81% Year over Year Increase in Net Contracts
Net Contracts per Community Increased 92% Year over Year
Homebuilding Gross Margin Percentage Improved Sequentially by 230 Basis Points
53% Sequential Growth in Income Before Income Taxes
Redeemed in August $100 Million of Principal Amount of 7.75% Senior Secured Notes Due February 2026
Increased Full Year Guidance
MATAWAN, N.J., Aug. 30, 2023 (GLOBE NEWSWIRE) -- Hovnanian Enterprises, Inc. (: HOV), a leading national homebuilder, reported results for its fiscal third quarter and nine months ended July 31, 2023.
RESULTS FOR THE THREE-MONTH AND NINE-MONTH PERIODS ENDED JULY 31, 2023:
- Total revenues were $650.0 million (including 1,198 homes) in the third quarter of fiscal 2023, compared with $767.6 million (including 1,412 homes) in the same quarter of the prior year. For the nine months ended July 31, 2023, total revenues were $1.87 billion (including 3,361 homes) compared with $2.04 billion (including 3,939 homes) in the first nine months of fiscal 2022.
- Homebuilding gross margin percentage, after cost of sales interest expense and land charges, was 20.1% for the three months ended July 31, 2023, compared with 17.8% for the three months ended April 30, 2023, and 23.1% during the third quarter a year ago. During the first nine months of fiscal 2023, homebuilding gross margin percentage, after cost of sales interest expense and land charges, was 18.8% compared with 22.3% in the same period of the prior fiscal year.
- Homebuilding gross margin percentage, before cost of sales interest expense and land charges, was 23.2% during the fiscal 2023 third quarter compared with 20.9% in the fiscal 2023 second quarter and 26.3% in last year’s third quarter. For the nine months ended July 31, 2023, homebuilding gross margin percentage, before cost of sales interest expense and land charges, was 21.9% compared with 25.3% in the first nine months of the previous fiscal year.
- Total SG&A was $75.1 million, or 11.6% of total revenues, in the third quarter of fiscal 2023 compared with $74.9 million, or 9.8% of total revenues, in the previous year’s third quarter. During the first nine months of fiscal 2023, total SG&A was $224.0 million, or 12.0% of total revenues, compared with $215.3 million, or 10.6% of total revenues, in the same period of the prior fiscal year.
- Total interest expense as a percent of total revenues was 5.0% for the third quarter of fiscal 2023 compared with 4.2% during the third quarter of fiscal 2022. For the nine months ended July 31, 2023, total interest expense as a percent of total revenues was 5.3% compared with 4.6% in the same period of the previous fiscal year.
- Income before income taxes for the third quarter of fiscal 2023 was $70.4 million compared with $46.1 million in the fiscal 2023 second quarter and $111.9 million in the third quarter of the prior fiscal year. For the first nine months of fiscal 2023, income before income taxes was $134.6 million compared with $228.3 million during the first nine months of the prior fiscal year.
- Net income was $55.8 million, or $7.38 per diluted common share, for the three months ended July 31, 2023, compared with net income of $82.6 million, or $10.82 per diluted common share, in the same period of the previous fiscal year. For the first nine months of fiscal 2023, net income was $108.6 million, or $13.97 per diluted common share, compared with net income of $169.9 million, or $21.77 per diluted common share, during the same period of fiscal 2022.
- EBITDA was $104.5 million for the third quarter of fiscal 2023 compared with $86.6 million for the second quarter of fiscal 2023 and $145.5 million in the third quarter of the prior year. For the first nine months of fiscal 2023, EBITDA was $240.6 million compared with $325.6 million in the same period of the prior year.
- Consolidated contracts in the third quarter of fiscal 2023 increased 80.7% to 1,444 homes ($744.2 million) compared with 799 homes ($467.9 million) in the same quarter last year. Contracts, including domestic unconsolidated joint ventures1, for the three months ended July 31, 2023, increased to 1,600 homes ($854.7 million) compared with 914 homes ($549.5 million) in the third quarter of fiscal 2022.
- As of July 31, 2023, consolidated community count decreased to 102 communities, compared with 108 communities on July 31, 2022. Community count, including domestic unconsolidated joint ventures, was 122 as of July 31, 2023, compared with 124 communities at the end of the previous fiscal year’s third quarter.
