Hovnanian Enterprises Reports Fiscal 2016 Results

Reports 28% Growth in Total Revenues for All of Fiscal 2016

Reports Pretax Income for Fourth Quarter and Full Year

RED BANK, N.J., Dec. 08, 2016 (GLOBE NEWSWIRE) -- Hovnanian Enterprises, Inc. (NYSE:HOV), a leading national homebuilder, reported results for its fiscal fourth quarter and year ended October 31, 2016.

RESULTS FOR THE THREE AND TWELVE MONTH PERIODS ENDED OCTOBER 31, 2016:

• Total revenues were $805.1 million in the fourth quarter of fiscal 2016, an increase of 16.1% compared with $693.2 million in the fourth quarter of fiscal 2015. For the year ended October 31, 2016, total revenues increased 28.1% to $2.75 billion compared with $2.15 billion in the prior year.
   
• Total SG&A was $53.7 million, or 6.7% of total revenues, during the fourth quarter of fiscal 2016 compared with $49.4 million, or 7.1% of total revenues, in last year’s fourth quarter. Total SG&A was $253.1 million, or 9.2% of total revenues, for all of fiscal 2016 compared with $250.9 million, or 11.7% of total revenues, in the prior fiscal year.
   
• Total interest expense as a percentage of total revenues was 6.0% during the fourth quarter of fiscal 2016 compared with 5.9% for the fourth quarter of fiscal 2015. For the twelve months ended October 31, 2016, total interest expense as a percentage of total revenues declined 30 basis points to 6.7% compared with 7.0% during the same period a year ago.
   
• Homebuilding gross margin percentage, before interest expense and land charges included in cost of sales, was 17.6% for the fourth quarter ended October 31, 2016 compared with 18.0% for the fourth quarter of fiscal 2015. During all of fiscal 2016, homebuilding gross margin percentage, before interest expense and land charges included in cost of sales, was 16.9% compared with 17.6% in the same period of the previous year.
   
• Income before income taxes in the fourth quarter of fiscal 2016 was $32.1 million compared with $37.4 million in the prior year’s fourth quarter. For all twelve months of fiscal 2016, income before income taxes was $2.4 million compared with a loss before income taxes of $21.8 million during all of fiscal 2015.
   
• Income before income taxes, excluding land-related charges and loss on extinguishment of debt, in the fourth quarter of fiscal 2016 was $45.8 million compared with $41.8 million in the prior year’s fourth quarter. For fiscal 2016, income before income taxes, excluding land-related charges and loss on extinguishment of debt, was $39.0 million compared with a loss before income taxes, excluding land-related charges, of $9.7 million during fiscal 2015.
   
• Net income was $22.3 million, or $0.14 per common share, for the fourth quarter of fiscal 2016, compared with $25.5 million, or $0.17 per common share, in the fourth quarter of the previous year. For the fiscal year ended October 31, 2016, the net loss was $2.8 million, or $0.02 per common share, compared with a net loss of $16.1 million, or $0.11 per common share, in all of fiscal 2015.
   
• For the fourth quarter of fiscal 2016, Adjusted EBITDA increased 13.6% to $96.4 million compared with $84.9 million during the fourth quarter of 2015. For all of fiscal 2016, Adjusted EBITDA increased 53.5% to $231.2 million compared with $150.6 million during all of fiscal 2015.
   
• Adjusted EBITDA to interest incurred was 2.39x for fourth quarter of fiscal 2016 compared with 2.01x for the same quarter last year. For the twelve-month period ended October 31, 2016, Adjusted EBITDA to interest incurred was 1.39x compared with 0.91x for the same period one year ago.
   
• Consolidated net contracts per active selling community increased 11.4% to 7.8 net contracts per active selling community for the fourth quarter of fiscal 2016 compared with 7.0 net contracts per active selling community in the fourth quarter of fiscal 2015. Net contracts per active selling community, including unconsolidated joint ventures, increased 4.2% to 7.4 net contracts per active selling community for the quarter ended October 31, 2016 compared with 7.1 net contracts, including unconsolidated joint ventures, per active selling community in the fourth quarter of fiscal 2015.
   
