This summary is based on the second quarter fiscal 2008 earnings call conducted by Hovnanian Enterprises, Inc. (HOV) on June 4, 2008.
Management:
President, Chief Executive Officer, Director: Ara K. Hovnanian
Chief Financial Officer, Executive Vice President, Director: Larry Sorsby
Vice President, Associate Corporate Controller: Brad O’Connor
Senior Vice President, Corporate Controller: Paul W. Buchanan
Senior Vice President-Finance, Treasurer: Kevin C. Hake
Director, Investor Relations: Jeffrey T. O''Keefe
Key Investors Issues
- EPS were a loss of $5.29 a share compared to a loss of 49 cents a share last year.
- Net loss was $340.7 million compared to a net loss of $28 million a year earlier.
- Revenue was $776.4 million, down from $1.1 billion a year ago.
Second Quarter Highlights
Total revenues were $776.4 million compared with total revenues of $1.1 billion in the same quarter a year ago.
- Excluding unconsolidated joint ventures, the company delivered 2,494 homes, a decrease of 21% from 3,150 home deliveries in the fiscal 2007 second quarter.
- The number of net contracts, excluding unconsolidated joint ventures, declined 29% to 2,226 homes compared with last year''s second quarter.
- The company''s contract cancellation rate, excluding unconsolidated joint ventures, was 29%, compared with the rate of 38% reported for the first quarter of fiscal 2008 and 32% in the second quarter of fiscal 2007.
The company incurred a total of $251 million of pre-tax land-related charges including land impairments of $226.4 million and write-offs of predevelopment costs and land deposits of $19.5 million, as well as $5.1 million representing its equity portion of write-offs and impairment charges in unconsolidated joint ventures.
- Excluding land-related charges, the company reported a pre-tax loss of $92.4 million. Including all land-related charges, the company reported a pre-tax loss of $343.4 million.
- The company recorded a $120.6 million FAS 109 deferred tax valuation allowance charge.
- The company reported an after tax loss of $340.7 million, or $5.29 per common share, compared with a net loss of $30.7 million, or 49 cents per common share, in the second quarter of fiscal 2007.
- The company generated $56.1 million of positive cash flow. At April 30, 2008, the company had $119.9 million of homebuilding cash and the balance on the company''s revolving credit facility was $325 million.
Hovnanian''s total land position decreased by 6,646 lots compared to January 31, 2008, reflecting owned and optioned position decreases of 2,108 lots and 4,538 lots, respectively.
- As of April 30, 2008, the company had 27,191 lots controlled under option contracts and owned 25,264 lots. The total land position of 52,455 lots represents a 57% decline from the peak total land position at April 30, 2006.
- The company realized a 19% decline in started unsold homes and models, from 2,321 at January 31, 2008 to 1,885 at April 30, 2008. Excluding model homes, the company had 1,503 started unsold homes as of the end of the second quarter of fiscal 2008.
- Homebuilding gross margin, before interest expense included in cost of sales, was 6.8%, compared with 16.3% in the second quarter of 2007 and 6.7% in the first quarter of 2008.
- Pretax income from Financial Services was $4.1 million.
- The company had 379 active selling communities on April 30, 2008, excluding unconsolidated joint ventures, a decline of 25 active communities, or 6%, from January 31, 2008. The company had 437 active selling communities on April 30, 2007, excluding unconsolidated joint ventures.
- The company delivered 196 homes through unconsolidated joint ventures, compared with 275 homes in last year''s second quarter.
- Contract backlog, as of April 30, 2008, excluding unconsolidated joint ventures, was 3,577 homes with a sales value of $1.2 billion, a decrease of 54% from the same period a year ago. Excluding backlog from the company''s Fort Myers-Cape Coral operations in both periods, backlog decreased 41%.
During May 2008, subsequent to the end of the second fiscal quarter, the company completed the following transactions:
- Raised $126 million from issuing 14 million shares of Class A Common Stock offering at $9.50 per share.
- Issued $600 million aggregate principal amount of 11 1/2% Senior Secured Notes due May 1, 2013.
Net proceeds from these offerings of approximately $705 million were used to pay off outstandings under the corporate credit facility and the excess will be used for general corporate purposes.
After giving effect to these transactions, the company would have had approximately $500 million in homebuilding cash and no borrowings on its revolving credit agreement as of April 30, 2008.
- In addition, during May 2008, the company amended its revolving credit agreement to substantially eliminate financial maintenance covenants and reduced total commitments to $300 million from $900 million, leaving the facility in place largely for the issuance of letters of credit, which at April 30, 2008 were $219.3 million. The maturity of the credit facility remains unchanged at May 2011.
