Hovnanian Enterprises Reports Fiscal 2016 Second Quarter Results

RED BANK, N.J., June 02, 2016 (GLOBE NEWSWIRE) -- Hovnanian Enterprises, Inc. (NYSE:HOV), a leading national homebuilder, reported results for its fiscal second quarter and six months ended April 30, 2016. 

RESULTS FOR THE THREE MONTH AND SIX MONTH PERIODS ENDED APRIL 30, 2016: 

• Total revenues were $654.7 million in the second quarter of fiscal 2016, an increase of 39.6% compared with $468.9 million in the second quarter of fiscal 2015. For the six months ended April 30, 2016, total revenues increased 34.5% to $1.23 billion compared with $914.7 million in the first half of the prior year.
   
• Total interest expense as a percentage of total revenues was 7.0% during the second quarter of fiscal 2016, a decrease of 50 basis points, compared with 7.5% in the same period of the previous year. For the six months ended April 30, 2016, total interest expense as a percentage of total revenues declined 100 basis points to 6.8% compared with 7.8% during the same period a year ago.
   
• Total SG&A was $69.0 million, or 10.5% of total revenues, a 420 basis point improvement during the second quarter of fiscal 2016 compared with $69.1 million, or 14.7% of total revenues, in last year’s second quarter. Total SG&A was $132.8 million, or 10.8% of total revenues, a 380 basis point improvement for the first six months of fiscal 2016 compared with $133.7 million, or 14.6% of total revenues, in the first half of the prior year.
   
• Homebuilding gross margin percentage, before interest expense and land charges included in cost of sales, was 16.1% for both the second quarter ended April 30, 2016 and 2015. During the first six months of fiscal 2016, homebuilding gross margin percentage, before interest expense and land charges included in cost of sales, was 16.3% compared with 17.1% in the same period of the previous year.
   
• The loss before income taxes in the second quarter of fiscal 2016 was $17.6 million compared with a loss before income taxes of $29.5 million in the prior year’s second quarter. For the first half of fiscal 2016, the loss before income taxes was $30.8 million compared with a loss before income taxes of $49.2 million during the first six months of fiscal 2015.
   
• The loss before income taxes, excluding land-related charges, in the second quarter of fiscal 2016 was $7.9 million compared with the loss before income taxes, excluding land-related charges, of $25.2 million in the prior year’s second quarter. For the first half of fiscal 2016, the loss before income taxes, excluding land-related charges, was $9.4 million compared with a loss before income taxes, excluding land-related charges, of $42.6 million during the first six months of fiscal 2015.
   
• Net loss was $8.5 million, or $0.06 per common share, for the second quarter of fiscal 2016, compared with a net loss of $19.6 million, or $0.13 per common share, in the second quarter of the previous year. For the six months ended April 30, 2016, the net loss was $24.6 million, or $0.17 per common share, compared with a net loss of $33.9 million, or $0.23 per common share, in the first half of fiscal 2015.
   
• For the second quarter of fiscal 2016, Adjusted EBITDA was $39.7 million compared with $12.2 million during the second quarter of 2015, a 224.4% increase. For the first half of fiscal 2016, Adjusted EBITDA increased 134.3% to $78.5 million compared with $33.5 million during the first six months of fiscal 2015.
   
• As of April 30, 2016, consolidated active selling communities decreased 5.3% to 196 communities compared with 207 communities at the end of the prior year’s second quarter. As of end of the second quarter of fiscal 2016, active selling communities, including unconsolidated joint ventures, decreased 3.7% to 208 communities compared with 216 communities at April 30, 2015.
   
• The dollar value of consolidated net contracts increased 9.6% to $768.1 million for the three months ended April 30, 2016 compared with $700.7 million during the same quarter a year ago. The dollar value of net contracts, including unconsolidated joint ventures, during the second quarter of fiscal 2016 increased 5.1% to $789.3 million compared with $750.9 million in last year’s second quarter.
   
