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Press release from GlobeNewswire (a Nasdaq OMX company)

Hovnanian Enterprises Reports Fiscal 2014 First Quarter Results

Wednesday, March 05, 2014

Hovnanian Enterprises Reports Fiscal 2014 First Quarter Results

06:15 EST Wednesday, March 05, 2014

RED BANK, N.J., March 5, 2014 (GLOBE NEWSWIRE) -- Hovnanian Enterprises, Inc. (NYSE:HOV), a leading national homebuilder, reported results for its fiscal first quarter ended January 31, 2014.

RESULTS FOR THE THREE MONTH PERIOD ENDED JANUARY 31, 2014:

  • Total revenues were $364.0 million for the fiscal 2014 first quarter, an increase of 1.6% compared with $358.2 million during the first quarter of fiscal 2013.
     
  • Homebuilding gross margin percentage, before interest expense and land charges included in cost of sales, increased 180 basis points to 18.8% for the first quarter ended January 31, 2014 compared with 17.0% in the fiscal 2013 first quarter.
     
  • Pre-tax loss, excluding land-related charges, in the first quarter of 2014 was $23.2 million compared with $20.1 million in the fiscal 2013 first quarter.
     
  • Net loss was $24.5 million, or $0.17 per common share, for the first quarter ended January 31, 2014, compared with a net loss of $11.3 million, or $0.08 per common share, in the last year's first quarter, which included a $9.7 million federal tax benefit.
     
  • Deliveries, including unconsolidated joint ventures, were 1,138 homes during the fiscal 2014 first quarter, a 4.2% decrease compared with 1,188 homes in last year's first quarter.
     
  • The dollar value of net contracts, including unconsolidated joint ventures, in the fiscal 2014 first quarter decreased 1.6% to $455.8 million compared with $463.2 million in the prior year's first quarter. The number of net contracts decreased 10.6% to 1,202 homes for the fiscal 2014 first quarter from 1,344 homes during the first quarter of fiscal 2013.
     
  • Contract backlog, as of January 31, 2014, including unconsolidated joint ventures, was $904.4 million for 2,456 homes, which was an increase of 11.4% and 6.7%, respectively, compared to January 31, 2013.
     
  • Total interest expense as a percentage of total revenues declined 60 basis points to 9.0% for the first quarter ended January 31, 2014 compared with 9.6% in the 2013 first quarter.
     
  • Total SG&A was $60.4 million, or 16.6% of total revenues, for the three months ended January 31, 2014 compared to $49.3 million, or 13.8% of total revenues, in the first quarter of the prior year.
     
  • Adjusted EBITDA decreased to $11.5 million in the first quarter of fiscal 2014 compared to $16.5 million in the fiscal 2013 first quarter.
     
  • The contract cancellation rate, including unconsolidated joint ventures, for the first quarter of fiscal 2014 was 18%, compared with 17% in the first quarter of the prior year.
     
  • The valuation allowance was $933.8 million as of January 31, 2014. 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 JANUARY 31, 2014:

  • During the first quarter of fiscal 2014, $181.7 million was spent on land and land development. Homebuilding cash was $287.6 million as of January 31, 2014, including $5.1 million of restricted cash required to collateralize letters of credit, compared to $261.6 million at January 31, 2013. In addition to the homebuilding cash, there was $50.8 million of availability under the revolving credit facility as of January 31, 2014, bringing total liquidity to $338.4 million.
     
  • As of January 31, 2014, the land position, including unconsolidated joint ventures, was 34,763 lots, consisting of 14,498 lots under option and 20,265 owned lots, an increase of 5,058 lots compared with a total of 29,705 lots as of January 31, 2013.
     
  • $150.0 million of senior notes due 2019 were issued during the first quarter of fiscal 2014, a portion of the proceeds of which were used to fund the redemption in the second quarter of the remaining $21.4 million outstanding 6.25% senior notes due 2015.

