Hovnanian Enterprises Reports Fiscal 2019 Third Quarter Results

Total Revenues Increased 6% Year-over-Year
12% Year-over-Year Expansion in Consolidated Community Count
Consolidated Contracts Grew 23% Year-over-Year
12% Year-over-Year Increase in Consolidated Contract Backlog
10% Year-over-Year Growth in Consolidated Contracts Per Community

MATAWAN, N.J., Sept. 05, 2019 (GLOBE NEWSWIRE) -- Hovnanian Enterprises, Inc. (NYSE: HOV), a leading national homebuilder, reported results for its fiscal third quarter and the nine-month period ended July 31, 2019.

RESULTS FOR THE THREE-MONTH AND NINE-MONTH PERIODS ENDED JULY 31, 2019:

• Total revenues increased 5.5% to $482.0 million in the third quarter of fiscal 2019, compared with $456.7 million in the third quarter of fiscal 2018. For the nine months ended July 31, 2019, total revenues decreased to $1.30 billion compared with $1.38 billion in the same period during the prior fiscal year.
   
• Homebuilding revenues for unconsolidated joint ventures was $121.2 million for the third quarter ended July 31, 2019, compared with $194.5 million in last year’s third quarter. During the first nine months of fiscal 2019, homebuilding revenues for unconsolidated joint ventures was $342.7 million compared with $350.0 million in the same period during the previous year.
   
• Homebuilding gross margin percentage, after cost of sales interest expense and land charges, was 14.0% for the third quarter of fiscal 2019 compared with 15.4% during the prior year’s third quarter. For the nine months ended July 31, 2019, homebuilding gross margin percentage, after cost of sales interest expense and land charges, was 14.0% compared with 14.6% last year.
   
• Homebuilding gross margin percentage, before cost of sales interest expense and land charges, was 18.4% for both the third quarter of fiscal 2019 and the third quarter of fiscal 2018. During the first nine months of fiscal 2019, homebuilding gross margin percentage, before cost of sales interest expense and land charges, was 17.7% compared with 18.0% in the same period of the previous fiscal year.
   
• Total SG&A was $58.5 million, or 12.1% of total revenues, in the third quarter of fiscal 2019 compared with $53.9 million, or 11.8% of total revenues, in the same quarter one year ago. For the first nine months of fiscal 2019, total SG&A was $179.3 million, or 13.8% of total revenues, compared with $178.0 million, or 12.9% of total revenues, in the same period of the prior fiscal year.
   
• Total interest expense was $41.4 million in the third quarter of fiscal 2019 compared with $38.3 million in the third quarter of fiscal 2018. Total interest expense was $110.5 million for the first nine months of fiscal 2019 compared with $125.2 million for the same period in fiscal 2018.
   
• Interest incurred (some of which was expensed and some of which was capitalized) was $42.1 million for the third quarter of fiscal 2019 compared with $40.4 million in the same quarter one year ago. For the nine months ended July 31, 2019, interest incurred (some of which was expensed and some of which was capitalized) was $122.3 million compared with $121.6 million last year.
   
• Income from unconsolidated joint ventures was $3.7 million for the quarter ended July 31, 2019 compared with $10.7 million in the third quarter of the previous year. For the first nine months of fiscal 2019, income from unconsolidated joint ventures was $20.6 million compared with $6.9 million in the same period a year ago.
   
• Loss before income taxes for the quarter ended July 31, 2019 was $7.1 million compared with income of $0.1 million during the third quarter of fiscal 2018. For the first nine months of fiscal 2019, the loss before income taxes was $39.1 million compared with a loss of $40.0 million during same period of fiscal 2018.
   
• Net loss was $7.6 million, or $1.27 per common share, in the third quarter of fiscal 2019 compared with a net loss of $1.0 million, or $0.18 per common share, during the same quarter a year ago. For the first nine months of fiscal 2019, net loss was $40.3 million, or $6.76 per common share, compared with a net loss of $41.7 million, or $7.03 per common share, in the same period during fiscal 2018.
   
• Consolidated contracts per community increased 10.0% to 11.0 contracts per community for the third quarter of fiscal 2019 compared with 10.0 contracts per community in the third quarter of fiscal 2018. Contracts per community, including domestic unconsolidated joint ventures⁽¹⁾, increased 3.9% to 10.6 contracts per community for the quarter ended July 31, 2019 compared with 10.2 contracts per community, including domestic unconsolidated joint ventures, in last year’s third quarter.
   
• The consolidated community count was 138 as of July 31, 2019. This was a 12.2% year-over-year increase from 123 communities at the end of the prior year’s third quarter. As of the end of the third quarter of fiscal 2019, community count, including domestic unconsolidated joint ventures, was 159 communities. This was a 12.0% year-over-year increase compared with 142 communities at July 31, 2018.
   
