HOV - Earnings call transcript Q4 2019 | Hovnanian Enterprises, Inc.

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Operator

Good morning and thank you for joining us today for Hovnanian Enterprises Fiscal 2019 Fourth Quarter Earnings Conference Call. An archive of the webcast will be available after the completion of the call and run for 12 months. This conference is being recorded for rebroadcast and all participants are currently in a listen-only mode.

Management will make some opening remarks about the fourth quarter results and then open the line for questions. The Company will also be webcasting a slide presentation along with the opening comments from management. on page available website the are www.khov.com. at slides the of Investor's Company's The would follow like log who listeners Those to the on along website. to now should

Vice call I ahead. to turn like Relations. the would Jeff please to O'Keefe, President, go Investor Jeff, over

Jeffrey O'Keefe

be conference [indiscernible], historical you XXXX. all as of XXXX. All the considered call review in morning's for XX, facts and thank you, ended for October Securities our participating provisions within call statements results Litigation to statements not the fourth Safe of Thank the Act that should of this are this in Private forward-looking the quarter, Reform which meaning Harbor

Such Such implied financial goals the statements future that forward-looking to achievements the include, statements forward-looking and Company but expectations uncertainties actual to results, financial expressed and and for materially achievements the other risks, with its different or not from related of Company's performance may to, be involve or to results any factors by results, statements known unknown statements. cause limited are performance periods. respect or future

as believe forward-looking we we are our Although expectations or or give subjects reflected and achieved. predict plans, their risks, will can such assurance intentions to statements to no uncertainties that forward-looking are made, reasonable, assumptions date by and suggested be plans, are in are or expectations By that performance only the difficult statements such are intentions speak future nature, they and of results, not guarantees or of quantify. that other

other with in XX-K of particularly Such Commission. Risk Discussion filings the Safe result adversely of XXXX, for Securities Report the the fiscal could Form on in forward-looking results Harbor and statement, Management's and as those entitled ended subsequent year in the XX, Exchange our risks, Annual October factors a Analysis, a Factors detail described of MD&A and actual portion entitled materially in variety and factors. sections are from Therefore, differ uncertainties and statements

any whether laws, to required a or statements, events, of forward-looking reason. result undertake as otherwise circumstances or no securities future by obligation applicable as changed Except other any information, we revise publicly update new

me President Officer Bachstetter, and Controller; and Executive Vice Chairman, Treasurer. Brad President President, Sorsby, and Finance, Vice CFO; Joining Accounting and Vice O'Connor, and Ara are CEO; Chief President, today Hovnanian, Larry David

I'll Ara. go now the turn call over Ara, to ahead.

Ara Hovnanian

our Jeff. our four and was as I results the quarter follow of Larry are with the with our with Thanks usual, we Sorsby going to am detail. more and results guidance. review me Overall, will pleased line in quarter

we conference Slide on shows the last metrics discussed call. our specific X

gross margin guidance quarter was Our for the approximately for the fourth XX.X%.

Our slightly XX.X%. actual were results at better

quarter for $XX fourth Second, quarter fourth that excess our the be would a income enough profitable pretax for implied million. adjusted profit that said for the we full the we That year. pretax would of be in

full year Excluding quarter million. million to early the recent debt the for This $XX for our $X related our fourth our income to estimates related costs extinguishment adjusted the related refinancing, pretax and our consensus was of which million pretax charges, was was excluding land of exceeded profit $XX million. adjusted $XX and

last total in expected we compared year that XX% of to fourth the our up would and XXX, we fourth the we was said count XXX to we quarter a year. and ended quarter Finally, increase that in with the exceed XXX a sequentially which communities community the increased communities

for year-over-year X, results On we quarter. the Slide compare fourth

the to $XXX in year's average we've sales over land been last investments total a our making price. quarter. The the see the total during slightly offset is As by increase that upper result The last growth in XX% grew was deliveries fourth this a revenues year lower increase million you two $XXX XX% position was and driven million can revenues years. left-hand little quadrant in of by from in

the quarter compared you for to was margin right, fourth XX.X% our the can XXXX top XXXX. that to of see quarter XX.X% of gross fourth Moving during the

year from and a exceeded it to SG&A the X.X% XX.X% you just was fourth bit, of third last While our quarter. as compared before. up that quarter lower X.X% for sequentially portion in the it of was in our said to was see quarter compared I fourth left-hand can ratio the down XXXX slide, last In guidance total year's the

for the fourth our and leveraging demonstrates ratio quarter increased benefits expenses resultant lower Our SG&A with level of the the revenues revenues. of SG&A higher

in $XX million this total to last year's million from year dollars Our quarter. were fourth $XX SG&A up

increase in SG&A certainly our impacted Our consolidated XX% communities costs.