COMMENTS FROM MANAGEMENT:

"While our first quarter is always the slowest seasonal period for net contracts, the strong recovery trajectory from the spring selling season of 2013 has softened on a year-over-year basis. Net contracts in the months of December, January and February have not met our expectations. In addition to the lull in sales momentum, both sales and deliveries were impacted by poor weather conditions and deliveries were further impacted by shortages in labor and certain materials in some markets that have extended cycle times," stated Ara K. Hovnanian, Chairman of the Board, President and Chief Executive Officer.

"We are encouraged by the fact that we have a higher contract backlog, gross margin and community count than we did at the same point in time last year. Furthermore, we have taken steps to spur additional sales in the spring selling season, including the launch of Big Deal Days, a national sales campaign during the month of March. Our first quarter has always been the slowest seasonal period and we expect to report stronger results as the year progresses. We believe this is a temporary pause in the industry's recovery, and based on the level of housing starts across the country, we continue to believe the homebuilding industry is still in the early stages of recovery," concluded Mr. Hovnanian.

WEBCAST INFORMATION:

Hovnanian Enterprises will webcast its fiscal 2014 first quarter financial results conference call at 11:00 a.m. E.T. on Wednesday, March 5, 2014. 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, Maryland, Minnesota, New Jersey, North Carolina, 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 ® , 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 2013 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.

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 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 of Loss Before Income Taxes Excluding Land-Related Charges to Loss Before Income Taxes is presented in a table attached to this earnings release.

FORWARD-LOOKING STATEMENTS

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. 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. 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) 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, warranty claims and claims made by mortgage investors, (18) successful identification and integration of acquisitions, (19) significant influence of the Company's controlling stockholders, (20) changes in tax laws affecting the after-tax costs of owning a home, (21) geopolitical risks, terrorist acts and other acts of war, and (22) other factors described in detail in the Company's Annual Report on Form 10-K for the fiscal year ended October 31, 2013 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.

     
     
     
Hovnanian Enterprises, Inc.    
January 31, 2014    
Statements of Consolidated Operations    
(Dollars in Thousands, Except Per Share Data)    
  Three Months Ended
  January 31,
  2014 2013
  (Unaudited)
Total Revenues $364,048 $358,211
Costs and Expenses (a)  390,509  381,302
Income from Unconsolidated Joint Ventures 2,571  2,289
Loss Before Income Taxes  (23,890)  (20,802)
Income Tax Provision (Benefit) 633 (9,494)
Net Loss $(24,523) $(11,308)
     
Per Share Data:    
Basic:    
Loss Per Common Share $(0.17) $(0.08)
Weighted Average Number of Common Shares Outstanding (b)  145,982  141,725
Assuming Dilution:    
Loss Per Common Share $(0.17) $(0.08)
Weighted Average Number of Common Shares Outstanding (b)  145,982  141,725
     
(a) Includes inventory impairment loss and land option write-offs.    
(b) For periods with a net loss, basic shares are used in accordance with GAAP rules.    
     
     
     
Hovnanian Enterprises, Inc.    
January 31, 2014    
Reconciliation of Loss Before Income Taxes Excluding Land-Related    
Charges to Loss Before Income Taxes     
(Dollars in Thousands)    
     
  Three Months Ended
  January 31,
  2014 2013
  (Unaudited)
Loss Before Income Taxes $(23,890) $(20,802)
Inventory Impairment Loss and Land Option Write-Offs  664  665
Loss Before Income Taxes Excluding Land-Related Charges (a) $(23,226) $(20,137)
     
(a) 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.
     
     
     
Hovnanian Enterprises, Inc.    
January 31, 2014    
Gross Margin    
(Dollars in Thousands)    
  Homebuilding Gross Margin
  Three Months Ended
  January 31,
  2014 2013
  (Unaudited)
Sale of Homes $355,181 $334,281
Cost of Sales, Excluding Interest (a)  288,525  277,558
Homebuilding Gross Margin, Excluding Interest 66,656  56,723
Homebuilding Cost of Sales Interest  9,466  10,160
Homebuilding Gross Margin, Including Interest $57,190 $46,563
     
Gross Margin Percentage, Excluding Interest 18.8% 17.0%
Gross Margin Percentage, Including Interest 16.1% 13.9%
     