• Consolidated active selling communities decreased 23.7% from 219 communities at the end of the prior year’s fourth quarter to 167 communities as of October 31, 2016, which was impacted by the sale of ten communities in Minneapolis and Raleigh and the conversion of four consolidated communities into unconsolidated joint venture communities. As of the end of the fourth quarter of fiscal 2016, active selling communities, including unconsolidated joint ventures, decreased 17.9% to 188 communities compared with 229 communities at October 31, 2015.
   
• The dollar value of consolidated net contracts decreased 14.5% to $534.3 million for the three months ended October 31, 2016 compared with $624.9 million during the same quarter a year ago. The dollar value of net contracts, including unconsolidated joint ventures, during the fourth quarter of fiscal 2016 decreased 14.9% to $582.7 million compared with $684.3 million in last year’s fourth quarter.
   
• The dollar value of consolidated net contracts increased 2.6% to $2.51 billion for all of fiscal 2016 compared with $2.45 billion in the previous fiscal year. The dollar value of net contracts, including unconsolidated joint ventures, for the twelve months ended October 31, 2016 increased 0.9% to $2.67 billion compared with $2.65 billion in fiscal 2015.
   
• The number of consolidated net contracts, during the fourth quarter of fiscal 2016, decreased 15.4% to 1,299 homes compared with 1,535 homes in the prior year’s fourth quarter. In the fourth quarter of fiscal 2016, the number of net contracts, including unconsolidated joint ventures, decreased 14.7% to 1,389 homes from 1,629 homes during the fourth quarter of fiscal 2015.
   
• The number of consolidated net contracts, during the twelve-month period ended October 31, 2016, decreased 1.2% to 6,109 homes compared with 6,183 homes in the same period of the previous year. During all of fiscal 2016, the number of net contracts, including unconsolidated joint ventures, was 6,380 homes, a decrease of 2.6% from 6,547 homes during fiscal 2015.
   
• As of October 31, 2016, the dollar value of contract backlog, including unconsolidated joint ventures, was $1.22 billion, a decrease of 9.4% compared with $1.35 billion as of October 31, 2015. The dollar value of consolidated contract backlog, as of October 31, 2016, decreased 12.1% to $1.07 billion compared with $1.22 billion as of October 31, 2015.
   
• As of October 31, 2016, the number of homes in contract backlog, including unconsolidated joint ventures, decreased 14.9% to 2,649 homes compared with 3,112 homes as of October 31, 2015. The number of homes in consolidated contract backlog, as of October 31, 2016, decreased 17.5% to 2,398 homes compared with 2,905 homes as of the end of the fourth quarter of fiscal 2015.
   
• Consolidated deliveries were 1,870 homes in the fourth quarter of fiscal 2016, an 8.3% increase compared with 1,727 homes in the fourth quarter of fiscal 2015. For the three months ended October 31, 2016, deliveries, including unconsolidated joint ventures, increased 10.0% to 1,972 homes compared with 1,792 homes in the fourth quarter of the prior year.
   
• Consolidated deliveries were 6,464 homes for all of fiscal 2016, a 17.4% increase compared with 5,507 homes in the same period of fiscal 2015. For the twelve months ended October 31, 2016, deliveries, including unconsolidated joint ventures, increased 16.2% to 6,712 homes compared with 5,776 homes in the twelve months of the prior fiscal year.
   
• The contract cancellation rate, including unconsolidated joint ventures, for the fourth quarter of fiscal 2016 was 21%, compared with 20% in the fourth quarter of fiscal 2015.
   
• The valuation allowance was $627.9 million as of October 31, 2016. The valuation allowance is a non-cash reserve against the tax assets for GAAP purposes. For tax purposes, the tax deductions associated with the tax assets may be carried forward for 20 years from the date the deductions were incurred.

LIQUIDITY AND INVENTORY AS OF OCTOBER 31,2016:

• After paying off $320.0 million of debt that matured in October 2015, January 2016 and May 2016, total liquidity at the end of the fourth quarter of fiscal 2016 was $346.6 million.
   
