Hovnanian Enterprises Reports Fiscal 2020 Fourth Quarter and Full Year Results

Fourth Quarter Gross Margin Increased 290 Basis Points
$95 Million Year-over-Year Improvement in Fiscal 2020 Pretax Income
61% Year-over-Year Increase in Consolidated Backlog Dollars at Year End to $1.42 Billion
Fourth Quarter Consolidated Contracts per Community Improved 74% Year-over-YearMATAWAN, N.J., Dec. 09, 2020 (GLOBE NEWSWIRE) — Hovnanian Enterprises, Inc. (NYSE: HOV), a leading national homebuilder, reported results for its fiscal fourth quarter and year ended October 31, 2020.RESULTS FOR THE FOURTH QUARTER AND YEAR ENDED OCTOBER 31, 2020:Total revenues were $683.4 million in the fourth quarter of fiscal 2020, compared with $713.6 million, a decrease of 4.2%, in the same period of the prior year. For the year ended October 31, 2020, total revenues increased 16.2% to $2.34 billion compared with $2.02 billion in the prior fiscal year.Homebuilding gross margin percentage, after cost of sales interest expense and land charges, increased 290 basis points to 17.4% for the three months ended October 31, 2020 compared with 14.5% during the same period a year ago. During fiscal 2020, homebuilding gross margin percentage, after cost of sales interest expense and land charges, was 14.7% compared with 14.2% last year.Homebuilding gross margin percentage, before cost of sales interest expense and land charges, increased 130 basis points to 20.2% during the fiscal 2020 fourth quarter compared with 18.9% in last year’s fourth quarter. For the year ended October 31, 2020, homebuilding gross margin percentage, before cost of sales interest expense and land charges, was 18.4% compared with 18.1% in the prior year.Total SG&A was $65.6 million, or 9.6% of total revenues, in the fiscal 2020 fourth quarter compared with $53.9 million, or 7.6% of total revenues, in the previous year’s fourth quarter. During fiscal 2020, total SG&A was $241.8 million, or 10.3% of total revenues, compared with $233.1 million, or 11.6% of total revenues, in the prior fiscal year.Total interest expense was $40.6 million for the fourth quarter of fiscal 2020 compared with $50.3 million during the fourth quarter of fiscal 2019. For the year ended October 31, 2020, total interest expense was $178.1 million compared with $160.8 million last year.Income from unconsolidated joint ventures was $3.1 million for the fourth quarter ended October 31, 2020 compared with $8.4 million in the fiscal 2019 fourth quarter. For fiscal 2020, income from unconsolidated joint ventures was $16.6 million compared with $28.9 million a year ago.Income before income taxes for the fourth quarter of fiscal 2020 was $42.4 million compared with a loss of $0.6 million in the fourth quarter of the prior fiscal year. For fiscal 2020, income before income taxes was $55.4 million compared with a loss of $39.7 million during fiscal 2019.Adjusted pretax income, which is income before income taxes excluding land-related charges, joint venture write-downs and gain or loss on extinguishment of debt, was $45.1 million in the fourth quarter of fiscal 2020 compared with income before these items of $44.5 million in the fiscal 2019 fourth quarter. For the year ended October 31, 2020, adjusted pretax income was $50.9 million compared with income before these items of $9.9 million during fiscal 2019.Net income was $40.6 million, or $5.54 per diluted common share, for the three months ended October 31, 2020 compared with a net loss of $1.8 million, or $0.30 per common share, in the fourth quarter of the previous fiscal year. For fiscal 2020, net income was $50.9 million, or $7.03 per diluted common share, compared with a net loss of $42.1 million, or $7.06 per common share, in fiscal 2019.EBITDA increased 65.9% to $84.5 million for the fourth quarter of fiscal 2020 compared with $50.9 million in the same quarter of the prior year. For fiscal 2020, EBITDA increased 90.6% to $238.8 million compared with $125.3 million in fiscal 2019.Financial services income before income taxes was $12.1 million for the fourth quarter of fiscal 2020, up 34.1% compared with $9.0 million in the fourth quarter of fiscal 2019. For fiscal 2020, financial services income before income taxes was $32.1 million, up 82.1% compared with $17.6 million one year ago.Consolidated contracts per community increased 73.7% to 16.5 contracts per community for the fourth quarter ended October 31, 2020 compared with 9.5 contracts per community in last year’s fourth quarter. Contracts per community, including domestic unconsolidated joint ventures(1), increased 74.7% to 15.9 for the fourth quarter of fiscal 2020 compared with 9.1 for the fourth quarter of fiscal 2019.The number of consolidated contracts increased 42.6% to 1,918 homes during the fiscal 2020 fourth quarter, compared with 1,345 homes in last year’s fourth quarter. The number of contracts, including domestic unconsolidated joint ventures, for the three months ended October 31, 2020, increased 44.9% to 2,143 homes from 1,479 homes during the same quarter a year ago.For fiscal 2020, the number of consolidated contracts increased 30.2% to 6,953 homes compared with 5,340 homes in fiscal 2019. The number of contracts, including domestic unconsolidated joint ventures, for the year ended October 31, 2020, increased 28.7% to 7,692 homes from 5,976 homes a year ago.As of the end of the fourth quarter of fiscal 2020, community count, including domestic unconsolidated joint ventures, was 135 communities, compared with 162 communities at October 31, 2019. Consolidated community count was 116 as of October 31, 