  Land Sales Gross Margin
  Three Months Ended
  January 31,
  2014 2013
  (Unaudited)
Land and Lot Sales $430 $11,827
Cost of Sales, Excluding Interest (a) 362 11,197
Land and Lot Sales Gross Margin, Excluding Interest 68 630
Land and Lot Sales Interest Expense 24 120
Land and Lot Sales Gross Margin, Including Interest $44 $510
     
(a) Does not include cost associated with walking away from land options or inventory impairment losses which are recorded as Inventory impairment loss and land option write-offs in the Condensed Consolidated Statements of Operations.
     
     
     
Hovnanian Enterprises, Inc.    
January 31, 2014    
Reconciliation of Adjusted EBITDA to Net Loss    
(Dollars in Thousands)    
  Three Months Ended
  January 31,
  2014 2013
  (Unaudited)
Net Loss $(24,523) $(11,308)
Income Tax Provision (Benefit) 633 (9,494)
Interest Expense 32,823 34,280
EBIT (a) 8,933 13,478
Depreciation 853 1,462
Amortization of Debt Costs 1,055 904
EBITDA (b) 10,841 15,844
Inventory Impairment Loss and Land Option Write-offs 664 665
Adjusted EBITDA (c) $11,505 $16,509
     
Interest Incurred $34,819 $32,653
     
Adjusted EBITDA to Interest Incurred 0.33 0.51
     
     
(a) EBIT is a non-GAAP financial measure. The most directly comparable GAAP financial measure is net loss. EBIT represents earnings before interest expense and income taxes.
(b) EBITDA is a non-GAAP financial measure. The most directly comparable GAAP financial measure is net loss. EBITDA represents earnings before interest expense, income taxes, depreciation and amortization.
(c) Adjusted EBITDA is a non-GAAP financial measure. The most directly comparable GAAP financial measure is net loss. Adjusted EBITDA represents earnings before interest expense, income taxes, depreciation, amortization and inventory impairment loss and land option write-offs.
     
     
Hovnanian Enterprises, Inc.    
January 31, 2014    
Interest Incurred, Expensed and Capitalized    
(Dollars in Thousands)    
  Three Months Ended
  January 31,
  2014 2013
  (Unaudited)
Interest Capitalized at Beginning of Period $105,093 $116,056
Plus Interest Incurred  34,819 32,653
Less Interest Expensed  32,823 34,280
Interest Capitalized at End of Period (a) $107,089 $114,429
     
(a) Capitalized interest amounts are shown gross before allocating any portion of impairments to capitalized interest.
 
 
 
HOVNANIAN ENTERPRISES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands)
     
  January 31,
2014
October 31,
2013
  (Unaudited) (1)
ASSETS    
     
Homebuilding:    
Cash $282,476 $319,142
Restricted cash and cash equivalents 10,689 10,286
Inventories:    
Sold and unsold homes and lots under development 834,575 752,749
Land and land options held for future development or sale 276,763 225,152
Consolidated inventory not owned:    
Specific performance options 2,737 792
Other options 95,859 100,071
Total consolidated inventory not owned 98,596 100,863
Total inventories 1,209,934 1,078,764
Investments in and advances to unconsolidated joint ventures 53,323 51,438
Receivables, deposits, and notes – net 43,755 45,085
Property, plant, and equipment – net 45,647 46,211
Prepaid expenses and other assets 62,438 59,351
Total homebuilding 1,708,262 1,610,277
     
Financial services:    
Cash 6,409 10,062
Restricted cash and cash equivalents 13,252 21,557
Mortgage loans held for sale at fair value 57,377 112,953
Other assets 1,961 4,281
Total financial services 78,999 148,853
Total assets $1,787,261 $1,759,130
     
(1) Derived from the audited balance sheet as of October 31, 2013.
 
