MATAWAN, N.J., Dec. 08, 2022 (GLOBE NEWSWIRE) — Hovnanian Enterprises, Inc. (NYSE: HOV), a leading national homebuilder, reported results for its fiscal fourth quarter and year ended October 31, 2022.
RESULTS FOR THE FOURTH QUARTER AND YEAR ENDED OCTOBER 31, 2022:
- Total revenues increased 8.9% to $886.8 million in the fourth quarter of fiscal 2022, compared with $814.3 million in the same quarter of the prior year. For the year ended October 31, 2022, total revenues were $2.92 billion compared with $2.78 billion in the prior year.
- Homebuilding gross margin percentage, after cost of sales interest expense and land charges, was 19.6% for the three months ended October 31, 2022 compared with 19.4% during the same period a year ago. During fiscal 2022, homebuilding gross margin percentage, after cost of sales interest expense and land charges, was 21.5%, an increase of 290 basis points, compared with 18.6% in the prior fiscal year.
- Homebuilding gross margin percentage, before cost of sales interest expense and land charges, increased 140 basis points to 24.2% during the fiscal 2022 fourth quarter compared with 22.8% in last year’s fourth quarter. For the year ended October 31, 2022, homebuilding gross margin percentage, before cost of sales interest expense and land charges, was 25.0%, up 320 basis points, compared with 21.8% in the previous fiscal year.
- Total SG&A was $80.9 million, or 9.1% of total revenues, in the fourth quarter of fiscal 2022 compared with $70.0 million, or 8.6% of total revenues, in the previous year’s fourth quarter. During fiscal 2022, total SG&A was $296.2 million, or 10.1% of total revenues, compared with $276.6 million, or 9.9% of total revenues, in the same period of the prior fiscal year.
- Total interest expense as a percent of total revenues improved by 30 basis points to 4.4% for the fourth quarter of fiscal 2022 compared with 4.7% during the fourth quarter of fiscal 2021. For fiscal 2022, total interest expense as a percent of total revenues improved 130 basis points to 4.5% compared with 5.8% in the previous fiscal year.
- Income before income taxes for the fourth quarter of fiscal 2022 increased 18.1% to $91.5 million compared with $77.4 million in the fourth quarter of the prior fiscal year. For fiscal 2022, income before income taxes increased 68.4% to $319.8 million compared with $189.9 million during the prior fiscal year.
- Net income was $55.6 million, or $7.24 per diluted common share, for the three months ended October 31, 2022 compared with net income of $52.5 million, or $7.41 per diluted common share, in the fourth quarter of the previous fiscal year. For fiscal 2022, net income was $225.5 million, or $29.00 per diluted common share, compared with net income, including the $468.6 million benefit from the valuation allowance reduction, of $607.8 million, or $85.86 per diluted common share, during fiscal 2021.
- Consolidated contract dollars in the fourth quarter of fiscal 2022 declined 48.0% to $343.7 million (602 homes) compared with $660.4 million (1,263 homes) in the same quarter last year. Contract dollars, including domestic unconsolidated joint ventures(1), for the three months ended October 31, 2022 declined to $412.9 million (703 homes) compared with $749.5 million (1,389 homes) in the fourth quarter of fiscal 2021.
- Consolidated contract dollars in fiscal 2022 were $2.47 billion (4,477 homes) compared with $2.89 billion (6,023 homes) last year. Contract dollars, including domestic unconsolidated joint ventures(1), for the year ended October 31, 2022 were $2.81 billion (4,965 homes) compared with $3.30 billion (6,687 homes) in fiscal 2021.
- Consolidated contracts per community were 5.0 for the fourth quarter ended October 31, 2022 compared to 10.2 contracts per community in last year’s fourth quarter. Contracts per community, including domestic unconsolidated joint ventures, decreased to 5.3 contracts per community for the fourth quarter of fiscal 2022 compared with 9.9 contracts per community for the fourth quarter of fiscal 2021.
- As of the end of fiscal 2022, consolidated community count was 121 communities, compared with 124 communities on October 31, 2021. Community count, including domestic unconsolidated joint ventures, was 133 as of October 31, 2022, compared with 140 communities at the end of the previous year.
- The dollar value of consolidated contract backlog, as of October 31, 2022, decreased 22.6% to $1.27 billion compared with $1.64 billion as of October 31, 2021. The dollar value of contract backlog, including domestic unconsolidated joint ventures, as of October 31, 2022, decreased 20.0% to $1.50 billion compared with $1.88 billion as of October 31, 2021.
- Sale of homes revenues increased 11.2% to $866.6 million (1,599 homes) in the fiscal 2022 fourth quarter compared with $779.6 million (1,703 homes) in the previous year’s fourth quarter. During the fiscal 2022 fourth quarter, sale of homes revenues, including domestic unconsolidated joint ventures, increased to $981.2 million (1,779 homes) compared with $860.9 million (1,839 homes) during the fourth quarter of fiscal 2021.