• During the fourth quarter of fiscal 2016, land and land development spending was $131.4 million compared with $192.1 million in last year’s fourth quarter. For the year ended October 31, 2016, land and land development spending was $567.0 million compared to $656.5 million in the prior fiscal year.
   
• As of October 31, 2016, the land position, including unconsolidated joint ventures, was 31,281 lots, consisting of 14,165 lots under option and 17,116 owned lots, compared with a total of 37,659 lots as of October 31, 2015.
   
• During the fourth quarter of fiscal 2016, approximately 2,100 lots, including unconsolidated joint ventures, were put under option or acquired in 37 communities.

COMMENTS FROM MANAGEMENT:

“For fiscal 2016, we grew revenues by 28%, reduced our SG&A ratio by 250 basis points, paid off $260 million of public debt at maturity and returned to profitability. Nonetheless, fiscal 2016 was a very challenging year,” stated Ara K. Hovnanian, Chairman of the Board, President and Chief Executive Officer. “The debt markets remained closed to companies with our credit ratings and we needed to raise funds to pay off $260 million of maturing public debt. This led to our decision to enhance our liquidity by increasing our use of land bank financings and joint ventures, as well as exiting four underperforming markets. This adversely affected our ability to invest as aggressively in new land parcels as previously planned. However, we ended the year with a liquidity position of $347 million, allowing us to once again actively seek land investment opportunities, which should ultimately result in community count growth and, assuming no change in market conditions, higher levels of profitability in the future,” concluded Mr. Hovnanian.

WEBCAST INFORMATION:

Hovnanian Enterprises will webcast its fiscal 2016 fourth quarter financial results conference call at 11:00 a.m. E.T. on Thursday, December 8, 2016. 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 Red Bank, New Jersey. The Company 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 names K. Hovnanian^® Homes, Brighton Homes^® and Parkwood Builders. As the developer of K. Hovnanian’s^® Four Seasons communities, the Company is also one of the nation’s largest builders of active lifestyle communities.

Additional information on Hovnanian Enterprises, Inc., including a summary investment profile and the Company’s 2015 annual report, 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 (loss). The reconciliation for historical periods of EBIT, EBITDA and Adjusted EBITDA to net income (loss) is presented in a table attached to this earnings release.

Income (Loss) 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 (Loss) Before Income Taxes. The reconciliation for historical periods of Income (Loss) Before Income Taxes Excluding Land-Related Charges and Loss on Extinguishment of Debt to Income (Loss) Before Income Taxes is presented in a table attached to this earnings release.

Total liquidity is comprised of $339.8 million of cash and cash equivalents, $1.7 million of restricted cash required to collateralize letters of credit and $5.1 million of availability under the unsecured revolving credit facility as of October 31, 2016.

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 the sustained homebuilding downturn; (2) adverse weather and other environmental conditions and natural disasters; (3) levels of indebtedness and restrictions on the Company’s operations and activities imposed by the agreements governing the Company’s outstanding indebtedness; (4) the Company's sources of liquidity; (5) changes in credit ratings; (6) changes in market conditions and seasonality of the Company’s business; (7) the availability and cost of suitable land and improved lots; (8) shortages in, and price fluctuations of, raw materials and labor; (9) 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; (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) operations through joint ventures with third parties; (13) government regulation, including regulations concerning development of land, the home building, sales and customer financing processes, tax laws and the environment; (14) product liability litigation, warranty claims and claims made by mortgage investors; (15) levels of competition; (16) availability and terms of financing to the Company; (17) successful identification and integration of acquisitions; (18) significant influence of the Company’s controlling stockholders; (19) availability of net operating loss carryforwards; (20) utility shortages and outages or rate fluctuations; (21) geopolitical risks, terrorist acts and other acts of war; (22) increases in cancellations of agreements of sale; (23) loss of key management personnel or failure to attract qualified personnel; (24) information technology failures and data security breaches; (25) legal claims brought against us and not resolved in our favor; and (26) 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, 2015 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)

Contact:	

J. Larry Sorsby
Executive Vice President & CFO
732-747-7800

Jeffrey T. O’Keefe
Vice President, Investor Relations
732-747-7800

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