 
 
HOVNANIAN ENTERPRISES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands Except Share Amounts)
     
  January 31,
2014
October 31,
2013
  (Unaudited) (1)
LIABILITIES AND EQUITY    
     
Homebuilding:    
Nonrecourse mortgages $71,190 $62,903
Accounts payable and other liabilities 272,297 307,764
Customers' deposits 31,993 30,119
Nonrecourse mortgages secured by operating properties 17,462 17,733
Liabilities from inventory not owned 86,436 87,866
Total homebuilding 479,378 506,385
     
Financial services:    
Accounts payable and other liabilities 21,802 32,874
Mortgage warehouse lines of credit 33,817 91,663
Total financial services 55,619 124,537
     
Notes payable:    
Senior secured notes 978,937 978,611
Senior notes 611,378 461,210
Senior amortizing notes 19,004 20,857
Senior exchangeable notes 67,472 66,615
TEU senior subordinated amortizing notes 1,092 2,152
Accrued interest 26,977 28,261
Total notes payable 1,704,860 1,557,706
Income taxes payable 3,528 3,301
Total liabilities 2,243,385 2,191,929
     
Equity:    
Hovnanian Enterprises, Inc. stockholders' equity deficit:    
Preferred stock, $.01 par value - authorized 100,000 shares; issued and outstanding 5,600 shares with a liquidation preference of $140,000 at January 31, 2014 and at October 31, 2013 135,299 135,299
Common stock, Class A, $.01 par value – authorized 400,000,000 shares; issued 136,660,223 shares at January 31, 2014 and 136,306,223 shares at October 31, 2013 (including 11,760,763 shares at January 31, 2014 and October 31, 2013 held in Treasury) 1,367 1,363
Common stock, Class B, $.01 par value (convertible to Class A at time of sale) – authorized 60,000,000 shares; issued 15,497,153 shares at January 31, 2014 and 15,347,615 shares at October 31, 2013 (including 691,748 shares at January 31, 2014 and October 31, 2013 held in Treasury) 155 153
Paid in capital - common stock 690,899 689,727
Accumulated deficit (1,168,931) (1,144,408)
Treasury stock - at cost (115,360) (115,360)
Total Hovnanian Enterprises, Inc. stockholders' equity deficit (456,571) (433,226)
Noncontrolling interest in consolidated joint ventures 447 427
Total equity deficit (456,124) (432,799)
Total liabilities and equity $1,787,261 $1,759,130
     
(1) Derived from the audited balance sheet as of October 31, 2013.
 
 
 
HOVNANIAN ENTERPRISES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands Except Per Share Data)
(Unaudited)
     
  Three Months Ended January 31,
  2014 2013
Revenues:    
Homebuilding:    
Sale of homes $355,181 $334,281
Land sales and other revenues 773 12,271
Total homebuilding 355,954 346,552
Financial services 8,094 11,659
Total revenues 364,048 358,211
     
Expenses:    
Homebuilding:    
Cost of sales, excluding interest 288,887 288,755
Cost of sales interest 9,490 10,280
Inventory impairment loss and land option write-offs 664 665
Total cost of sales 299,041 299,700
Selling, general and administrative 43,962 36,771
Total homebuilding expenses 343,003 336,471
     
Financial services 6,672 7,428
Corporate general and administrative 16,392 12,503
Other interest 23,333 24,000
Other operations 1,109 900
Total expenses 390,509 381,302
Income from unconsolidated joint ventures 2,571 2,289
Loss before income taxes (23,890) (20,802)
State and federal income tax provision (benefit):    
State 633 233
Federal -- (9,727)
Total income taxes 633 (9,494)
Net loss $(24,523) $(11,308)
     
Per share data:    
Basic:    
Loss per common share $ (0.17) $ (0.08)
Weighted-average number of common shares outstanding 145,982 141,725
Assuming dilution:    
Loss per common share $ (0.17) $ (0.08)
Weighted-average number of common shares outstanding 145,982 141,725
                   
                   
                   
