Hovnanian Enterprises Reports Fiscal 2024 Second Quarter Results

Income Before Income Taxes Increased More Than 50% Year-Over-Year
170 Basis Points Year-Over-Year Increase in Homebuilding Gross Margin Percentage
Net Contracts per Community Increased Year-Over-Year to 13.9

MATAWAN, N.J., May 22, 2024 (GLOBE NEWSWIRE) — Hovnanian Enterprises, Inc. (NYSE: HOV), a leading national homebuilder, reported results for its fiscal second quarter and six months ended April 30, 2024.

RESULTS FOR THE THREE-MONTH AND SIX-MONTH PERIODS ENDED APRIL 30, 2024:

• Total revenues were $708.4 million in the second quarter of fiscal 2024, compared with $703.7 million in the same quarter of the prior year. For the six months ended April 30, 2024, total revenues were $1.30 billion compared with $1.22 billion in the first half of fiscal 2023.

• Sale of homes revenues increased to $686.9 million (1,283 homes) in the fiscal 2024 second quarter compared with $670.7 million (1,225 homes) in the previous year’s second quarter. During the six months ended April 30, 2024, sale of homes revenues increased to $1.26 billion (2,346 homes) compared with $1.17 billion (2,163 homes) in the previous year’s first six months.

• Domestic unconsolidated joint ventures⁽¹⁾ sale of homes revenues for the second quarter of fiscal 2024 increased 47.5% to $119.0 million (177 homes) compared with $80.7 million (121 homes) for the three months ended April 30, 2023. For the first half of fiscal 2024, domestic unconsolidated joint ventures sale of homes revenues increased 48.1% to $235.9 million (344 homes) compared with $159.3 (228 homes) in the six months ended April 30, 2023.

• Sale of homes revenues, including domestic unconsolidated joint ventures, increased 7.3% to $805.9 million (1,460 homes) in the second quarter of fiscal 2024 compared with $751.4 million (1,346 homes) during the second quarter of fiscal 2023. During the six months ended April 30, 2024, sale of homes revenues, including domestic unconsolidated joint ventures, increased 12.5% to $1.50 billion (2,690 homes) compared with $1.33 billion (2,391 homes) during the first half of fiscal 2023.

• Homebuilding gross margin percentage, after cost of sales interest expense and land charges, was 19.5% for the three months ended April 30, 2024, compared with 17.8% during the second quarter a year ago. During the first six months of fiscal 2024, homebuilding gross margin percentage, after cost of sales interest expense and land charges, was 18.9% compared with 18.1% in the same period of the prior fiscal year.

• Homebuilding gross margin percentage, before cost of sales interest expense and land charges, was 22.6% during the fiscal 2024 second quarter compared with 20.9% in last year’s second quarter. For the six months ended April 30, 2024, homebuilding gross margin percentage, before cost of sales interest expense and land charges, was 22.3% compared with 21.2% in the first six months of the previous fiscal year.

• Total SG&A was $79.0 million, or 11.2% of total revenues, in the second quarter of fiscal 2024 compared with $75.5 million, or 10.7% of total revenues, in the second quarter of fiscal 2023. Total SG&A was $165.1 million, or 12.7% of total revenues, in the first six months of fiscal 2024 compared with $148.9 million, or 12.2% of total revenues, in the previous year’s first half.

• Total interest expense as a percent of total revenues was 4.3% for the second quarter of fiscal 2024 compared with 5.1% for the second quarter of fiscal 2023. For the six months ended April 30, 2024, total interest expense as a percent of total revenues was 4.7% compared with 5.4% in the same period of the previous fiscal year.

• Income before income taxes for the second quarter of fiscal 2024 increased 50.4% to $69.4 million compared with $46.1 million in the second quarter of the prior fiscal year. For the first six months of fiscal 2024, income before income taxes increased 58.9% to $102.0 million compared with $64.2 million during the first half of the prior fiscal year.

