Pretax Profit Increased 281% to $62 MillionGross Margin Percentage Increased 560 Basis Points Year-over-Year42% Year-over-Year Increase in Consolidated Backlog Dollars to $1.75 BillionPaid Off $111 Million of Senior Secured Notes in the Third Quarter and an Additional $70 Million Early in the Fourth Quarter
MATAWAN, N.J., Sept. 09, 2021 (GLOBE NEWSWIRE) -- Hovnanian Enterprises, Inc. (NYSE: HOV), a leading national homebuilder, reported results for its fiscal third quarter and nine-month period ended July 31, 2021.
RESULTS FOR THE THREE-MONTH AND NINE-MONTH PERIODS ENDED JULY 31, 2021:
(1)When we refer to “Domestic Unconsolidated Joint Ventures”, we are excluding results from our single community unconsolidated joint venture in the Kingdom of Saudi Arabia (KSA).
LIQUIDITY AND INVENTORY AS OF JULY 31, 2021:
FINANCIAL GUIDANCE(2):
Financial guidance for both the fourth quarter and full year for fiscal 2021 assumes no adverse changes in current market conditions and excludes further impact to SG&A expenses from phantom stock expense related solely to stock price movements from the closing price of $104.39 at July 30, 2021. Every $4 increase or decrease in common stock price from the end of the third quarter, results in an approximate $1 million increase or decrease, respectively, of phantom stock expense.
(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 impairment loss and land option write-offs and loss (gain) on extinguishment of debt. These items are uncertain, depend on various factors and could have a material impact on GAAP reported results.
COMMENTS FROM MANAGEMENT:
“Given the significant COVID-19 supply chain disruptions and labor challenges our industry has been experiencing, we are very pleased with our strong performance during the third quarter of fiscal 2021. We exceeded our third quarter guidance on almost every financial metric,” stated Ara K. Hovnanian, Chairman of the Board, President and Chief Executive Officer. “As expected, sales have slowed to a more historically typical sales pace following our efforts to meter homes available for sale and through significant home price increases. The average price in our deliveries went from $390,000 in last year’s third quarter, to $443,000 in this year’s third quarter. Our third quarter average price for new contracts increased even further to $503,000. Those efforts, combined with a slowdown in demand from the white-hot sales pace we experienced last year, have allowed us to better align starting home construction with our sales pace. Last year’s COVID-19 sales frenzy has given way to a more rational sales pace, which we believe is more sustainable.”
“On a positive note, lumber prices have begun to decline substantially. We expect the recent decrease in lumber costs to benefit gross margins on homes we are starting now for future deliveries, including many of the homes that are currently in backlog for 2022 deliveries. Due to a strong economy, positive long-term demographic trends and our strong cash flow, we continue to invest in land and are making strong progress on acquiring additional land parcels which bodes well for future community count growth. We believe that we are well positioned to take advantage of these positive long-term trends. We continue to expect fiscal 2021 to be an outstanding year. As we look forward, we believe that today’s more rational, healthy contract pace, which has higher home prices and gross margins, along with an increase in community count, should lead to further growth in both total revenues and adjusted pretax income in fiscal 2022,” concluded Mr. Hovnanian.
WEBCAST INFORMATION:
Hovnanian Enterprises will webcast its fiscal 2021 third quarter financial results conference call at 11:00 a.m. E.T. on Thursday, September 9, 2021. The webcast can be accessed live through the “Investor Relations” section of Hovnanian Enterprises’ website at . 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 . 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 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 . To be added to Hovnanian's investor e-mail list, please send an e-mail to IR@khov.com or sign up at .
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 (gain) 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. 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 pretax income, which is defined as income before income taxes excluding land-related charges and loss (gain) on extinguishment of debt 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 pretax income to income before income taxes is presented in a table attached to this earnings release.
Total liquidity is comprised of $172.7 million of cash and cash equivalents, $10.0 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, 2021.
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) the outbreak and spread of COVID-19 and the measures that governments, agencies, law enforcement and/or health authorities implement to address it; (2) changes in general and local economic, industry and business conditions and impacts of a significant homebuilding downturn; (3) adverse weather and other environmental conditions and natural disasters; (4) the seasonality of the Company’s business; (5) the availability and cost of suitable land and improved lots and sufficient liquidity to invest in such land and lots; (6) shortages in, and price fluctuations of, raw materials and labor, including due to changes in trade policies and the imposition of tariffs and duties on homebuilding materials and products and related trade disputes with, and retaliatory measures taken by, other countries; (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) fluctuations in interest rates and the availability of mortgage financing; (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, 2020 and the Company’s Quarterly Reports on Form 10-Q for the quarterly periods during fiscal 2021 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. AND SUBSIDIARIESCONDENSED CONSOLIDATED BALANCE SHEETS(In Thousands)
(1) Derived from the audited balance sheet as of October 31, 2020.
HOVNANIAN ENTERPRISES, INC. AND SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS(In Thousands Except Per Share Data)(Unaudited)
See notes to condensed consolidated financial statements (unaudited).