Hovnanian Enterprises' fiscal Q2 loss widens to $72.7M from US$28.6M loss a year ago as revenues fall 20% to US$255.1M; net contracts fell 17% to 1,166 homes, backlog dropped 21%
RED BANK, New Jersey
June 8, 2011
– Hovnanian Enterprises, Inc. (NYSE:HOV), a leading national homebuilder, reported results for its second quarter and six months ended April 30, 2011.
RESULTS FOR THE THREE AND SIX MONTH PERIODS ENDED APRIL 30, 2011:
Total revenues were $255.1 million for the second quarter ended April 30, 2011 compared with $318.6 million in last year's second quarter. During the first six months of fiscal 2011, total revenues were $507.7 million compared with $638.2 million in the same period of the prior year.
Homebuilding gross margin percentage, before interest expense included in cost of sales, was 14.8% for the three months ended April 30, 2011, compared to 17.3% during the same quarter a year ago. For the six month period ended April 30, 2011, homebuilding gross margin percentage, before interest expense included in cost of sales, was 15.8% compared with 16.6% in the year earlier period.
Consolidated pre-tax land-related charges in the fiscal 2011 second quarter were $16.9 million, compared with $1.2 million in the prior year's second quarter. For the first half of fiscal 2011, consolidated pre-tax land-related charges were $30.5 million compared with $6.2 million during the first half of 2010.
Excluding land-related charges and (loss) gain on extinguishment of debt, the pre-tax loss for the quarter ended April 30, 2011 was $55.1 million compared with $44.0 million in the second quarter of 2010. During the first six months of fiscal 2011, the pre-tax loss, excluding land-related charges and (loss) gain on extinguishment of debt, was $106.2 million compared with $96.6 million in last year's first half.
For the second quarter of fiscal 2011, the after-tax net loss was $72.7 million, or $0.69 per common share, compared with $28.6 million, or $0.36 per common share, in the second quarter of the prior year. During the six months ended April 30, 2011, the after-tax net loss was $136.8 million, or $1.49 per common share, compared with net income of $207.6 million, or $2.60 per fully diluted common share in the first half of last year, which as a result of tax legislation changes included a federal income tax benefit of $291.3 million.
Net contracts during the second quarter of 2011, including unconsolidated joint ventures, decreased 17% to 1,166 homes compared with the same period of the prior year. For the six months ended April 30, 2011, net contracts, including unconsolidated joint ventures, were 2,016 homes, a 15% decrease from the same period a year ago.
Contract backlog, as of April 30, 2011, including unconsolidated joint ventures, was 1,551 homes with a sales value of $513.3 million, a decrease of 21% and 17%, respectively, compared to April 30, 2010. Compared to the first quarter of fiscal 2011, contract backlog, including unconsolidated joint ventures, increased 15% on a units basis and 18% on a dollar basis in the second quarter of fiscal 2011.
The contract cancellation rate, excluding unconsolidated joint ventures, in the fiscal 2011 second quarter was 20%, compared with 17% in the prior year's second quarter.
At April 30, 2011, there were 206 active selling communities, including unconsolidated joint ventures, compared with 188 active selling communities at April 30, 2010.
Deliveries, including unconsolidated joint ventures, were 967 homes for the fiscal 2011 second quarter, compared with 1,197 homes during the second quarter of fiscal 2010. For the first half of the year ended April 30, 2011, deliveries, including unconsolidated joint ventures, were 1,859 homes compared to 2,326 homes in the first six months of 2010.
The valuation allowance was $840.6 million as of April 30, 2011. 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.
CASH AND INVENTORY AS OF APRIL 30, 2011:
As of April 30, 2011, homebuilding cash was $415.2 million, including restricted cash required to collateralize letters of credit.
Cash flow in the second quarter of fiscal 2011 was negative $88.5 million, after spending approximately $125 million of cash to purchase approximately 1,440 lots and to develop land across the Company.
As of April 30, 2011, the land position, including unconsolidated joint ventures, was 32,546 lots, consisting of 10,542 lots under option and 22,004 owned lots.
For the fiscal 2011 second quarter, approximately 1,170 of the lots purchased were within 84 newly identified communities (defined as communities controlled subsequent to January 31, 2009).
Approximately 1,650 lots were put under option in 41 newly identified communities during the second quarter of fiscal 2011.
RECENT NET CONTRACT RESULTS:
For the month of May 2011, net contracts, including unconsolidated joint ventures, were 501 homes compared with 390 homes last year and 392 homes during April 2011, an increase of 28% over both periods.
Net contracts per community for the month of May 2011, including unconsolidated joint ventures, increased to 2.4 compared with 2.0 in the prior year and 1.9 in April 2011, an increase of 20% and 26%, respectively.