- Consolidated contracts per community increased 91.9% year-over-year to 14.2 in the third quarter of fiscal 2023 compared with 7.4 contracts per community for the third quarter of fiscal 2022. Contracts per community, including domestic unconsolidated joint ventures, increased 77.0% to 13.1 in the three months ended July 31, 2023 compared with 7.4 contracts per community in the same quarter one year ago.
- The dollar value of consolidated contract backlog, as of July 31, 2023, decreased 26.0% to $1.33 billion compared with $1.79 billion as of July 31, 2022. The dollar value of contract backlog, including domestic unconsolidated joint ventures, as of July 31, 2023, decreased 20.8% to $1.64 billion compared with $2.07 billion as of July 31, 2022.
- The gross contract cancellation rate for consolidated contracts was 16% for the third quarter ended July 31, 2023 compared with 27% in the fiscal 2022 third quarter. The gross contract cancellation rate for contracts, including domestic unconsolidated joint ventures, was 16% for the third quarter of fiscal 2023 compared with 26% in the third quarter of the prior year.
(1)When we refer to “Domestic Unconsolidated Joint Ventures”, we are excluding results from our multi-community unconsolidated joint venture in the Kingdom of Saudi Arabia (KSA).
LIQUIDITY AND INVENTORY AS OF JULY 31, 2023:
During the third quarter of fiscal 2023, land and land development spending was $168.8 million compared with $204.5 million in the same quarter one year ago. For the first nine months of fiscal 2023, land and land development spending was $459.7 million compared with $554.1 million in the same period one year ago.Total liquidity as of July 31, 2023 was $455.5 million, significantly above our targeted liquidity range of $170 million to $245 million.In May of 2023, we redeemed $100 million principal amount of our 7.75% senior secured notes due February 15, 2026 at a purchase price of 101.937% plus accrued and unpaid interest.In August of 2023, we redeemed an additional $100 million principal amount of our 7.75% senior secured notes due February 15, 2026, at a purchase price of 101.937% plus accrued and unpaid interest. We have reduced total debt by $668 million since the beginning of fiscal 2020.In the third quarter of fiscal 2023, approximately 4,100 lots were put under option or acquired in 40 consolidated communities.As of July 31, 2023, our total controlled consolidated lots were 29,487, a decrease compared with 31,913 lots at the end of the third quarter of the previous year and an increase compared to 28,657 lots on April 30, 2023. Based on trailing twelve-month deliveries, the current position equaled a 5.9 years’ supply.FINANCIAL GUIDANCE(2):
The Company is increasing guidance for total revenues, adjusted homebuilding gross margin, adjusted EBITDA, adjusted income before income taxes and fully diluted earnings per share for fiscal 2023. Financial guidance below assumes no adverse changes in current market conditions, including further deterioration in the supply chain, material increase in mortgage rates, or increased inflation and excludes further impact to SG&A expenses from phantom stock expense related solely to stock price movements from the closing price of $106.62 on July 31, 2023.
For fiscal 2023, total revenues are expected to be between $2.6 billion and $2.7 billion, adjusted homebuilding gross margin is expected to be between 22% and 23%, adjusted income before income taxes is expected to be between $215 million and $235 million, adjusted EBITDA is expected to be between $350 million and $370 million and fully diluted earnings per share is expected to be between $21 and $24. At the midpoint of our guidance, we anticipate our common shareholders’ equity to increase by approximately 63% at October 31, 2023 to approximately $67 per share compared to last year’s value at year-end of $41 per share.
(2)The Company cannot provide a reconciliation between its non-GAAP projections and the most directly comparable GAAP measures without unreasonable efforts because it is unable to predict with reasonable certainty the ultimate outcome of certain significant items required for the reconciliation. These items include, but are not limited to, land-related charges, inventory impairments and land option write-offs and loss on extinguishment of debt, net. These items are uncertain, depend on various factors and could have a material impact on GAAP reported results.
