Hovnanian Enterprises Reports Fiscal 2022 Second Quarter Results

161% Year-over-Year Increase in Pretax Profit
Gross Margin Percentage Increased 520 Basis Points Year-over-Year
5% Increase in Consolidated Dollar Amount of Contracts
16% Increase in Consolidated Backlog Dollars to $2.06 Billion
Early Retirement of $100 Million of Senior Secured Notes

MATAWAN, N.J., June 01, 2022 (GLOBE NEWSWIRE) -- Hovnanian Enterprises, Inc. HOV, a leading national homebuilder, reported results for its fiscal second quarter and six-month period ended April 30, 2022.

RESULTS FOR THE THREE-MONTH AND SIX-MONTH PERIODS ENDED APRIL 30, 2022:

• Total revenues were $702.5 million in the second quarter of fiscal 2022, compared with $703.2 million in the same quarter of the prior year. For the six months ended April 30, 2022, total revenues were $1.27 billion compared with $1.28 billion in the same period during the prior year.
  
  
• Homebuilding gross margin percentage, after cost of sales interest expense and land charges, increased 520 basis points to 23.3% for the three months ended April 30, 2022 compared with 18.1% during the same period a year ago. During the first half of fiscal 2022, homebuilding gross margin percentage, after cost of sales interest expense and land charges, was 21.8%, up 410 basis points, compared with 17.7% during the same period a year ago.
  
  
• Homebuilding gross margin percentage, before cost of sales interest expense and land charges, increased 530 basis points to 26.6% during the fiscal 2022 second quarter compared with 21.3% in last year's second quarter. For the six months ended April 30, 2022, homebuilding gross margin percentage, before cost of sales interest expense and land charges, was 24.7%, up 370 basis points, compared with 21.0% in the same period of the previous year.
  
  
• Total SG&A was $68.2 million, or 9.7% of total revenues, in the fiscal 2022 second quarter compared with $82.6 million, or 11.7% of total revenues, in the previous year's second quarter. During the first six months of fiscal 2022, total SG&A was $140.4 million, or 11.1% of total revenues, compared with $146.3 million, or 11.4% of total revenues, in the same period of the prior fiscal year.
  
  
• Total interest expense as a percent of total revenues improved by 130 basis points to 4.9% for the second quarter of fiscal 2022 compared with 6.2% during the second quarter of fiscal 2021. For the first half of fiscal 2022, total interest expense as a percent of total revenues improved 180 basis points to 4.8% compared with 6.6% in the first half of the previous fiscal year.
  
  
• Income before income taxes for the second quarter of fiscal 2022 was $80.9 million, up 160.8%, compared with $31.0 million in the second quarter of the prior fiscal year. For the first six month of fiscal 2022, income before income taxes increased 129.9% to $116.3 million compared with $50.6 million during the same period of the prior fiscal year.
  
  
• Adjusted pretax income, which is income before income taxes excluding $0.6 million of land-related charges and $6.8 million loss on extinguishment of debt, was $88.3 million in the second quarter of fiscal 2022 compared with $31.1 million in the fiscal 2021 second quarter. For the six months ended April 30, 2022, adjusted pretax income was $123.8 million compared with $52.6 million during the first six months of fiscal 2021.
  
  
• Net income was $62.4 million, or $8.39 per diluted common share, for the three months ended April 30, 2022 compared with net income, including the $468.6 million benefit of the valuation allowance reduction, of $488.7 million, or $69.65 per diluted common share, in the second quarter of the previous fiscal year. For the first six months of fiscal 2022, net income was $87.2 million, or $11.44 per diluted common share, compared with net income, including the $468.6 million benefit of the valuation allowance reduction, of $507.6 million, or $72.71 per diluted common share in the same period during fiscal 2021.
  
  
• Net income was $62.4 million, or $8.39 per diluted common share, for the three months ended April 30, 2022 compared with net income, excluding the $468.6 million benefit of the valuation allowance reduction, of $20.0 million or $2.85 per diluted common share in the second quarter of the previous fiscal year. For the first six months of fiscal 2022, net income was $87.2 million, or $11.44 per diluted common share, compared with net income, excluding the $468.6 million benefit of the valuation allowance reduction, of $39.0 million, or $5.58 per diluted common share in the same period during fiscal 2021.
  
