Hovnanian Enterprises(US:HOV)2023-03-05 16:00Home Sales Performance - Home sales revenue decreased to $499.6 million for the three months ended January 31, 2023, down 9.4% from $551.4 million in the same period of 2022, with a 20.1% decrease in home deliveries[134][144] - Home sales for the three months ended January 31, 2023, were $499,645, a decrease of 9.4% from $551,366 in the same period of 2022[150] Pricing and Margins - The average sales price per home increased by 13.4% to $532,671 for the three months ended January 31, 2023, compared to $469,647 in the prior year[134][144] - Gross margin percentage decreased to 18.7% for the three months ended January 31, 2023, down from 19.9% in the same period of 2022, primarily due to increased incentives and concessions[135] - Homebuilding gross margin decreased to $93,204, representing a gross margin percentage of 18.7%, down from 19.9% in the prior year[150] Contracts and Backlog - Net contracts decreased by 49.2% for the three months ended January 31, 2023, compared to the same period in the prior year, reflecting a slow sales pace across the industry[139] - Contract backlog decreased from 3,624 homes at January 31, 2022, to 2,028 homes at January 31, 2023, with a dollar value decrease of 37.6% to $1.2 billion[141] - Net contracts per average active selling community dropped to 6.5 from 13.1 year-over-year, reflecting a significant decline in demand due to high inflation and rising mortgage rates[155] - Contract backlog dollars decreased by 37.6% to $415,128 as of January 31, 2023, with the number of homes in backlog down 44.0%[158] Cancellations and Buyer Behavior - The gross contract cancellation rate was 30% in the first quarter of fiscal 2023, an improvement from 41% in the fourth quarter of fiscal 2022[141] - Contract cancellation rates increased to 30% in Q1 2023, compared to 14% in Q1 2022, indicating a higher level of buyer uncertainty[156] Financial Performance - Pre-tax income decreased to $18.0 million for the three months ended January 31, 2023, down from $35.4 million in the same period of 2022[138] - Selling, general and administrative costs increased to $73.4 million, or 14.2% of total revenues, for the three months ended January 31, 2023, compared to 12.8% in the prior year[136] - Selling, general and administrative expenses increased by $5.2 million to $47.9 million, largely due to fees for mortgage rate concessions and merit-based salary increases[154] Liquidity and Investments - The company spent $134.4 million on land purchases and land development during the three months ended January 31, 2023, maintaining total liquidity of $365.7 million[142] - Total liquidity as of January 31, 2023, was $365.7 million, including $234.9 million in cash and cash equivalents and $125.0 million of borrowing capacity under the senior secured revolving credit facility[173] - Cash used in investing activities was $23.3 million during the first quarter of fiscal 2023, primarily due to a new unconsolidated joint venture and acquisition of fixed assets[175] Debt and Financing - As of January 31, 2023, the company's long-term debt totals $1,154.85 million, with a fair value of $1,111.72 million[212] - Senior notes and credit facilities totaled $1,145.3 million net of discounts and unamortized debt issuance costs as of January 31, 2023[179] - The company has $133.9 million in nonrecourse mortgages secured by inventory, with maturities spread over the next two to three years[213] - The company has a $125.0 million Secured Credit Facility with no outstanding borrowings as of January 31, 2023[213] Economic and Market Conditions - The company expects continued pressure on results from higher wages due to inflation and increased advertising spending as it navigates a challenging housing market[132] - The annual inflation rate in the U.S. reached 6.4% in January 2023, impacting home sales due to rising construction costs[205][207] - The company faces risks related to economic conditions, raw material shortages, and fluctuations in interest rates[210] - The company is affected by regional economic factors, including employment levels and home prices[210] Joint Ventures and Investments - Income from unconsolidated joint ventures decreased by $1.0 million to $7.2 million for the three months ended January 31, 2023, compared to the same period in the prior year[171] - Investments in unconsolidated joint ventures increased by $26.1 million to $101.0 million as of January 31, 2023, due to a new joint venture and income from existing ventures[193] Inventory Management - Total inventory decreased by $18.6 million to $1.2 billion as of January 31, 2023, primarily due to home deliveries and inventory contributed to a new joint venture[194] - Consolidated inventory not owned increased by $6.4 million to $267.6 million, driven by land banking transactions[195] Financial Services - Financial services income before income taxes increased to $3.1 million for the three months ended January 31, 2023, compared to $2.9 million in the same period in 2022, attributed to a decrease in total financial services costs and an increase in the basis point spread[168] - Financial services assets decreased by $43.2 million to $112.8 million, primarily due to a reduction in residential mortgage receivables held for sale[203] - Financial services liabilities decreased by $44.5 million to $91.1 million, correlating with the decrease in mortgage loans held for sale[204] Interest Rate Management - The company has limited exposure to variable interest rates, as substantially all long-term debt requires fixed interest payments[211] - Interest rate risk from mortgage loans is mitigated through forward commitments from private investors[211] - The company does not use financial instruments to hedge interest rate risk except for mortgage loans[211]