Release Date: December 05, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Hovnanian Enterprises Inc (HOVNP.PFD, Financial) reported a 48% year-over-year increase in fourth-quarter contracts, indicating strong demand for their homes.
- The company achieved a 9% increase in total revenues for the fiscal year, reaching over $3 billion.
- Adjusted EBITDA for the year was $456 million, exceeding the high end of the guidance range.
- The company has a significant land-light strategy, with 84% of lots controlled via option, reducing risk and increasing flexibility.
- Hovnanian Enterprises Inc (HOVNP.PFD) ended the quarter with $338 million in liquidity, above their targeted range, providing financial stability.
Negative Points
- Gross margins decreased year-over-year due to the use of mortgage rate buydowns and other incentives, impacting profitability.
- The company faced delays in deliveries due to hurricanes and utility connection issues, affecting income from joint ventures.
- First-quarter guidance for fiscal 2025 indicates lower gross margins between 17.5% and 18.5%, primarily due to incentives and focus on sales pace.
- SG&A expenses are expected to remain high as a percentage of revenue due to gearing up for community growth.
- The company has not engaged in share buybacks in the fourth quarter, which may be a concern for some investors looking for capital returns.
Q & A Highlights
Q: Can you elaborate on the strategy shift towards pace versus price and its impact on margins?
A: Ara Hovnanian, CEO, explained that while margins are expected to decrease, the focus on pace over price is intentional. The strategy aims to increase sales volume and inventory turnover, which should offset margin declines. The company expects gross margins to improve after the first quarter, despite the current focus on quick move-in homes (QMIs) and mortgage rate buydowns.
Q: Are there any plans to renegotiate or walk away from land deals that no longer make economic sense?
A: Brad O'Connor, CFO, stated that they have not had to renegotiate or walk away from any deals yet. The company continues to monitor community performance and has only experienced normal walkaways during due diligence periods.
Q: Is there potential for debt refinancing to lower interest costs?
A: Brad O'Connor mentioned that while they are considering refinancing options, current prepayment penalties are high. However, as call premiums reduce, there will be significant interest savings opportunities, which are expected to arise soon.
Q: What is the outlook for SG&A as a percentage of revenue as the company scales?
A: Brad O'Connor indicated that as the company grows, SG&A is expected to decrease from 11.4% to below 10% over the next few years, aligning more closely with industry peers.
Q: Could margins improve in the latter half of the year if mortgage rates decrease?
A: Brad O'Connor confirmed that margins could improve if mortgage rates decrease, reducing the cost of buydowns. The company evaluates incentives on a community-by-community basis, which could lead to better margins if market conditions improve.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