  
• Consolidated contract dollars in the second quarter of fiscal 2022 increased 4.9% to $860.5 million (1,525 homes) compared with $820.4 million (1,771 homes) in the same quarter last year. Contract dollars, including domestic unconsolidated joint ventures⁽¹⁾, for the three months ended April 30, 2022 were $975.2 million (1,689 homes) compared with $930.2 million (1,960 homes) in the second quarter of fiscal 2021.
  
  
• Consolidated contract dollars in the first half of fiscal 2022 increased 2.5% to $1.66 billion (3,076 homes) compared with $1.62 billion (3,549 homes) in the same period last year. Contract dollars, including domestic unconsolidated joint ventures⁽¹⁾, for the six months ended April 30, 2022 were $1.85 billion (3,348 homes) compared with $1.83 billion (3,922 homes) in the first half of fiscal 2021.
  
  
• Consolidated contracts per community were at a strong, above historical average pace of 15.0 for the second quarter ended April 30, 2022 compared to the white-hot pace of 18.3 contracts per community in last year's second quarter. Contracts per community, including domestic unconsolidated joint ventures, decreased to 14.1 contracts per community for the second quarter of fiscal 2022, which is above the historical average pace, compared with 16.8 contracts per community for the second quarter of fiscal 2021.
  
  
• As of the end of the second quarter of fiscal 2022, consolidated community count was up 5.2% to 102 communities, compared with 97 communities at April 30, 2021. Community count, including domestic unconsolidated joint ventures, was 120 as of April 30, 2022, compared with 117 communities at the end of the previous year's second quarter.
  
  
• The dollar value of consolidated contract backlog, as of April 30, 2022, increased 16.1% to $2.06 billion compared with $1.77 billion as of April 30, 2021. The dollar value of contract backlog, including domestic unconsolidated joint ventures, as of April 30, 2022, increased 14.6% to $2.34 billion compared with $2.04 billion as of April 30, 2021.
  
  
• Sale of home revenues increased to $685.8 million (1,353 homes) in the fiscal 2022 second quarter compared with $679.5 million (1,618 homes) in the previous year's second quarter. During the fiscal 2022 second quarter, sale of homes revenues, including domestic unconsolidated joint ventures, increased to $772.8 million (1,495 homes) compared with $770.6 million (1,773 homes) during the second quarter of fiscal 2021.
  
  
• For the first half of fiscal 2022, sale of homes revenues were $1.24 billion (2,527 homes) compared with $1.24 billion (3,003) homes in the first six months of the previous year. For the first half of the fiscal 2022, sale of homes revenues, including domestic unconsolidated joint ventures, were $1.39 billion (2,778 homes) compared with $1.39 billion (3,277 homes) during the same period of fiscal 2021.
  
  
• The contract cancellation rate for consolidated contracts was 17% for the second quarter ended April 30, 2022 compared with 16% in the fiscal 2021 second quarter. The contract cancellation rate for contracts including domestic unconsolidated joint ventures was 16% for the second quarter of fiscal 2022 compared with 15% in the second 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 APRIL 30, 2022:

• During the second quarter of fiscal 2022, land and land development spending was $154.8 million compared with $175.0 million in the same quarter one year ago. For the first half of fiscal 2022, land and land development spending was $349.6 million compared with $353.6 million in the same period one year ago.
  
  
• After early retirement of $100 million of senior secured notes in the second quarter of fiscal 2022 in addition to the $181 million of senior secured notes retired in fiscal 2021, total liquidity as of April 30, 2022 was $282.2 million, above our targeted liquidity range of $170 million to $245 million.
  
  
• In the second quarter of fiscal 2022, approximately 3,200 lots were put under option or acquired in 28 consolidated communities.
  
