thousands, except average sales price) 2026 2025 Variance Variance % Northeast Homebuilding revenue $ 526,680 $ 541,029 $ (14,349) (2.7) % Income before income taxes $ 98,773 $ 79,793 $ 18,980 23.8 % Homes delivered 803 895 (92) (10.3) % Average sales price $ 568,513 $ 601,188 $ (32,675) (5.4) % Southeast Homebuilding revenue $ 147,518 $ 126,278 $ 21,240 16.8 % (Loss) income before income taxes $ (8,596) $ 606 $ (9,202) (1,518.5) % Homes delivered 307 277 30 10.8 % Average sales price $ 480,208 $ 455,018 $ 25,190 5.5 % West Homebuilding revenue $ 578,749 $ 652,339 $ (73,590) (11.3) % (Loss) income before income taxes $ (22,718) $ 22,413 $ (45,131) (201.4) % Homes delivered 1,123 1,367 (244) (17.8) % Average sales price $ 512,918 $ 463,149 $ 49,769 10.7 % Northeast - Homebuilding revenue decreased 2.0% for the three months ended April 30, 2026 compared to the same period in the prior year. The decrease for the three 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 the three 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 the three months ended April 30, 2025, which were no longer delivering in the second quarter of the current year. Income before income taxes increased $3.5 million to $41.0 million for the three 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. Homebuilding revenue decreased 2.7% for the six months ended April 30, 2026 compared to the same period in the prior year. The decrease for the six months ended April 30, 2026 was attributed to a 10.3% decrease in homes delivered and a 5.4% decrease in average sales price, partially offset by a $67.2 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 six 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 the six months ended April 30, 2025, which we are no longer delivering in the current year. Income before income taxes increased $19.0 million to $98.8 million for the six months ended April 30, 2026 as compared to the same period in the prior year. This was primarily due to the $67.2 million increase in land sales and other revenue discussed above, partially offset by a decrease in gross margin percentage. Southeast – Homebuilding revenue decreased 1.9% for the three months ended April 30, 2026 compared to the same period in the prior year. The decrease for the three months ended April 30, 2026 was attributed to a 2.6% decrease in homes delivered, while the average sales price was relatively flat with a 0.7% increase. Income before income taxes decreased $6.2 million to a loss of $5.1 million for the three months ended April 30, 2026 compared to the same period in the prior year. This was primarily due to a $4.0 million increase in inventory impairments and land option write-offs, a $1.8 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 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. Income before income taxes decreased $9.2 million to a loss of $8.6 million for the six months ended April 30, 2026 compared to the same period in the prior year. This was primarily due to a $5.1 million decrease in income from unconsolidated joint ventures, a $5.3 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. 37 Table of Contents West – Homebuilding revenue decreased 4.7% for the three 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. Income before income taxes decreased $24.6 million to a loss of $11.3 million for the three 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. Homebuilding revenue decreased 11.3% for the six months ended April 30, 2026 compared to the same period in the prior year. The decrease was due to a 17.8% decrease in homes delivered and a $16.5 million decrease in land sales and other revenue, partially offset by a 10.7% 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 townhomes 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. 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. 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 six 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 the six 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. During the three 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 the three 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. 38 Table of Contents Corporate General and Administrative 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 the three months ended April 30, 2026 compared to $29.5 million for the three 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. (Loss) Income from Unconsolidated Joint Ventures 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. Other Interest Other interest increased $3.3 million to $12.5 million for the three months ended April 30, 2026 compared to the same quarter of the prior year and increased $6.0 million to $24.6 million for the six 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. Income Taxes 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. Capital Resources and Liquidity Overview 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. 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 $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. Our cash uses during the six 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. 39 Table of Contents 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 April 30, 2026 and October 31, 2025, were as follows: April 30, 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 (23,069) (24,250) Total senior notes and credit facilities, net of discounts, premiums and unamortized debt issuance costs $ 901,899 $ 900,718 (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. 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”). 40 Table of Contents 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. 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 $32.7 million and $29.5 million, net of debt issuance costs, as of April 30, 2026 and October 31, 2025, respectively, which are secured by the related real property, including any improvements, with an aggregate book value of $55.2 million and $113.9 million, respectively. The weighted-average interest rate on these obligations was 7.2% and 7.4% at April 30, 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 April 30, 2026 and October 31, 2025, we had an aggregate of $101.6 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. 