our However, row, year-over-year. for decreased community five a quarters per SG&A in

to the fourth year $XXX,XXX For year. per decreased last community $XXX,XXX community this from per quarter it

a started number a deliveries getting count, to to we we number - getting of time As be as started annual of excuse costs get and greater growing me, our over our the expect more able In which our we from strong adjusted greater right-hand million income leverage estimates. quadrant the to in fashion, consensus particularly with the levels typical of a bottom in exceeded had XX% back ratio quarter $XX we SG&A normalized range. pretax slide, fourth community of

me sales environment. about our talk let Now

fourth-quarter a positive continued the and in Our February throughout continued this year. very of began that trend year

year-over-year gives a consolidated Slide number this of the granular that a contracts X quarter On contracts contracts compared basis. Slide more the X, monthly XXXX XXXX with detail for year XX% we to contracts to consolidated ago. year show increased on

increase year. to same During the showed compared month month a the strong last quarter, every

increased month when had The a XX% every increase fiscal since first XXXX. in contracts have trend February We positive of continued in XX, the of year-over-year. November, year-over-year contracts month

On showed for basis. community quarter fourth slides X per two the contracts an consolidated of absolute we on show XXXX. previous Slide consolidated The contracts

see, from had of decade. also improved, X.X% increasing to in in quarter. year's we've It a can X.X% metric last fourth this over the you XX% As quarters one strongest was

first the the monthly months, same year including per and been have seven community X again improvement community row, in of blue X.X the month The Slide ago granularity community of per the past months month at contracts for to with to month more XX prior had is is year even the XX than compared X.X per November, give the last months. an contracts XXXX, the month or a and the better a is in contracts X.X last we that On showing in we up in it consolidated gray. over of year. Nine fiscal same equal recent most also was past during November XXXX.

another with If view you contracts to per community can Slide longer-term you see turn of trends. XX,

that left-hand boom for or averaged community and in per past. the the industry XX the as the neither a our XXXX, annual side we've we XX we during was show housing to a of bust per contracts time period On again from slide community contracts said this

in of remainder several contracts clearly community of the see the past steady per the can you On growth for years. each this slide,

On all community hand of of a XX.X slide, show the right was portion for XX.X% to compared year net contracts the we XXXX per that ago.

we're lower contract historical inning. ninth many that currently is that a pace has norms, in at one we our the recovery, While of still very market this the peaks, far improved remain not or long let from alone metrics still suggest

migration absorption to improve. our to gradual continue ratio our continue normal expect we we will levels, As back SG&A

at our a in to growth If future. land should XXX of fourth been year. to compared the is you this the while. for profitability It result total position ultimately our higher revenues the of lead higher levels a Again, investments levels of and making we've certainly result, same to in the a XX% quarter quarter the XXX end at of you last can end increased that turn communities to community see of Slide the XX, to count

I will now Sorsby, turn Executive and it over Officer. President Vice Financial to Larry our Chief

Larry Sorsby

of the by exchanged significantly XXXX position or We took We and the better out debt. our all of refinanced start improve debt the capital coming over Thanks XXXX. quarter in fourth discussing growth Ara. until ourselves in steps over structure $XXX successfully will pushed and maturities due eliminated I on we XXXX execute our and strategy. to million to XX%

Additionally, we capital benefit all debt simplified holders. single pool by structure the secured creating of for collateral a our

the maturities extinguishment impact outweigh million benefits charge The the our related far extending of debt early short-term debt. long-term of to of $XX

of show maturity transactions on XX XX, XXXXXX. October maturity of ladder profile Slide it half half financing our after top as And on closed slide shows the XXXX. we bottom the we On July on the the our looked it

exchanged and extended XXXX In $XXX debt in and and those maturing XXXX and debt XXXX of of of million that XXXX to summary, $XXX million we all XXXX. refinanced in due maturities coming was

quarter to percent XXXX. We set revolver also refinanced into three in that our new term $XXX million month revolving convert a into maturing credit later and seven this loan facility was a

The in and deal debt than financing land, pool it Number three, single liquidity all runway. two, helps our secured to objectives. our for it a of our And simplified continue structure main extended transactions accomplished invest capital collateral of debt maintain Number into allows with liquidity us holders. it's maturity to use to our our maturities. near-term number benefit rather one, the three

Additionally, we XXXX focused have debt XXXX the our instruments. offer portion maturities remaining discounts exchange and and of that of both on capturing exchange pushing a certain out pending is on a

to further capital our balance explore continue and will strengthen analyze our evaluate and We to structure transactions sheet.