• The dollar value of consolidated net contracts increased 16.0% to $1.40 billion for the first six months of fiscal 2016 compared with $1.20 billion in the first half of the previous year. The dollar value of net contracts, including unconsolidated joint ventures, for the six months ended April 30, 2016 increased 14.6% to $1.46 billion compared with $1.27 billion in the first six months of fiscal 2015.
   
• The number of consolidated net contracts, during the second quarter of fiscal 2016, increased 0.9% to 1,812 homes compared with 1,796 homes in the prior year’s second quarter. In the second quarter of fiscal 2016, the number of net contracts, including unconsolidated joint ventures, decreased 1.7% to 1,862 homes from 1,894 homes during the second quarter of fiscal 2015.
   
• The number of consolidated net contracts, during the six month period ended April 30, 2016, increased 7.3% to 3,343 homes compared with 3,115 homes in the same period of the previous year. During the first half of fiscal 2016, the number of net contracts, including unconsolidated joint ventures, was 3,454 homes, an increase of 6.0% from 3,260 homes during the first six months of fiscal 2015.
   
• Consolidated net contracts per active selling community increased 5.7% to 9.2 net contracts per active selling community for the second quarter of fiscal 2016 compared with 8.7 net contracts per active selling community in the second quarter of fiscal 2015. Net contracts per active selling community, including unconsolidated joint ventures, increased 2.3% to 9.0 net contracts per active selling community for the quarter ended April 30, 2016 compared with 8.8 net contracts, including unconsolidated joint ventures, per active selling community in the second quarter of fiscal 2015.
   
• As of April 30, 2016, the dollar value of contract backlog, including unconsolidated joint ventures, was $1.58 billion, an increase of 27.8% compared with $1.23 billion as of April 30, 2015. The dollar value of consolidated contract backlog, as of April 30, 2016, increased 22.1% to $1.43 billion compared with $1.17 billion as of April 30, 2015.
   
• As of April 30, 2016, the number of homes in contract backlog, including unconsolidated joint ventures, increased 11.7% to 3,453 homes compared with 3,092 homes as of April 30, 2015. The number of homes in consolidated contract backlog, as of April 30, 2016, increased 8.6% to 3,228 homes compared with 2,972 homes as of the end of the second quarter of fiscal 2015.
   
• Consolidated deliveries were 1,598 homes in the second quarter of fiscal 2016, a 30.7% increase compared with 1,223 homes in the second quarter of fiscal 2015. For the three months ended April 30, 2016, deliveries, including unconsolidated joint ventures, increased 27.8% to 1,647 homes compared with 1,289 homes in the second quarter of the prior year.
   
• Consolidated deliveries were 3,020 homes in the first half of fiscal 2016, a 27.3% increase compared with 2,372 homes in the same period in fiscal 2015. For the six months ended April 30, 2016, deliveries, including unconsolidated joint ventures, increased 24.1% to 3,113 homes compared with 2,509 homes in the first half of the prior year.
   
• The contract cancellation rate, including unconsolidated joint ventures, for the second quarter of fiscal 2016 was 20%, compared with 17% in the second quarter of fiscal 2015.
   
• The valuation allowance was $635.4 million as of April 30, 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.
   
• During May 2016, the dollar value of consolidated net contracts increased 0.9% to $214.8 million compared with $212.8 million for May of 2015, and the number of consolidated net contracts decreased 3.2% to 512 homes in May 2016 from 529 homes in May 2015.

LIQUIDITY AND INVENTORY AS OF APRIL 30, 2016: 

• After paying off $233.5 million of debt that matured in October 2015 and January 2016, total liquidity at the end of the second quarter of fiscal 2016 was $125.6 million.
   
• During the second quarter of fiscal 2016, land and land development spending was $186.7 million compared with $108.1 million in last year’s second quarter and $116.6 million during the first quarter of fiscal 2016.
   