41 Table of Contents 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 six months ended April 30, 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 six months ended April 30, 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 April 30, 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 $5.3 million on the Series A preferred stock for each of the three and six months ended April 30, 2026 and 2025, respectively. Unconsolidated Joint Ventures We have investments in unconsolidated joint ventures in various markets where our homebuilding operations are located. Investments in and advances to unconsolidated joint ventures decreased $15.0 million to $148.5 million at April 30, 2026 compared to October 31, 2025. The decrease was primarily due the consolidation of a previously unconsolidated joint venture during the period and an increase in our share of losses recognized for an existing unconsolidated joint venture, partially offset by a new joint venture entered into during the first quarter of fiscal 2026, along with an increase in our share of income recognized for two of our existing unconsolidated joint ventures during the period. As of April 30, 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 $49.9 million to $1.4 billion at April 30, 2026 compared to October 31, 2025. Total inventory, excluding consolidated inventory not owned, increased by $116.5 million from the acquisition of a controlling interest and resulting consolidation of KSA and increased $1.3 million in the West. These increases were partially offset by decreases of $10.4 million in the Northeast and $57.5 million in the Southeast. The net decrease in our 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 during the period, partially offset by new land purchases and land development. Substantially all homes under construction or completed and included in inventory at April 30, 2026 are expected to be delivered during the next six to nine months. Consolidated inventory not owned, which consists of options related to land banking and model financing, increased $36.2 million from October 31, 2025 to April 30, 2026. The increase was primarily due to an increase in land banking transactions, partially offset by a decrease in the sale and leaseback of certain model homes during the period. 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 April 30, 2026, included inventory of $296.1 million recorded to “Consolidated inventory not owned,” with a corresponding amount of $180.2 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 April 30, 2026, included inventory of $73.0 million recorded to “Consolidated inventory not owned,” with a corresponding amount of $73.2 million (net of debt issuance costs) recorded to “Liabilities from inventory not owned” for the amount of net cash received from the transactions. 42 Table of Contents The following tables summarize home sites included in our total residential real estate. The decrease in total domestic home sites available at April 30, 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 April 30, 2026: Northeast 44 4,982 13,864 18,846 Southeast 24 1,840 3,712 5,552 West 57 6,010 3,240 9,250 Domestic subtotal 125 12,832 20,816 33,648 KSA 3 1,241 1,827 3,068 Consolidated total 128 14,073 22,643 36,716 Unconsolidated joint ventures (2) 23 2,522 467 2,989 Domestic Owned 3,440 1,209 4,649 Domestic Optioned 9,376 19,607 28,983 KSA Owned - 340 340 KSA Optioned 1,241 1,487 2,728 Construction to permanent financing lots 16 - 16 Consolidated total 14,073 22,643 36,716 Active Selling Proposed Active Selling Communities Developable Total Communities(1) Homes Homes Homes October 31, 2025: Northeast 46 4,844 14,138 18,982 Southeast 27 2,218 3,863 6,081 West 67 6,853 3,969 10,822 Consolidated total 140 13,915 21,970 35,885 Unconsolidated joint ventures (2) 20 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 2 - 2 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. 43 Table of Contents 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 April 30, 2026 is due to a concerted effort to manage inventory levels by aligning our starts pace with sales pace at each community. April 30, 2026 October 31, 2025 Unsold Unsold Homes Models Total Homes Models Total Northeast 172 17 189 257 23 280 Southeast 127 13 140 125 18 143 West 432 20 452 525 23 548 Domestic total (1) 731 50 781 907 64 971 Started or completed unsold homes and models per domestic active selling communities (2) 5.8 0.4 6.2 6.5 0.4 6.9 (1) At April 30, 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 125 at April 30, 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 April 30, 2026 from October 31, 2025 resulting from the acquisition of a controlling interest in KSA in the first quarter of fiscal 2026. 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. There was no goodwill recorded at October 31, 2025. Customer Deposits Customer deposits increased $159.8 million to $206.1 million at April 30, 2026 compared to October 31, 2025. The increase was primarily due to KSA stage payments that we receive as a home is constructed and recorded as deferred revenue. Financial Services Assets and Liabilities Financial services assets increased $7.3 million to $158.5 million at April 30, 2026, compared to October 31, 2025. Financial services assets consist primarily of residential mortgage receivables held for sale of which $120.4 million and $109.8 million at April 30, 2026 and October 31, 2025, respectively, were being temporarily warehoused and are awaiting sale in the secondary mortgage market. The increase in mortgage loans held for sale from October 31, 2025 was primarily related to an increase in the volume of loans originated during the second quarter of fiscal 2026 compared to the fourth quarter of fiscal 2025 and an increase in the average loan value. Financial services liabilities increased $6.2 million to $137.0 million at April 30, 2026 compared to October 31, 2025. The increase was primarily due to an increase in amounts outstanding under our mortgage warehouse lines of credit and directly correlates to the increase in the volume of mortgage loans held for sale during the period. Inflation The annual rate of inflation in the United States was 3.8% in April 2026, as measured by the Consumer Price Index, which is an increase from January 2026, but 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 47.8% of our homebuilding cost of sales for the six months ended April 30, 2026. 44 Table of Contents 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. 45 Table of Contents