• The number of consolidated contracts increased 22.6% to 1,515 homes, during the third quarter of fiscal 2019, compared with 1,236 homes during the third quarter of fiscal 2018. The number of contracts, including domestic unconsolidated joint ventures, for the third quarter ended July 31, 2019, increased 16.6% to 1,690 homes from 1,449 homes for the same quarter last year.
   
• The number of consolidated contracts increased 8.9% to 3,995 homes, during the nine-month period ended July 31, 2019, compared with 3,667 homes in the same period of the previous fiscal year. During the first nine months of fiscal 2019, the number of contracts, including domestic unconsolidated joint ventures, was 4,497 homes, an increase of 3.0% from 4,368 homes during the same period in fiscal 2018.
   
• For August 2019, consolidated contracts per community were 3.2 compared with 2.6 for the same month one year ago. During August 2019, the number of consolidated contracts increased 37.8% to 445 homes from 323 homes in August 2018.
   
• The dollar value of consolidated contract backlog, as of July 31, 2019, increased 11.4% to $1.05 billion compared with $946.5 million as of July 31, 2018. The dollar value of contract backlog, including domestic unconsolidated joint ventures, as of July 31, 2019, was $1.28 billion, a decrease of 2.4% compared with $1.31 billion as of July 31, 2018.
   
• Consolidated deliveries were 1,185 homes for the third quarter of fiscal 2019, a 3.8% increase compared with 1,142 homes during the same quarter a year ago. For the quarter ended July 31, 2019, deliveries, including domestic unconsolidated joint ventures, decreased 3.5% to 1,377 homes compared with 1,427 homes during the third quarter of fiscal 2018.
   
• Consolidated deliveries were 3,237 homes in the first nine months of fiscal 2019, a 4.3% decrease compared with 3,382 homes in the same period in fiscal 2018. For the nine months ended July 31, 2019, deliveries, including domestic unconsolidated joint ventures, decreased 4.3% to 3,772 homes compared with 3,940 homes in the same period of the prior fiscal year.
   
• The contract cancellation rate for both consolidated contracts and contracts including unconsolidated joint ventures were 19% for both the three months ended July 31, 2019 and the same quarter in fiscal 2018.

⁽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, 2019:

• Total liquidity at the end of the of the third quarter of fiscal 2019 was $225.1 million.
   
• In the third quarter of fiscal 2019, approximately 2,100 lots were put under option or acquired in 30 communities, including unconsolidated joint ventures.
   
• As of July 31, 2019, consolidated lots controlled totaled 29,821; which, based on trailing twelve-month deliveries, equaled a 6.3 years supply.

COMMENTS FROM MANAGEMENT:

“During the third quarter of fiscal 2019, we continued to make progress towards our growth objectives. We achieved year-over-year growth in total revenues, contracts, community count, contracts per community and contract backlog. Further, we saw a sequential increase in our gross margin, before cost of sales interest expense and land charges, to 18.4% in the third quarter of fiscal 2019 from 16.9% in the second quarter of fiscal 2019,” stated Ara K. Hovnanian, Chairman of the Board, President and Chief Executive Officer. “The improvements we experienced in these metrics are a solid indicator that we are moving in the right direction.”

“Given our pipeline of future community openings, we expect our community count to increase in the fourth quarter of fiscal 2019. We continue to believe that our strategy of using options to control a significant majority of our lots is a strong risk mitigator should housing demand fluctuate in the future. Assuming no adverse changes in current market conditions and excluding land related charges, gains or losses on extinguishment of debt and other non-recurring items, we expect to achieve pretax profitability for the full 2019 fiscal year,” concluded Mr. Hovnanian.

WEBCAST INFORMATION:

Hovnanian Enterprises will webcast its fiscal 2019 third quarter financial results conference call at 11:00 a.m. E.T. on Thursday, September 5, 2019. 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^Ò Homes. Additionally, the Company’s subsidiaries, as developers of K. Hovnanian’s^Ò 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 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 (loss). The reconciliation for historical periods of EBIT, EBITDA and Adjusted EBITDA to net (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.

(Loss) income 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 (loss) income before income taxes. The reconciliation for historical periods of (loss) income before income taxes excluding land-related charges, joint venture write-downs and loss on extinguishment of debt to (loss) income before income taxes is presented in a table attached to this earnings release.

Total liquidity is comprised of $83.6 million of cash and cash equivalents, $16.5 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 July 31, 2019.

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 the 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) legal claims brought against us and not resolved in our favor, such as 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) 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; (24) geopolitical risks, terrorist acts and other acts of war; (25) loss of key management personnel or failure to attract qualified personnel; (26) information technology failures and data security breaches; (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, 2018 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)

1. Derived from the audited balance sheet as of October 31, 2018