- For fiscal 2022, sale of homes revenues were $2.84 billion (5,538 homes) compared with $2.67 billion (6,204) homes in the previous year. For fiscal 2022, sale of homes revenues, including domestic unconsolidated joint ventures, were $3.18 billion (6,090 homes) compared with $3.02 billion (6,793 homes) during fiscal 2021.
- The beginning backlog cancellation rate for consolidated contracts increased to 13% for the fourth quarter ended October 31, 2022 compared with 6% in the fiscal 2021 fourth quarter. The beginning backlog cancellation rate for contracts including domestic unconsolidated joint ventures was 12% for the fourth quarter of fiscal 2022 compared with 6% in the fourth quarter of the prior year. The historical average consolidated beginning backlog cancellation rate since fiscal 2013 is 13%.
- The gross contract cancellation rate for consolidated contracts increased to 41% for the fourth quarter ended October 31, 2022 compared with 15% in the fiscal 2021 fourth quarter. The gross contract cancellation rate for contracts including domestic unconsolidated joint ventures was 39% for the fourth quarter of fiscal 2022 compared with 14% 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, 2022:
- During the fourth quarter of fiscal 2022, land and land development spending was $205.2 million compared with $167.1 million in the same quarter one year ago. For fiscal 2022, land and land development spending was $759.3 million compared with $698.3 million one year ago.
- After early retirement of $100 million of senior secured notes in the second quarter of fiscal 2022, total liquidity as of October 31, 2022 was $457.3 million, significantly above our targeted liquidity range of $170 million to $245 million.
- In the fourth quarter of fiscal 2022, approximately 3,200 lots were put under option or acquired in 23 consolidated communities.
- As of October 31, 2022, the total controlled consolidated lots were 31,518 an increase compared with 30,874 lots at the end of the fourth quarter of the previous year and a decrease compared to 31,913 lots on July 31, 2022. Based on trailing twelve-month deliveries, the current position equaled a 5.7 years’ supply.
COMMENTS FROM MANAGEMENT:
“We are pleased with the strong performance for our fourth quarter and fiscal year. We exceeded our full year guidance for adjusted pretax income and adjusted EBITDA. Our strong performance in fiscal 2022 was partially the result of deliveries which were contracted during a time when demand for new homes was much stronger than it is today,” stated Ara K. Hovnanian, Chairman of the Board, President and Chief Executive Officer. “The current level of demand for new homes is significantly lower and continues to be burdened by high levels of inflation, a sharp increase in mortgage rates and concerns about an economic recession.”
“Given the strong margins in our large fourth quarter backlog and to minimize any potential disruption to those deliveries and margins, we were not aggressive with concessions on new contracts during the fourth quarter. Additionally, to eliminate the risk of further mortgage rate increases, consumers are seeking homes where they can close quickly. In response to that demand, we ended the year with 5.6 quick move in homes per community, compared to 3.2 at the end of the third quarter and our long-term average of 4.4 quick move in homes per community. Therefore, we felt it was prudent to postpone larger incentives until the increased level of quick move in homes we started during the third and fourth quarter were closer to being completed. Now that the fourth quarter is behind us and because of the progress we have made on constructing additional quick move in homes, we are now becoming more aggressive in our attempts to find the market price that will spur demand in each of our markets.”
“During a period of declining housing demand, it is important that we focus on preserving liquidity. We ended our fiscal year with $457 million of liquidity, significantly above the $245 million high end of our target range. We remain committed to strengthening our balance sheet and intend to revisit our debt retirement initiatives once market conditions improve. Despite the near-term uncertainty in the housing market, we believe that the long-term fundamentals remain intact and as the economy and mortgage market reach stability, it should lead to a more robust housing market that returns sales pace per community to more normalized levels,” concluded Mr. Hovnanian.
SEGMENT CHANGE/RECLASSIFICATION
Historically, the Company had seven reportable segments consisting of six homebuilding segments (Northeast, Mid-Atlantic, Midwest, Southeast, Southwest and West) and its financial services segment. During the fourth quarter of fiscal 2022, we reevaluated our reportable segments as a result of changes in the business and our management thereof. In particular, we considered the fact that, since our segments were last established, the Company had exited the Minnesota, North Carolina, and Tampa markets and is currently in the process of exiting the Chicago market. As a result, we realigned our homebuilding operating segments and determined that, in addition to our financial services segment, we now have three reportable homebuilding segments comprised of (1) Northeast, (2) Southeast and (3) West. All prior period amounts related to the segment change have been retrospectively reclassified to conform to the new presentation.
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 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.
