Hovnanian Enterprises(HOV) - 2024 Q3 - Quarterly Results

Financial Highlights & Performance Hovnanian Enterprises reported strong Q3 FY2024 results, with double-digit growth in revenues and profitability Q3 FY2024 Key Financial Metrics (YoY) | Metric | Q3 2024 | Q3 2023 | Change | | :--- | :--- | :--- | :--- | | Total Revenues | $722.7 million | $650.0 million | +11.2% | | Income Before Income Taxes | $97.3 million | $70.4 million | +38.2% | | Net Income | $72.9 million | $55.8 million | +30.8% | | Diluted EPS | $9.75 | $7.38 | +32.1% | | EBITDA | $127.9 million | $104.5 million | +22.4% | Nine Months Ended July 31, 2024 Key Financial Metrics (YoY) | Metric | YTD 2024 | YTD 2023 | Change | | :--- | :--- | :--- | :--- | | Total Revenues | $2.03 billion | $1.87 billion | +8.6% | | Income Before Income Taxes | $199.2 million | $134.6 million | +48.1% | | Net Income | $147.7 million | $108.6 million | +36.0% | | Diluted EPS | $19.15 | $13.97 | +37.1% | - Homebuilding gross margin percentage declined to 19.1% in Q3 2024 from 20.1% in Q3 2023. Before cost of sales interest and land charges, the margin was 22.1%, down from 23.2% YoY[4][5] - Total SG&A expenses increased to $89.5 million (12.4% of total revenues) in Q3 2024, compared to $75.1 million (11.6% of total revenues) in the prior-year quarter[5] Operational Metrics Consolidated contracts decreased in Q3, yet community count grew significantly, with recent positive contract trends - Consolidated contracts decreased to 1,192 homes ($645.8 million) in Q3 2024 from 1,444 homes ($744.2 million) in Q3 2023[8] - A positive trend emerged in the five weeks prior to the report, with contracts (including JVs) increasing approximately 23% compared to the same period a year ago[8] - Consolidated community count grew 23.5% year-over-year to 126 communities as of July 31, 2024[9] - The dollar value of consolidated contract backlog decreased 12.6% to $1.16 billion as of July 31, 2024[12] - The gross contract cancellation rate for consolidated contracts was 17% for Q3 2024, slightly up from 16% in the prior-year quarter[13] Liquidity and Inventory Hovnanian maintained strong liquidity, significantly increased land investment, and grew its controlled lot supply by 34% - Total liquidity was $251.3 million as of July 31, 2024, which is above the company's targeted range of $170 million to $245 million[15] - Land and land development spending increased to $216.1 million in Q3 2024, up from $168.8 million in Q3 2023[15] - Total controlled consolidated lots increased by 34.0% YoY to 39,516 lots, representing a 7.7-year supply based on trailing twelve-month deliveries[16] - The company repurchased 82,753 shares of common stock for $11.5 million at an average price of $139 per share during the third quarter[15] Management Commentary Management expressed satisfaction with strong Q3 results, emphasizing a strategic shift towards growth for future profitability - CEO Ara K. Hovnanian noted that while Q3 contracts were choppy due to economic uncertainty, contracts have increased approximately 23% over the past five weeks, suggesting a positive reaction from homebuyers to decreasing mortgage rates[21] - The company is shifting its primary focus to business growth, demonstrated by a 34% increase in lot count, a 28% YoY increase in land spend, and a 24% growth in consolidated community count[21] - Management believes these investments will lead to future revenue growth, better leverage of fixed costs, higher profitability, and improved credit metrics, while continuing to deliver top-tier industry returns[21] Financial Guidance Hovnanian Enterprises raised its FY2024 guidance, projecting increased revenues, adjusted income before taxes, and substantial book value growth Updated Full Fiscal Year 2024 Guidance | Metric | Guidance Range | | :--- | :--- | | Total Revenues | $2.90 billion - $3.05 billion | | Adjusted Homebuilding Gross Margin | 21.5% - 22.5% | | Adjusted Income Before Income Taxes | $300 million - $325 million | | Adjusted EBITDA | $420 million - $445 million | | Fully Diluted Earnings Per Share | $29 - $31 | - The midpoint of the full-year adjusted income before income tax guidance was increased by 11% to $313 million[1] - The company anticipates its common book value per share will increase by about 50% to approximately $109 per share by October 31, 2024, compared to $73 per share at the end of the previous year[19] Consolidated Financial Statements The consolidated financial statements offer a detailed view of Hovnanian's financial position, performance, and segment-specific results Statements of Operations The statements of operations detail the company's revenues, costs, and income components for the reporting periods Q3 2024 Statement of Operations Highlights | Line Item | Q3 2024 | Q3 2023 | | :--- | :--- | :--- | | Total Revenues | $722.7 million | $649.9 million | | Total Cost of Sales | $572.7 million | $503.6 million | | Selling, General & Administrative | $51.0 million | $47.7 million | | Income from Unconsolidated JVs | $10.7 million | $8.4 million | | Income Before Income Taxes | $97.3 million | $70.4 million | | Net Income | $72.9 million | $55.8 million | Balance Sheet The balance sheet provides a snapshot of the company's assets, liabilities, and equity at specific reporting dates Balance Sheet Highlights | Account | July 31, 2024 | Oct 31, 2023 | | :--- | :--- | :--- | | Cash and cash equivalents | $122.0 million | $434.1 million | | Total inventories | $1.65 billion | $1.35 billion | | Total assets | $2.54 billion | $2.49 billion | | Total liabilities | $1.84 billion | $1.91 billion | | Total equity | $703.4 million | $581.8 million | Segment Data Segment data provides insights into regional performance, including consolidated deliveries and contracts by geographic area Q3 2024 Consolidated Deliveries by Segment (Homes) | Segment | Q3 2024 | Q3 2023 | % Change | | :--- | :--- | :--- | :--- | | Northeast | 404 | 357 | +13.2% | | Southeast | 231 | 230 | +0.4% | | West | 620 | 611 | +1.5% | | Consolidated Total | 1,255 | 1,198 | +4.8% | Q3 2024 Consolidated Contracts by Segment (Homes) | Segment | Q3 2024 | Q3 2023 | % Change | | :--- | :--- | :--- | :--- | | Northeast | 414 | 366 | +13.1% | | Southeast | 114 | 373 | (69.4)% | | West | 664 | 705 | (5.8)% | | Consolidated Total | 1,192 | 1,444 | (17.5)% | - Unconsolidated joint ventures (excluding KSA) showed strong growth, with home deliveries increasing 31.0% to 224 homes and contracts increasing 30.8% to 204 homes in Q3 2024 compared to the prior year[44] Reconciliation of Non-GAAP Measures This section reconciles key non-GAAP financial measures, including Adjusted EBITDA, to their GAAP equivalents Q3 2024 EBITDA and Adjusted EBITDA Reconciliation | Line Item | Q3 2024 | Q3 2023 | | :--- | :--- | :--- | | Net Income | $72.9 million | $55.8 million | | Income Tax Provision | $24.4 million | $14.6 million | | Interest Expense | $28.6 million | $32.8 million | | EBIT | $125.8 million | $103.2 million | | Depreciation & Amortization | $2.1 million | $1.3 million | | EBITDA | $127.9 million | $104.5 million | | Inventory Impairments | $3.1 million | $0.3 million | | Loss on Extinguishment of Debt | $0 | $4.1 million | | Adjusted EBITDA | $131.0 million | $108.9 million | Q3 2024 Homebuilding Gross Margin Reconciliation | Metric | Percentage | | :--- | :--- | | GAAP Homebuilding Gross Margin % | 19.1% | | After Interest, Before Land Charges % | 19.2% | | Before Interest and Land Charges % | 22.1% | - Adjusted income before income taxes (excluding land-related charges and loss/gain on debt extinguishment) was $100.4 million in Q3 2024, compared to the GAAP figure of $97.3 million[29]