fourth we guidance, deliveries set on of in calls, when prior joint stated needed joint we to to XX% quarter. analyst's our to liquidity we joint venture declined wholly-owned we line communities activity some decline. communities XXXX ventures, venture unconsolidated joint raise the in our contributing As up with by In venture the we expected as through sold our

unconsolidated in profit million Our profit income $XX in fourth decreased of joint year's ventures quarter fourth in this last from to million from $X year's quarter.

in in and we community profit decline homes quarter, the the of mix to decline than delivered deliveries. geographic was greater Due the this

joint first results. expect quarter last similar the first unconsolidated income Looking to we to forward, year's be venture during quarter

Turning now to XX. Slide

has you backlog XX% in year-end left this led XXXX a portion last XXXX of contract slide homes from homes new at On orders the at the year. consolidated strong year-end that see growth to can year in growth to the

last backlog we near indicator of growth XX% increase the the side consolidated of year's dollars at of million expect at $XXX the right-hand future. XX, leading occur This in in the from $XXX On million in quarter was end the to October a contract show to slide, we XXXX. fourth revenues an

XX, see on a Turning you year-end our decreased at compared to percent this lots few can slide last Slide as to year. controlled

of to However, meet lots our meet the Further, lots growth XXX% delivery XXXX, some of more of fiscal including required XX% needed over to control for the control already substantial we modest XXXX we during forecast. assumptions higher we're in year. XXXX lots far a XXXX. advance have would significantly This control in typically percentage this than and fiscal growth we already under of our expecting following deliveries the is fiscal

the were and or quarter, our remained approximately controlled acquired fourth put option lot strong. under supply XXXX During lots

standards supply lots controlled, total X.X purchasing of the of you peers. new controlled using to compared see and current of years and/or sales Slide to current At land sales total underwriting We home we're construction of to parcels. lots our pace, peers controlling price, current costs Turning XX, remain our disciplined above our can ours. median when

recent of Specifically, home we current net competitors at our determine home of incentives to prices look prices. sales

Similarly, we absorption competitors recent look at sales them our seasonally pace, to adjust pace. determine current annual XX-week most

acquisitions. using land We future assumptions rosy for optimistic are not stretched

acquisition teams with to seek We busy. acquisitions. to opportunities land When country find we opportunities, seek the our land We're pleased continue of our right control remain new throughout land the acquisition quality the recent and we lots. those

mitigate will We us as we they hedge. when with utilize risk market a to built-in available and continue provide options feel

that Slide options. to second highest of can see you peers, our On percent via the had control XX, land compared we

returns high options inventory much in to risk. achieve capital, to use and on continue reduce land We our as as turns, land enhance possible order

impairments. mothballed $XXX inventory of Looking $X.X not and million billion communities owned, net consolidated $XXX of we at all including value the communities in an inventory aggregate book of of of have million our the

our trailing Slide inventory you we to Turning XX. over peers, XX see have months. second rate now to the the Compared highest that turnover

peer Although number, the industry-leading XX% our [ph] in are than we highest VARs below us. higher industry lag turns turnover next

High are overall of component key a turns inventory strategy. our

Another discussion tax is for area to our asset. deferred related

balance and currently steps asset deferred this taken is Our evaluation protect sheet. allowance not numerous on reflected significant tax is our asset. it is for because to We've very it fully reserved

tax deferred $XXX our in As million. aggregate of was October XXXX the asset XX,

on of billion pre-tax $X We cash will earnings. pay not income have approximately taxes to federal future

Slide we fourth the that On a XX shareholders' quarter with deficit show of million. ended we $XXX

valuation $XXX allowance on our If then slide shareholders positive back you equity would a done this we've our be million. as add

liquidity on comment our position. me current let Now

quarter development. During million land spent we the land fourth $XXX and on

$XXX we XX range. with liquidity our million quarter Slide the on million is seen fourth $XXX targeted above As the of which of ended high-end well liquidity

quarter and had in XX.X% changes current first and slightly we we land-related we year fiscal gross to with adverse our no end better first in or trends, with on of pre-tax expect begin expect for profit quarter the to quarter. stronger before conditions, market Similar Assuming growth our year-over-year and margin charges debt. weaker year-over-year similar historical in any year's first in performance or XXXX losses the quarter last revenues, to gains fourth year the extinguishment the performance of performance

I Ara will brief closing for now some turn remarks. back to it

Ara Hovnanian

Thanks Larry.