COMMENTS FROM MANAGEMENT:
“We are pleased with our third quarter operating performance, adjusted homebuilding gross margin, adjusted EBITDA and adjusted income before income taxes all exceeded the upper end of our guidance,” stated Ara K. Hovnanian, Chairman of the Board, President, and Chief Executive Officer. “Positive demographic and employment trends combined with a low supply of existing homes for sale has resulted in strong demand for newly constructed homes. Despite higher mortgage rates and a challenging affordability atmosphere, the 92% year-over-year improvement in our consolidated contracts per community is a testament to the current robust selling environment, our strong land positions and our exceptional team. Due to the strength of our recent sales pace and margins, we are raising the high end of our 2023 EPS guidance by 20%.”
“After ending the third quarter with $456 million of liquidity, we redeemed $100 million of 7.75% senior secured notes to further reduce our debt. As we move forward, we intend to continue to utilize excess liquidity to reduce debt and grow our land position to increase profitability. Given the strength in the housing market today, we are encouraged that looking forward we believe our year-over-year comparisons for the first quarter of fiscal 2024 should show significant improvements,” concluded Mr. Hovnanian.
SEGMENT CHANGE/RECLASSIFICATION
Historically, the Company had seven reportable segments consisting of six homebuilding segments (Northeast, Mid-Atlantic, Midwest, Southeast, Southwest and West) and its financial services segment. During the fourth quarter of fiscal 2022, we reevaluated our reportable segments as a result of changes in the business and our management thereof. In particular, we considered the fact that, since our segments were last established, the Company had exited the Minnesota, North Carolina, and Tampa markets and is currently in the process of exiting the Chicago market. As a result, we realigned our homebuilding operating segments and determined that, in addition to our financial services segment, we now have three reportable homebuilding segments comprised of (1) Northeast, (2) Southeast and (3) West. All prior period amounts related to the segment change have been retrospectively reclassified to conform to the new presentation.
WEBCAST INFORMATION:
Hovnanian Enterprises will webcast its fiscal 2023 third quarter financial results conference call at 11:00 a.m. E.T. on Wednesday, August 30, 2023. The webcast can be accessed live through the “Investor Relations” section of Hovnanian Enterprises’ website at http://www.khov.com. For those who are not available to listen to the live webcast, an archive of the broadcast will be available under the “Past Events” section of the Investor Relations page on the Hovnanian website at http://www.khov.com. The archive will be available for 12 months.
ABOUT HOVNANIAN ENTERPRISES, INC.:
Hovnanian Enterprises, Inc., founded in 1959 by Kevork S. Hovnanian, is headquartered in Matawan, New Jersey and, through its subsidiaries, is one of the nation’s largest homebuilders with operations in Arizona, California, Delaware, Florida, Georgia, Illinois, Maryland, New Jersey, Ohio, Pennsylvania, South Carolina, Texas, Virginia and West Virginia. The Company’s homes are marketed and sold under the trade name K. Hovnanian® Homes. Additionally, the Company’s subsidiaries, as developers of K. Hovnanian’s® Four Seasons communities, make the Company one of the nation’s largest builders of active lifestyle communities.
Additional information on Hovnanian Enterprises, Inc. can be accessed through the “Investor Relations” section of the Hovnanian Enterprises’ website at http://www.khov.com. To be added to Hovnanian's investor e-mail list, please send an e-mail to [email protected] or sign up at http://www.khov.com.
NON-GAAP FINANCIAL MEASURES:
Consolidated earnings before interest expense and income taxes (“EBIT”) and before depreciation and amortization (“EBITDA”) and before inventory impairments and land option write-offs and loss on extinguishment of debt, net (“Adjusted EBITDA”) are not U.S. generally accepted accounting principles (“GAAP”) financial measures. The most directly comparable GAAP financial measure is net income. The reconciliation for historical periods of EBIT, EBITDA and Adjusted EBITDA to net income is presented in a table attached to this earnings release.
Homebuilding gross margin, before cost of sales interest expense and land charges, and homebuilding gross margin percentage, before cost of sales interest expense and land charges, are non-GAAP financial measures. The most directly comparable GAAP financial measures are homebuilding gross margin and homebuilding gross margin percentage, respectively. The reconciliation for historical periods of homebuilding gross margin, before cost of sales interest expense and land charges, and homebuilding gross margin percentage, before cost of sales interest expense and land charges, to homebuilding gross margin and homebuilding gross margin percentage, respectively, is presented in a table attached to this earnings release.
