Hovnanian Enterprises Inc.: Hovnanian Enterprises Reports Fiscal 2018 Results

Tickers: HOV
Reported Fourth Quarter Net Income of $46 Million
Exceeded or Met Guidance
Consolidated Lots Controlled Grew 20% Year-over-Year

MATAWAN, N.J., Dec. 06, 2018 (GLOBE NEWSWIRE) -- Hovnanian Enterprises, Inc. (NYSE: HOV), a leading national homebuilder, reported results for its fiscal fourth quarter and year ended October 31, 2018.

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'We are pleased to report solid performance in our fourth quarter. We exceeded or met our guidance for total revenues, gross margin, SG&A expense ratio and adjusted pretax profits,' stated Ara K. Hovnanian, Chairman of the Board, President and Chief Executive Officer. 'Given the recent consumer hesitation in purchasing homes, we remain cautious and are carefully evaluating current market conditions when underwriting new land acquisitions. Nonetheless, we continue to move forward with our goal of increasing our community count. Our total consolidated lots controlled at the end of the fourth quarter expanded 20% year over year.'

'We recognize that there has been an overall industry cooling in home sales during the quarter; a time when mortgage rates rose and stock market volatility caused hesitation among potential home buyers. However, given the overall demographic trends and the strong U.S. economy, as home buyers become adjusted to the higher mortgage rate environment, expectations will likely adjust and the housing market should resume its path of recovery,' concluded Mr. Hovnanian.

RESULTS FOR THE THREE-MONTH PERIOD AND YEAR ENDED OCTOBER 31, 2018:

  • Total revenues decreased to $614.8 million in the fourth quarter of fiscal 2018, compared with $721.7 million in the fourth quarter of fiscal 2017. For the year ended October 31, 2018, total revenues decreased to $1.99 billion compared with $2.45 billion in the prior fiscal year.
  • While total revenues decreased $106.9 million, homebuilding revenues for unconsolidated joint ventures increased $154.5 million to $252.6 million for the fourth quarter ended October 31, 2018, compared with $98.1 million in last year's fourth quarter. During all of fiscal 2018, homebuilding revenues for unconsolidated joint ventures increased to $602.7 million compared with $312.2 million in the previous year.
  • Homebuilding gross margin percentage, after cost of sales interest expense and land charges, was 16.5% for the fourth quarter of fiscal 2018 compared with 13.7% in the prior year's fourth quarter. For the year ended October 31, 2018, homebuilding gross margin percentage, after cost of sales interest expense and land charges, improved to 15.2% compared with 13.2% last year.
  • Homebuilding gross margin percentage, before cost of sales interest expense and land charges, improved 100 basis points to 19.2% for the fourth quarter of fiscal 2018 compared with 18.2% in the same quarter one year ago. During fiscal 2018, homebuilding gross margin percentage, before cost of sales interest expense and land charges, improved 120 basis points to 18.4% compared with 17.2% in the previous fiscal year.
  • For the fourth quarter of 2018, total SG&A decreased by $22.0 million, or 30.2%, year over year. Total SG&A was $50.8 million, or 8.3% of total revenues, in the fourth quarter of fiscal 2018 compared with $72.9 million, or 10.1% of total revenues, in the fourth quarter of fiscal 2017. For the year ended October 31, 2018, total SG&A decreased by $26.9 million, or 10.5%, year over year. For all of fiscal 2018, total SG&A was $228.8 million, or 11.5% of total revenues, compared with $255.7 million, or 10.4% of total revenues, in the prior fiscal year.
  • Total interest expense was $38.8 million in the fourth quarter of fiscal 2018 compared with $59.3 million in the fourth quarter of fiscal 2017. Total interest expense was $164.0 million for all of fiscal 2018 compared with $185.8 million for all of fiscal 2017.
  • Interest incurred (some of which was expensed and some of which was capitalized) was $39.4 million for the fourth quarter of fiscal 2018 compared with $43.3 million in the same quarter one year ago. For the year ended October 31, 2018, interest incurred (some of which was expensed and some of which was capitalized) was $161.0 million compared with $160.2 million last year.
  • Income before income taxes for the quarter ended October 31, 2018 was $48.1 million compared with $12.3 million during the fourth quarter of fiscal 2017. For all of fiscal 2018, income before income taxes was $8.1 million compared with loss of $45.2 million during all of fiscal 2017.
  • Income before income taxes excluding land-related charges, joint venture write-downs and loss on extinguishment of debt, was $50.9 million during the fourth quarter of fiscal 2018 compared with income before these items of $20.8 million in the fourth quarter of fiscal 2017. For all of fiscal 2018, income before income taxes, excluding land-related charges, joint venture write-downs and loss on extinguishment of debt, was $20.4 million compared with income before these items of $10.2 million during all of fiscal 2017.
  • Net income was $46.2 million, or $0.30 per common share, in the fourth quarter of fiscal 2018 compared with net income of $11.8 million, or $0.08 per common share, during the same quarter a year ago. For the year ended October 31, 2018, net income was $4.5 million, or $0.03 per common share, compared with a net loss of $332.2 million, or $2.25 per common share, including a $294.0 million non-cash increase in the valuation allowance for our deferred tax assets, in fiscal 2017.
  • Contracts per community, including unconsolidated joint ventures, decreased 3.5% to 8.3 contracts per community for the quarter ended October 31, 2018 compared with 8.6 contracts per community, including unconsolidated joint ventures, in last year's fourth quarter. Consolidated contracts per community decreased 4.7% to 8.2 contracts per community for the fourth quarter of fiscal 2018 compared with 8.6 contracts per community in the fourth quarter of fiscal 2017.
  • Although contracts per community, including unconsolidated joint ventures, were down slightly for the quarter, contracts per community, including unconsolidated joint ventures, increased in September 2018 to 2.7 compared with 2.5 in September 2017 and increased in October 2018 to 2.9 compared with 2.8 in October 2017.
  • Contracts per community, including unconsolidated joint ventures, increased 6.4% to 36.8 contracts per community for the year ended October 31, 2018 compared with 34.6 contracts per community, including unconsolidated joint ventures, in all of fiscal 2017. Consolidated contracts per community increased 2.6% to 36.0 contracts per community for all of fiscal 2018 compared with 35.1 contracts per community in the year ended October 31, 2017.
  • As of the end of the fourth quarter of fiscal 2018, community count, including unconsolidated joint ventures, was 142 communities, a 9.6% year-over-year decrease from 157 communities at October 31, 2017. Consolidated community count decreased 5.4% to 123 communities as of October 31, 2018 from 130 communities at the end of the prior year's fourth quarter.
  • The number of contracts, including unconsolidated joint ventures, for the fourth quarter ended October 31, 2018, decreased 12.3% to 1,179 homes from 1,344 homes for the same quarter last year. The number of consolidated contracts decreased 9.7% to 1,004 homes, during the fourth quarter of fiscal 2018, compared with 1,112 homes during the fourth quarter of 2017.
  • During all of fiscal 2018, the number of contracts, including unconsolidated joint ventures, was 5,586 homes, a decrease of 5.9% from 5,937 homes during fiscal 2017. The number of consolidated contracts decreased 10.1% to 4,671 homes, during the twelve month period ended October 31, 2018, compared with 5,196 homes in the same period of the previous fiscal year.
  • The dollar value of contract backlog, including unconsolidated joint ventures, as of October 31, 2018, was $977.3 million, a decrease of 10.5% compared with $1.09 billion as of October 31, 2017. The dollar value of consolidated contract backlog, as of October 31, 2018, decreased 7.7% to $745.6 million compared with $808.0 million as of October 31, 2017.
  • For the quarter ended October 31, 2018, deliveries, including unconsolidated joint ventures, increased 2.4% to 1,829 homes compared with 1,787 homes during the fourth quarter of fiscal 2017. Consolidated deliveries were 1,465 homes for the fourth quarter of fiscal 2018, an 8.7% decrease compared with 1,604 homes during the same quarter a year ago.
  • For the year ended October 31, 2018, deliveries, including unconsolidated joint ventures, decreased 5.2% to 5,831 homes compared with 6,149 homes in the prior fiscal year. Consolidated deliveries were 4,847 homes in fiscal 2018, a 13.5% decrease compared with 5,602 homes in the same period in fiscal 2017.
  • The contract cancellation rate, including unconsolidated joint ventures, was 22% in both the fourth quarter of fiscal 2018 and fiscal 2017. The consolidated contract cancellation rate was 23% for the three months ended October 31, 2018 compared with 22% for the three months ended October 31, 2017.
  • The valuation allowance was $638.2 million as of October 31, 2018. The valuation allowance is a non-cash reserve against the Company's tax assets for GAAP purposes. For tax purposes, the tax deductions associated with the tax assets may be carried forward for 20 years from the date the deductions were incurred.
LIQUIDITY AND INVENTORY AS OF OCTOBER 31, 2018:

  • Total liquidity at the end of the of fiscal 2018 was $325.6 million.
  • In the fourth quarter of fiscal 2018, approximately 2,500 lots were put under option or acquired in 34 communities, including unconsolidated joint ventures.
  • As of October 31, 2018, consolidated lots controlled increased by 19.8% to 30,339 year over year from 25,329 lots at October 31, 2017. The consolidated land position, as of October 31, 2018, was 30,339 lots, consisting of 17,610 lots under option and 12,729 owned lots.
WEBCAST INFORMATION:

Hovnanian Enterprises will webcast its fiscal 2018 fourth quarter financial results conference call at 11:00 a.m. E.T. on Thursday, December 6, 2018. 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, Washington, D.C. and West Virginia. The Company's homes are marketed and sold under the trade names K. Hovnanian® Homes and Brighton 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., including a summary investment profile and the Company's 2017 annual report, 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 impairment loss and land option write-offs and loss on extinguishment of debt ('Adjusted EBITDA') are not U.S. generally accepted accounting principles (GAAP) financial measures. The most directly comparable GAAP financial measure is net income (loss). The reconciliation for historical periods of EBIT, EBITDA and Adjusted EBITDA to net income (loss) 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.

Income (Loss) Before Income Taxes Excluding Land-Related Charges, Joint Venture Write-Downs and Loss on Extinguishment of Debt is a non-GAAP financial measure. The most directly comparable GAAP financial measure is Income (Loss) Before Income Taxes. The reconciliation for historical periods of Income (Loss) Before Income Taxes Excluding Land-Related Charges, Joint Venture Write-Downs and Loss on Extinguishment of Debt to Income (Loss) Before Income Taxes is presented in a table attached to this earnings release.

Total liquidity is comprised of $187.9 million of cash and cash equivalents, $12.7 million of restricted cash required to collateralize letters of credit and $125.0 million of availability under the senior secured revolving credit facility as of October 31, 2018.

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. 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) adverse weather and other environmental conditions and natural disasters; (3) high leverage and restrictions on the Company's operations and activities imposed by the agreements governing the Company's outstanding indebtedness; (4) availability and terms of financing to the Company; (5) the Company's sources of liquidity; (6) changes in credit ratings; (7) the seasonality of the Company's business; (8) the availability and cost of suitable land and improved lots and sufficient liquidity to invest in such land and lots; (9) shortages in, and price fluctuations of, raw materials and labor; (10) reliance on, and performance of, subcontractors; (11) 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; (12) fluctuations in interest rates and the availability of mortgage financing; (13) increases in cancellations of agreements of sale; (14) changes in tax laws affecting the after-tax costs of owning a home; (15) operations through unconsolidated joint ventures with third parties; (16) government regulation, including regulations concerning development of land, the home building, sales and customer financing processes, tax laws and the environment; (17) product liability litigation, warranty claims and claims made by mortgage investors; (18) levels of competition; (19) successful identification and integration of acquisitions; (20) significant influence of the Company's controlling stockholders; (21) availability of net operating loss carryforwards; (22) utility shortages and outages or rate fluctuations; (23) geopolitical risks, terrorist acts and other acts of war; (24) loss of key management personnel or failure to attract qualified personnel; (25) information technology failures and data security breaches; (26) legal claims brought against us and not resolved in our favor; (27) negative publicity; and (28) 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, 2017 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.

(Financial Tables Follow)

HOVNANIAN ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands)

(1) Derived from the audited balance sheet as of October 31, 2017.

HOVNANIAN ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands Except Per Share Data)
(Unaudited)

Hovnanian Enterprises, Inc.

Disclaimer

Hovnanian Enterprises Inc. published this content on 06 December 2018 and is solely responsible for the information contained herein. Distributed by Public, unedited and unaltered, on 06 December 2018 14:23:02 UTC