• Net income increased 48.9% to $50.8 million, or $6.66 per diluted common share, for the three months ended April 30, 2024, compared with net income of $34.1 million, or $4.47 per diluted common share, in the same period of the previous fiscal year. For the first six months of fiscal 2024, net income was $74.7 million, or $9.57 per diluted common share, compared with net income of $52.9 million, or $6.74 per diluted common share, during the same period of fiscal 2023.

• EBITDA increased to $101.9 million for the second quarter of fiscal 2024 compared with $86.6 million for the second quarter of the prior year. For the first six months of fiscal 2024, EBITDA was $166.4 million compared with $136.1 million in the same period of the prior year.

• Consolidated contracts in the second quarter of fiscal 2024 increased to 1,512 homes ($785.8 million) compared with 1,477 homes ($785.7 million) in the same quarter last year. Contracts, including domestic unconsolidated joint ventures, for the three months ended April 30, 2024, increased to 1,761 homes ($961.2 million) compared with 1,614 homes ($876.8 million) in the second quarter of fiscal 2023.

• As of April 30, 2024, consolidated community count was 109 communities, compared with 114 communities April 30, 2023. Community count, including domestic unconsolidated joint ventures, was 132 as of April 30, 2024, compared with 128 communities at April 30, 2023. During the second quarter of fiscal 2024, three open for sale consolidated communities were contributed to an unconsolidated joint venture. Over the past twelve months, 11 open for sale consolidated communities were contributed to unconsolidated joint ventures.

• Consolidated contracts per community increased 6.9% year-over-year to 13.9 in the second quarter of fiscal 2024 compared with 13.0 contracts per community for the second quarter of fiscal 2023. Contracts per community, including domestic unconsolidated joint ventures, increased 5.6% to 13.3 in the three months ended April 30, 2024, compared with 12.6 contracts per community in the same quarter one year ago.

• The dollar value of consolidated contract backlog, as of April 30, 2024, decreased 14.7% to $1.13 billion compared with $1.32 billion as of April 30, 2023. The dollar value of contract backlog, including domestic unconsolidated joint ventures, as of April 30, 2024, decreased 2.1% to $1.51 billion compared with $1.54 billion as of April 30, 2023.

• The gross contract cancellation rate for consolidated contracts was 14% for the second quarter ended April 30, 2024 compared with 18% in the fiscal 2023 second quarter. The gross contract cancellation rate for contracts, including domestic unconsolidated joint ventures, was 13% for the second quarter of fiscal 2024 compared with 18% in the second quarter of the prior year.

• For the trailing twelve-month period our return on equity (ROE) was 39.5% and earnings before interest and income taxes return on investment (EBIT ROI) was 33.5%. We believe for the most recently reported trailing twelve-month periods, we had the highest ROE and the third highest EBIT ROI compared to 15 of our publicly traded peers.

⁽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 APRIL 30, 2024:

• During the second quarter of fiscal 2024, land and land development spending was $230.5 million compared with $156.5 million in the same quarter one year ago. This is essentially the same as the first quarter of fiscal 2024, which was the highest amount of quarterly land and land development spend since we started reporting it in fiscal 2010. For the first half of fiscal 2024, land and land development spending was $460.9 million compared with $290.9 million in the same period one year ago. We are clearly focusing on growth.

• Total liquidity as of April 30, 2024 was $310.7 million, well above our targeted liquidity range of $170 million to $245 million.

• In the second quarter of fiscal 2024, approximately 6,300 lots were put under option or acquired in 63 consolidated communities.

• During the second quarter of fiscal 2024, repurchased 106,047 shares of common stock for $15.0 million or an average price of $141 per share.

• As of April 30, 2024, our total controlled consolidated lots were 36,841, an increase compared with both 28,657 lots at the end of the second quarter of the previous year and 33,576 lots at January 31, 2024. Based on trailing twelve-month deliveries, the current position equaled a 7.3 years’ supply.