Adjusted income before income taxes, which is defined as income before income taxes excluding land-related charges and loss on extinguishment of debt, net is a non-GAAP financial measure. The most directly comparable GAAP financial measure is income before income taxes. The reconciliation for historical periods of adjusted income before income taxes to income before income taxes is presented in a table attached to this earnings release.
Total liquidity is comprised of $325.2 million of cash and cash equivalents, $5.3 million of restricted cash required to collateralize letters of credit and $125.0 million availability under the senior secured revolving credit facility as of July 31, 2023.
FORWARD-LOOKING STATEMENTS
All statements in this press release 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 and statements regarding demand for homes, mortgage rates, inflation, supply chain issues, customer incentives and underlying factors. 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, (1) changes in general and local economic, industry and business conditions and impacts of a significant homebuilding downturn; (2) shortages in, and price fluctuations of, raw materials and labor, including due to geopolitical events, 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; (3) fluctuations in interest rates and the availability of mortgage financing, including as a result of bank sector instability; (4) adverse weather and other environmental conditions and natural disasters; (5) the seasonality of the Company’s business; (6) the availability and cost of suitable land and improved lots and sufficient liquidity to invest in such land and lots; (7) reliance on, and the performance of, subcontractors; (8) 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; (9) increases in cancellations of agreements of sale; (10) increases in inflation; (11) changes in tax laws affecting the after-tax costs of owning a home; (12) legal claims brought against us and not resolved in our favor, such as product liability litigation, warranty claims and claims made by mortgage investors; (13) levels of competition; (14) utility shortages and outages or rate fluctuations; (15) information technology failures and data security breaches; (16) negative publicity; (17) high leverage and restrictions on the Company’s operations and activities imposed by the agreements governing the Company’s outstanding indebtedness; (18) availability and terms of financing to the Company; (19) the Company’s sources of liquidity; (20) changes in credit ratings; (21) government regulation, including regulations concerning development of land, the home building, sales and customer financing processes, tax laws and the environment; (22) operations through unconsolidated joint ventures with third parties; (23) significant influence of the Company’s controlling stockholders; (24) availability of net operating loss carryforwards; (25) loss of key management personnel or failure to attract qualified personnel; and (26) certain risks, uncertainties and other factors described in detail in the Company’s Annual Report on Form 10-K for the fiscal year ended October 31, 2022 and the Company’s Quarterly Reports on Form 10-Q for the quarterly periods during fiscal 2023 and subsequent filings with the Securities and Exchange Commission. 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.
Hovnanian Enterprises, Inc.July 31, 2023 Statements of consolidated operations(In thousands, except per share data) Three Months Ended Nine Months Ended July 31, July 31, 2023 2022 2023 2022 (Unaudited) (Unaudited)Total revenues$649,957 $767,593 $1,868,984 $2,035,443 Costs and expenses (1) 583,886 668,223 1,751,311 1,824,294 Loss on extinguishment of debt, net (4,082) - (4,082) (6,795)Income from unconsolidated joint ventures 8,401 12,557 20,969 23,919 Income before income taxes 70,390 111,927 134,560 228,273 Income tax provision 14,626 29,313 25,934 58,416 Net income 55,764 82,614 108,626 169,857 Less: preferred stock dividends 2,669 2,669 8,007 8,007 Net income available to common stockholders$53,095 $79,945 $100,619 $161,850 Per share data: Basic: Net income per common share$7.92 $10.92 $14.97 22.05 Weighted average number of common shares outstanding 6,249 6,485 6,201 6,424 Assuming dilution: Net income per common share$7.38 $10.82 $13.97 $21.77 Weighted average number of common shares outstanding 6,705 6,544 6,642 6,507 (1) Includes inventory impairments and land option write-offs. Hovnanian Enterprises, Inc.July 31, 2023 Reconciliation of income before income taxes excluding land-related charges and loss on extinguishment of debt, net to income before income taxes(In thousands) Three Months Ended Nine Months Ended July 31, July 31, 2023 2022 2023 2022 (Unaudited) (Unaudited)Income before income taxes$70,390 $111,927 $134,560 $228,273 Inventory impairments and land option write-offs 308 1,173 922 1,837 Loss on extinguishment of debt, net 4,082 - 4,082 6,795 Income before income taxes excluding land-related charges and loss on extinguishment of debt, net (1)$74,780 $113,100 $139,564 $236,905 (1) Income before income taxes excluding land-related charges and loss on extinguishment of debt, net is a non-GAAP financial measure. The most directly comparable GAAP financial measure is income before income taxes.CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