HOVNANIAN ENTERPRISES, INC.                  
(DOLLARS IN THOUSANDS EXCEPT AVG. PRICE)                
(UNAUDITED)         Communities Under Development      
      Three Months - January 31, 2014  
    Net Contracts Deliveries Contract
    Three Months Ended Three Months Ended Backlog
    Jan 31, Jan 31, Jan 31,
    2014 2013 % Change 2014 2013 % Change 2014 2013 % Change
Northeast                    
(includes unconsolidated joint ventures) Home 128 123 4.1% 120 145 (17.2)% 241 272 (11.4)%
(NJ, PA) Dollars $67,369 $60,751 10.9% $62,022 $72,361 (14.3)% $116,593 $129,344 (9.9)%
  Avg. Price $526,320 $493,910 6.6% $516,854 $499,040 3.6% $483,790 $475,529 1.7%
Mid-Atlantic                    
(includes unconsolidated joint ventures) Home 193 214 (9.8)% 166 171 (2.9)% 368 409 (10.0)%
(DE, MD, VA, WV) Dollars $93,443 $99,031 (5.6)% $78,751 $76,443 3.0% $190,082 $185,787 2.3%
  Avg. Price $484,163 $462,762 4.6% $474,402 $447,038 6.1% $516,528 $454,247 13.7%
Midwest                     
(includes unconsolidated joint ventures) Home 175 184 (4.9)% 189 166 13.9% 640 517 23.8%
(IL, MN, OH) Dollars $50,432 $48,820 3.3% $49,183 $40,140 22.5% $165,183 $124,598 32.6%
  Avg. Price $288,182 $265,326 8.6% $260,227 $241,808 7.6% $258,098 $241,002 7.1%
Southeast                    
(includes unconsolidated joint ventures) Home 134 142 (5.6)% 149 125 19.2% 378 300 26.0%
(FL, GA, NC, SC) Dollars $41,376 $40,999 0.9% $45,100 $33,886 33.1% $122,010 $86,452 41.1%
  Avg. Price $308,773 $288,723 6.9% $302,677 $271,090 11.7% $322,779 $288,175 12.0%
Southwest                    
(includes unconsolidated joint ventures) Home 503 559 (10.0)% 441 448 (1.6)% 739 617 19.8%
(AZ, TX) Dollars $158,084 $159,269 (0.7)% $128,085 $120,728 6.1% $246,366 $199,381 23.6%
  Avg. Price $314,282 $284,918 10.3% $290,442 $269,483 7.8% $333,378 $323,146 3.2%
West                     
(includes unconsolidated joint ventures) Home 69 122 (43.4)% 73 133 (45.1)% 90 186 (51.6)%
(CA) Dollars $45,082 $54,294 (17.0)% $36,616 $49,716 (26.3)% $64,170 $86,551 (25.9)%
  Avg. Price $653,366 $445,035 46.8% $501,586 $373,806 34.2% $713,001 $465,328 53.2%
Grand Total                    
  Home 1,202 1,344 (10.6)% 1,138 1,188 (4.2)% 2,456 2,301 6.7%
  Dollars $455,786 $463,164 (1.6)% $399,757 $393,274 1.6% $904,404 $812,113 11.4%
  Avg. Price $379,190 $344,616 10.0% $351,279 $331,039 6.1% $368,243 $352,939 4.3%
Consolidated Total                    
  Home 1,092 1,195 (8.6)% 1,036 1,062 (2.4)% 2,223 2,022 9.9%
  Dollars $408,018 $396,946 2.8% $355,181 $334,281 6.3% $815,276 $694,983 17.3%
  Avg. Price $373,643 $332,172 12.5% $342,838 $314,765 8.9% $366,746 $343,710 6.7%
Unconsolidated Joint Ventures                    
  Home 110 149 (26.2)% 102 126 (19.0)% 233 279 (16.5)%
  Dollars $47,768 $66,218 (27.9)% $44,576 $58,993 (24.4)% $89,128 $117,130 (23.9)%
  Avg. Price $434,254 $444,419 (2.3)% $437,019 $468,201 (6.7)% $382,522 $419,822 (8.9)%
                     
DELIVERIES INCLUDE EXTRAS
Notes:                    
(1) Net contracts are defined as new contracts signed during the period for the purchase of homes, less cancellations of prior contracts.
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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