COMMENTS FROM MANAGEMENT:
"On a per community basis, our net contracts, including unconsolidated joint ventures, held steady at 1.9 contracts per community per month throughout the quarter, but were still well below the elevated levels of a year ago that benefited from the federal homebuyer tax credit," commented Ara K. Hovnanian, Chairman of the Board, President and Chief Executive Officer. "While the spring selling season has been disappointing, there were a couple of bright spots, including a 28% year-over-year increase in net contracts in May, an increase in our community count during the second quarter and a sequential increase in backlog at April 30, 2011."
"Importantly, we took additional steps throughout the second quarter to better position our balance sheet and now have only $70 million of debt that matures through the end of fiscal 2014. At the same time, we continue to find appealing land opportunities that meet our investment thresholds. Getting these new communities up and running will allow us to grow our top line and better leverage our general, administrative and interest expenses, moving us ever closer down the path to profitability. Based on our backlog, current sales paces and prices and new community openings, we believe our loss will be less in the next two quarters and that cash flow will improve. We remain confident that we have the liquidity to weather the remainder of this downturn, and will continue to position ourselves in preparation for the inevitable housing recovery," concluded Mr. Hovnanian.
Hovnanian Enterprises will webcast its fiscal 2011 second quarter financial results conference call at 11:00 a.m. E.T. on Wednesday, June 8, 2011. 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 "Audio Archives" 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, Kentucky, Maryland, Minnesota, New Jersey, New York, North Carolina, Ohio, Pennsylvania, South Carolina, Texas, Virginia and West Virginia. The Company's homes are marketed and sold under the trade names K. Hovnanian® Homes®, Matzel & Mumford, Brighton Homes, Parkwood Builders, Town & Country Homes and Oster Homes. As the developer of K. Hovnanian's® Four Seasons communities, the Company is also one of the nation's largest builders of active adult homes.
Additional information on Hovnanian Enterprises, Inc., including a summary investment profile and the Company's 2010 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 or fax lists, please send an e-mail to IR@khov.com or sign up at http://www.khov.com.
The Hovnanian Enterprises, Inc. logo is available at http://www.globenewswire.com/newsroom/prs/?pkgid=7499
NON-GAAP FINANCIAL MEASURES:
Consolidated earnings before interest expense, income taxes, depreciation and amortization ("EBITDA") and before inventory impairment loss and land option write-offs and loss (gain) 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 (loss) income. The reconciliation of net (loss) income to EBITDA and Adjusted EBITDA is presented in a table attached to this earnings release.
Cash flow is a non-GAAP financial measure. The most directly comparable GAAP financial measure is Net Cash provided by (or used in) Operating Activities. The Company uses cash flow to mean the amount of Net Cash provided by (or used in) Operating Activities for the period, as reported on the Consolidated Statement of Cash Flows, excluding changes in mortgage notes receivable at the mortgage company, plus (or minus) the amount of Net Cash provided by (or used in) Investing Activities. For the second quarter of 2011, cash flow was negative $88.5 million, which was derived from $98.4 million from net cash used in operating activities plus the change in mortgage notes receivable of $9.7 million plus $0.2 million of net cash provided by investing activities.
Loss Before Income Taxes Excluding Land-Related Charges and Loss (Gain) on Extinguishment of Debt is a non-GAAP financial measure. The most directly comparable GAAP financial measure is Loss Before Income Taxes. The reconciliation of Loss Before Income Taxes to Loss Before Income Taxes Excluding Land-Related Charges and Loss (Gain) on Extinguishment of Debt is presented in a table attached to this earnings release.
All statements in this press release that are not historical facts should be considered as "forward-looking statements". 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 risks, uncertainties and other factors include, but are not limited to, (1) changes in general and local economic and industry and business conditions and impacts of the sustained homebuilding downturn, (2) adverse weather and other environmental conditions and natural disasters, (3) changes in market conditions and seasonality of the Company's business, (4) changes in home prices and sales activity in the markets where the Company builds homes, (5) government regulation, including regulations concerning development of land, the home building, sales and customer financing processes, tax laws, and the environment, (6) fluctuations in interest rates and the availability of mortgage financing, (7) shortages in, and price fluctuations of, raw materials and labor, (8) the availability and cost of suitable land and improved lots, (9) levels of competition, (10) availability of financing to the Company, (11) utility shortages and outages or rate fluctuations, (12) levels of indebtedness and restrictions on the Company's operations and activities imposed by the agreements governing the Company's outstanding indebtedness, (13) the Company's sources of liquidity, (14) changes in credit ratings, (15) availability of net operating loss carryforwards, (16) operations through joint ventures with third parties, (17) product liability litigation and warranty claims, (18) successful identification and integration of acquisitions, (19) significant influence of the Company's controlling stockholders, (20) geopolitical risks, terrorist acts and other acts of war, and (21) other factors described in detail in the Company's Annual Report on Form 10-K/A for the year ended October 31, 2010 and the Company's quarterly reports on Form 10-Q for the quarters ended January 31, 2011 and April 30, 2011, respectively. 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.