DEBT REDUCTION:

• Subsequent to the end of the quarter, the Company paid $31.5 million in cash and issued an additional $93.5 million principal amount of 10.0% Senior Secured 1.75 Lien Term Loans under the Credit Agreement due January 31, 2028 to retire $168.7 million principal amount of debt comprised of $64.0 million principal amount of 13.5% Senior Unsecured Notes due February 1, 2026, $39.6 million principal amount of existing Senior Unsecured Term Loans under the Credit Facility due February 1, 2027 and $65.2 million principal amount of existing 5.0% Senior Notes due February 1, 2040.

• Key benefits of the exchange are a principal reduction of $75 million of debt outstanding and a reduction in annual interest expense of approximately $8.5 million.

FINANCIAL GUIDANCE⁽²⁾:

The Company is providing guidance for total revenues, adjusted homebuilding gross margin, adjusted income before income taxes and adjusted EBITDA for the third quarter of fiscal 2024 and for the full fiscal year. Financial guidance below assumes no adverse changes in current market conditions, including further deterioration in our supply chain or material increases in mortgage rates, inflation or cancellation rates, and excludes further impact to SG&A expenses from phantom stock expense related solely to stock price movements from the closing price of $147.83 on April 30, 2024.

For the third quarter of fiscal 2024, total revenues are expected to be between $675 million and $775 million, adjusted homebuilding gross margin is expected to be between 21.5% and 23.5%, adjusted income before income taxes is expected to be between $65 million and $75 million and adjusted EBITDA is expected to be between $97 million and $107 million.

For the full fiscal year, total revenues are expected to be between $2.75 billion and $3.00 billion, adjusted homebuilding gross margin is expected to be between 21.5% and 23.0%, adjusted income before income taxes is expected to be between $265 million and $300 million, adjusted EBITDA is expected to be between $395 million and $430 million and fully diluted earnings per share is expected to be between $25 and $29. At the midpoint of our guidance, we anticipate our common book value per share to increase by 45% at October 31, 2024 to approximately $106 per share compared to last year’s value at year-end of $73 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 (gain) 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:

“Given the rising mortgage rate environment, we are extremely pleased with our performance during the second quarter of fiscal 2024. Our adjusted EBITDA and adjusted pretax income were both significantly above the high end of our guidance,” stated Ara K. Hovnanian, Chairman of the Board, President and Chief Executive Officer. “We are firmly in the higher-for-longer mortgage rate environment yet demand for new homes remains resilient. Our contracts per community for the second quarter of fiscal 2024 increased to 13.9, which was 22% higher than the average second quarter contracts per community since 1997. Website visits and foot traffic in our communities continues to be strong.”

“After paying down over $741 million of debt over the past several years, we are now in a position where we will shift our primary focus to growth rather than using cash flow for further debt reduction in the near term. We expect future revenue growth will facilitate the achievement of both economies of scale and higher levels of profits which will improve our credit metrics and enhance our balance sheet by increasing equity levels. The housing market continues to be driven by an ongoing shortage of housing supply, a stable economy with low levels of unemployment and robust demographic trends. We are optimistic that we will be able to capitalize on these positive fundamentals and continue to deliver top-tier industry returns to our shareholders,” concluded Mr. Hovnanian.

WEBCAST INFORMATION:

Hovnanian Enterprises will webcast its fiscal 2024 second quarter financial results conference call at 11:00 a.m. E.T. on Wednesday, May 22, 2024. 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, 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 IR@khov.com 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 gain 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 gain 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 $182.0 million of cash and cash equivalents, $3.7 million of restricted cash required to collateralize letters of credit and $125.0 million availability under the senior secured revolving credit facility as of April 30, 2024.

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 instability in the banking sector; (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; (26) public health issues such as major epidemic or pandemic; and (27) 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, 2023 and the Company’s Quarterly Reports on Form 10-Q for the quarterly periods during fiscal 2024 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. 

(1) Derived from the audited balance sheet as of October 31, 2023

Bay Street News