  
• As of April 30, 2022, the total controlled consolidated lots increased 19.3% to 33,501 compared with 28,077 lots at the end of the second quarter of the previous year. Based on trailing twelve-month deliveries, the current position equaled a 5.8 years' supply.
  

FINANCIAL GUIDANCE⁽²⁾:

The Company is reiterating its financial guidance for the full year of fiscal 2022 and is providing guidance for the third quarter of 2022. Financial guidance below assumes no adverse changes in current market conditions, including further deterioration in the supply chain, material increase in mortgage rates, or increased inflation and excludes further impact to SG&A expenses from phantom stock expense related solely to stock price movements from the closing price of $46.02 at April 29, 2022.

• For the third quarter of fiscal 2022, total revenues are expected to be between $780 million and $830 million, gross margin, before cost of sales interest expense and land charges, is expected to be between 24.0% and 26.0% and adjusted pretax income is expected to be between $70 million and $85 million.
  
  
• For fiscal 2022, total revenues are expected to be between $2.80 billion and $3.00 billion, gross margin, before cost of sales interest expense and land charges, is expected to be between 23.5% and 25.5%, adjusted pretax income is expected to be between $260 million and $310 million, adjusted EBITDA is expected to be between $410 million and $460 million and fully diluted earnings per share is expected to be between $26.50 and $32.00. At the midpoint of our guidance, we anticipate our shareholders' equity to increase by approximately 105% by October 31, 2022.
  
  
• Continue to focus on leverage levels and anticipate reducing senior secured notes by at least an additional $100 million during the second half of fiscal 2022.
  

⁽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:

"Despite continued challenges due to supply chain disruptions, labor tightness, increasing mortgage rates and permitting/inspection delays, we are pleased our adjusted pretax income increased 184% year over year and was above the high end of our guidance range. We also reduced our senior secured notes by an additional $100 million during the second quarter of fiscal 2022," stated Ara K. Hovnanian, Chairman of the Board, President and Chief Executive Officer. "New homes sales face a persistent headwind from rising mortgage rates, increasing home prices and fears of a recession. Despite those concerns, demand for our homes throughout the second quarter of fiscal 2022 remained strong. During the second quarter of 2022 our contracts per community were 15.0, which was above the pre-Covid 2019 second quarter pace of 10.5 and the normal historical average (1997 through 2002) second quarter pace of 13.5 contracts per community."

"We already have over 100% of our expected third and fourth quarter deliveries in contract backlog and we are beginning to build our fiscal 2023 backlog. This provides us with a high level of confidence that we are on track to achieve our adjusted profit guidance for fiscal 2022. Since August of 2021, we have paid off $281 million of senior secured notes prior to their maturity and anticipate paying off at least another $100 million of senior secured notes in the second half of fiscal 2022. Additionally, by the end of 2022, we expect our equity to increase year over year by more than 100% to approximately $365 million. We remain focused on increasing profitability and further strengthening our balance sheet," concluded Mr. Hovnanian.

WEBCAST INFORMATION:

Hovnanian Enterprises will webcast its fiscal 2022 second quarter financial results conference call at 11:00 a.m. E.T. on Wednesday, June 1, 2022. 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 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 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 $149.4 million of cash and cash equivalents, $7.8 million of restricted cash required to collateralize letters of credit and $125.0 million availability under the senior secured revolving credit facility as of April 30, 2022.

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) shortages in, and price fluctuations of, raw materials and labor, including due to geopolitical events, 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; (3) the outbreak and spread of COVID-19 and the measures that governments, agencies, law enforcement and/or health authorities implement to address it, as well as continuing macroeconomic effects of the pandemic; (4) adverse weather and other environmental conditions and natural disasters; (5) the seasonality of the Company's business; (6) the availability and cost of suitable land and improved lots and sufficient liquidity to invest in such land and lots; (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; (26) increases in inflation; and (27) 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, 2021 and the Company's Quarterly Reports on Form 10-Q for the quarterly periods during fiscal 2022 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
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HOVNANIAN ENTERPRISES, INC. AND SUBSIDIARIES
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