2020, compared with 141 communities at the end of the previous year’s fourth quarter. The decline was primarily a result of selling out of communities at a faster than anticipated pace, 15 delayed community openings and contributing four consolidated communities to unconsolidated joint ventures earlier this year.For November 2020, consolidated contracts per community increased 48.3% to 4.3 compared with 2.9 for the same month one year ago. During November 2020, the number of consolidated contracts increased 22.0% to 493 homes from 404 homes in November 2019.The dollar value of consolidated contract backlog, as of October 31, 2020, increased 61.3% to $1.42 billion compared with $880.1 million as of October 31, 2019. The dollar value of contract backlog, including domestic unconsolidated joint ventures, as of October 31, 2020, increased 54.0% to $1.60 billion compared with $1.04 billion as of October 31, 2019.Consolidated deliveries were 1,572 homes in the fiscal 2020 fourth quarter compared with 1,709 homes in the previous year’s fourth quarter. For the fiscal 2020 fourth quarter, deliveries, including domestic unconsolidated joint ventures, were 1,735 homes compared with 1,941 homes during the fourth quarter of fiscal 2019.For fiscal 2020, consolidated deliveries increased 15.0% to 5,686 homes compared with 4,946 homes in the previous year. For fiscal 2020, deliveries, including domestic unconsolidated joint ventures, increased 12.3% to 6,414 homes compared with 5,713 homes during fiscal 2019.The contract cancellation rate for consolidated contracts was 18% for the fourth quarter ended October 31, 2020 compared with 21% in the fiscal 2019 fourth quarter. The contract cancellation rate for contracts including domestic unconsolidated joint ventures was 17% for the fourth quarter of fiscal 2020 compared with 22% in the fourth quarter of the prior year.
(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 OCTOBER 31, 2020:During the fourth quarter of fiscal 2020, land and land development spending was $229.3 million, an increase compared with $162.8 million in last year’s fourth quarter. For the year ended October 31, 2020, land and land development spending was $624.2 million compared with $562.8 million one year ago.Total liquidity at the end of the fourth quarter of fiscal 2020 was $399.1 million, significantly above our targeted liquidity range of $170 million to $245 million.In the fourth quarter of fiscal 2020, 2,400 lots were put under option or acquired in 28 consolidated communities.As of October 31, 2020, consolidated lots controlled totaled 26,049, which, based on trailing twelve-month deliveries, equaled a 4.6 years’ supply.
COMMENTS FROM MANAGEMENT:“We are pleased with our results for the fourth quarter of fiscal 2020. Our total revenues, gross margin percentage, adjusted EBITDA and adjusted pretax income exceeded the guidance that we gave on our third quarter conference call,” stated Ara K. Hovnanian, Chairman of the Board, President and Chief Executive Officer. “Demand for new homes remains strong due to historically low interest rates, a limited supply of existing homes, favorable demographic trends and strong consumer demand. Starting in June, we pivoted to increasing home prices, consciously trading off a slightly lower sales pace for improved margins,” said Mr. Hovnanian.
“Looking back on the full year results, the $55 million of pretax income for fiscal 2020 was the highest level of full year profitability we achieved since fiscal 2006. Given our $1.4 billion consolidated contract backlog, more than 60% ahead of last year, we expect that fiscal 2021 will be a year when we can grow our revenues to between $2.5 and $2.7 billion, achieve more operating efficiencies and further improve our profitability,” stated Mr. Hovnanian. “We currently control all the lots needed to meet our growth expectations in fiscal 2021. Furthermore, we control almost 90% of the lots needed to meet our delivery objectives for fiscal 2022. After ending the year with $399 million of liquidity, significantly above our targeted range, our land acquisition teams remain busy securing additional land parcels to achieve our home delivery goals for fiscal 2022 and beyond,” concluded Mr. Hovnanian.WEBCAST INFORMATION:Hovnanian Enterprises will webcast its fiscal 2020 fourth quarter financial results conference call at 11:00 a.m. E.T. on Wednesday, December 9, 2020. 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 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 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 (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.Adjusted pretax income, which is defined as income before income taxes excluding land-related charges, joint venture write-downs and loss (gain) 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 adjusted pretax income to income (loss) before income taxes is presented in a table attached to this earnings release.Total liquidity is comprised of $262.5 million of cash and cash equivalents, $11.6 million of restricted cash required to collateralize letters of credit and $125.0 million availability under the senior secured revolving credit facility as of October 31, 2020.FORWARD-LOOKING STATEMENTSAll 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, 2019 and the Company’s Quarterly Reports on Form 10-Q for the quarterly periods during fiscal 2020 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 SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands)
HOVNANIAN ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands Except Per Share Data)
(Unaudited)