• As of April 30, 2016, the land position, including unconsolidated joint ventures, was 34,997 lots, consisting of 15,622 lots under option and 19,375 owned lots, compared with a total of 37,140 lots as of April 30, 2015.
   
• During the second quarter of fiscal 2016, approximately 800 lots, including unconsolidated joint ventures, were put under option or acquired in 22 communities.
   
• Subsequent To The End Of The Second Quarter
   
  • Closed on land sale transactions to exit the Minneapolis, MN and Raleigh, NC markets.
     
  • Closed on seven communities in the first tranche of a new joint venture with funds managed by GTIS Partners LP.
     
  • Due to the above actions, total liquidity increased by an aggregate of $75.1 million.
    
    
  • Paid $86.5 million principal amount of debt that matured in May 2016.

FINANCIAL GUIDANCE: 

• Assuming no changes in current market conditions and after the impact from exiting two markets, our guidance for all of fiscal 2016 for total revenues is expected to be between $2.7 billion and $2.9 billion. Adjusted EBITDA is expected to be between $200 million and $225 million and income before income taxes, excluding land related charges, gains or losses on extinguishment of debt and other non-recurring items such as legal settlements, is expected to be between $25 million and $50 million for all of fiscal 2016.

COMMENTS FROM MANAGEMENT: 

“While our revenue grew 40% and Adjusted EBITDA increased over 220%, as we said last quarter, we remain focused on deleveraging our balance sheet and maximizing our profitability rather than on additional growth,” stated Ara K. Hovnanian, Chairman of the Board, President and Chief Executive Officer. “Along with increasing our land and land development spend during the second quarter to $187 million, we have taken the steps we outlined in March to increase our cash position and paid off the $87 million principal amount of debt that matured on May 15, 2016. Since October 15, 2015, we have paid off $320 million of debt. More importantly, we continue to believe that we will have the liquidity to pay off the remaining debt maturities through the end of 2017. We are certain that we are taking the correct steps that will best position our company for future success. While it is discouraging to report a loss for the first half of fiscal 2016, it is nevertheless a significantly reduced loss, and we anticipate our profitability in the second half of the year will more than offset this loss.” 

WEBCAST INFORMATION: 

Hovnanian Enterprises will webcast its fiscal 2016 second quarter financial results conference call at 11:00 a.m. E.T. on Thursday, June 2, 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 (“Adjusted EBITDA”) are not U.S. generally accepted accounting principles (GAAP) financial measures. The most directly comparable GAAP financial measure is net loss. The reconciliation for historical periods of EBIT, EBITDA and Adjusted EBITDA to net loss is presented in a table attached to this earnings release. 

Loss Before Income Taxes Excluding Land-Related Charges is a non-GAAP financial measure. The most directly comparable GAAP financial measure is Loss Before Income Taxes. The reconciliation for historical periods of Loss Before Income Taxes Excluding Land-Related Charges to Loss Before Income Taxes is presented in a table attached to this earnings release. 

With respect to our expectations under “Financial Guidance” above, for Adjusted EBITDA and Income Before Income Taxes Excluding Land-Related Charges a reconiciliation to the closest corresponding GAAP financial measures is not available without unreasonable efforts on a forward-looking basis due to the high variability, complexity and low visibility with respect to land-related charges excluded from these non-GAAP financial measures. We expect the variability of these charges to have a potentially unpredictable, and potentially significant, impact on our future GAAP financial results. 

Total liquidity is comprised of $120.7 million of cash and cash equivalents, $2.3 million of restricted cash required to collateralize letters of credit and $2.6 million of availability under the unsecured revolving credit facility as of April 30, 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 the current or future financial periods, including total revenues, Adjusted EBITDA and adjusted income before income taxes. 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) 

 HOVNANIAN ENTERPRISES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands) 

 HOVNANIAN ENTERPRISES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands Except Share and Per Share Amounts) 

 HOVNANIAN ENTERPRISES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands Except Per Share Data)
(Unaudited) 

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

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