(Unaudited) July 31, October 31, 2023 2022 (Unaudited) (1)ASSETS Homebuilding: Cash and cash equivalents $325,182 $326,198 Restricted cash and cash equivalents 8,623 13,382 Inventories: Sold and unsold homes and lots under development 1,049,802 1,058,183 Land and land options held for future development or sale 110,343 152,406 Consolidated inventory not owned 251,115 308,595 Total inventories 1,411,260 1,519,184 Investments in and advances to unconsolidated joint ventures 85,260 74,940 Receivables, deposits and notes, net 33,016 37,837 Property and equipment, net 31,330 25,819 Prepaid expenses and other assets 58,945 63,884 Total homebuilding 1,953,616 2,061,244 Financial services 115,603 155,993 Deferred tax assets, net 324,698 344,793 Total assets $2,393,917 $2,562,030 LIABILITIES AND EQUITY Homebuilding: Nonrecourse mortgages secured by inventory, net of debt issuance costs $129,127 $144,805 Accounts payable and other liabilities 381,761 439,952 Customers’ deposits 63,907 74,020 Liabilities from inventory not owned, net of debt issuance costs 145,979 202,492 Senior notes and credit facilities (net of discounts, premiums and debt issuance costs) 1,044,779 1,146,547 Accrued interest 50,913 32,415 Total homebuilding 1,816,466 2,040,231 Financial services 94,502 135,581 Income taxes payable 434 3,167 Total liabilities 1,911,402 2,178,979 Equity: Hovnanian Enterprises, Inc. stockholders' equity: Preferred stock, $0.01 par value - authorized 100,000 shares; issued and outstanding 5,600 shares with a liquidation preference of $140,000 at July 31, 2023 and October 31, 2022 135,299 135,299 Common stock, Class A, $0.01 par value - authorized 16,000,000 shares; issued 6,247,047 shares at July 31, 2023 and 6,159,886 shares at October 31, 2022 62 62 Common stock, Class B, $0.01 par value (convertible to Class A at time of sale) - authorized 2,400,000 shares; issued 776,750 shares at July 31, 2023 and 733,374 shares at October 31, 2022 8 7 Paid in capital - common stock 731,285 727,663 Accumulated deficit (251,794) (352,413)Treasury stock - at cost – 901,379 shares of Class A common stock at July 31, 2023 and 782,901 shares at October 31, 2022; 27,669 shares of Class B common stock at July 31, 2023 and October 31, 2022 (132,382) (127,582)Total Hovnanian Enterprises, Inc. stockholders’ equity 482,478 383,036 Noncontrolling interest in consolidated joint ventures 37 15 Total equity 482,515 383,051 Total liabilities and equity $2,393,917 $2,562,030 (1) Derived from the audited balance sheet as of October 31, 2022
HOVNANIAN ENTERPRISES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
(3) Represents home deliveries, home revenues and average prices 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 homebuilding joint ventures. Our proportionate share of the income or loss of unconsolidated homebuilding and land development joint ventures is reflected as a separate line item in our consolidated financial statements under “Income from unconsolidated joint ventures”.
(4) Represents home deliveries, home revenues and average prices 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 homebuilding joint ventures. Our proportionate share of the income or loss of unconsolidated homebuilding and land development joint ventures is reflected as a separate line item in our consolidated financial statements under “Income from unconsolidated joint ventures”.
(3) Represents home deliveries, home revenues and average prices 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 homebuilding joint ventures. Our proportionate share of the income or loss of unconsolidated homebuilding and land development joint ventures is reflected as a separate line item in our consolidated financial statements under “Income from unconsolidated joint ventures”.
(4) Represents home deliveries, home revenues and average prices 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 homebuilding joint ventures. Our proportionate share of the income or loss of unconsolidated homebuilding and land development joint ventures is reflected as a separate line item in our consolidated financial statements under “Income from unconsolidated joint ventures”.