While top-line our on our we've associates been and debt, we've and growing systems. been very more focused refinancing on recently our making investments in also our

investments enhance just over past appropriate for our potential of are world. the national This today's ways with we've customers software Internet along We opened a few enables call made digital Here year. a and that center the with interactions in to us are new leading-edge processes.

homebuyers sales potential across associates sales and together management to to our meet suite meet We've country needs teams launched of the leveraging that new sell technology, needs our homes. better more new obviously the floor dramatically enhanced extra in-house the processes of plus buyers. plans prepares to We've multi-generational with with training sales and

We to site optimize address have carefully stores, we on per cost team managing the cost leads. and national the dollars state-of-the-art actions, also spend per digital a continued marketing digital build by advertising, us allows including to landscape. to This digital cost-per-clicks, advertising ever-changing

combined begun communities. of finally, of managing created with reports which functions. to develop of Software in a learning and using and all We'd new dashboard includes program, our the enhance integrated variety to roles And Intelligence accelerated systems Business monitoring development leadership departmental experiential a our we've

preparing Presidents. on our Division Our to focus future become is associates

reported. Seasons our market our we've communities. very in are critical investments recent homes and very given our of just offerings level initiatives undertaken. we're Lifestyle We feel housing trends, sales the evident demographic advantage I strong, encouraged successes. Four on especially entry future about These really homes I'm empty-nester We're our take the to focus all remains the which that success excited that is to Aspire well-positioned Active through through the

strong strategies. attractive low this economy given remains execute Additionally mortgage believe and levels. very rates are to growth the well-positioned that we're U.S. We our at these backdrop on

formal our happy remarks for concludes questions. it we're That up and to open

Operator

[Operator with question McGrath comes first Buckingham Instructions] Megan Our Research. from

is Your now line open.

Megan McGrath

to land from couple your count of orders. maintain up ownership really had builders through have they morning. growth, start heard and high conversation growth on options. good Hi, wanted worked around their also I the other your of last lots and rates these some as order around some community that through to follow sell as to we've We've months caution ability high

looking love kind that and So, of lots I'd to hear your comments XXXX that pipeline. into have to of this on the you finished continue amount

Ara Hovnanian

from We feel we ago year significant can't ago. but competitive it's in that say opportunities pretty a comfortable, seen I Megan. any two environment, I always what a or decrease we've years saw mean,

but country. we're across the continue We be disciplined, finding to opportunities

Larry Sorsby

difficult, obviously, sell we're by Yes, pure and count the some after faster the more at faster really growth get as per other a achieving community make you is would growth because add achieving thing through well. a obviously, revenues, growth just of them community you sell reduction I as is we're pace community, from it what does and which mathematical more for and and quickly. contracts overhead selling benefit perspective, But

would. So, community we'll the otherwise count faster does if as ability we pace as our take fast even grow to modify it

Megan McGrath

mix. a to little It Okay, bit regions X.X. to order individual you. although then so partially was great. like Thank your down about ASP And that, were that's than after. pricing, up I down just That's your follow what more was on due looks

big pressure? that pure lower So, versus seeing point a pricing there price could you you're about any downward shift what to talk and

Larry Sorsby

have grow line. we our Aspire trying to been Yes,

level homes. is our most line Aspire affordable entry Our

on deemphasizing been our not huge bit we're of say although little But mix a have homebuyers it's first the up big of I'd homes, move price. further segment, So, lowest the we're time market. a always a part increasing our pushing

Megan McGrath

very Thank much. you Great.

Operator

Our next Alan and Zelman question from comes with Ratner Associates.

Your line now is open.

Alan Ratner

debt refinancing. strong a and morning. quarter guys, on Congrats good the Hey

Ara Hovnanian

Thank you.

Alan Ratner

A couple first. of questions housekeeping

the SG&A, very First leverage. on impressive

think that of quarter quantify? Was this had number, I reserves. any kind benefit maybe guys can there in benefit you some reversal one-time of year that you ago, defect similar a some a

Larry Sorsby

Yes, actuarial reversal thanks we respect every year do analysis we insurance results. pat the year, Alan, for the last resulted hi that a in and the for it back on of the to an reserves. $XX end SG&A, year With on good had million

I that's think what referring you're to.

Alan Ratner

Right.

Larry Sorsby

This same every year that $X.X in do year. reversal a we did actuarial year. as analysis It we this resulted lower million

points million X.X% compared million so periods. and the results, this want $XX XX.X% reversal So, result if that year's you it's $X.X basis insurance year, one-time last last of happened periods, year's mean, XXX the the ignoring have a a ignoring reversal this take both - in in percent if you of SG&A I call would year, out improvement, to insurance been out both

Alan Ratner

Got it.

appreciate helpful, that. that's Larry. Now, I really

heard sure Second, I make just want to you or I understood correctly.

just was made strong just surprised fiscal I comment given like think, about you supply year year. order that activity And I I and modest controlling a in and expected comment of a when continuing far by that little entering is lots the Larry, the were deliveries of fact so you year. XXXX. made that talking the expecting into you're your up you all next your the thought kind I growth backlog it of new a beginning the XX% guess quite is your seems

here correctly? hear So, any you additional offer that could did commentary there? And I

Larry Sorsby

I did say I modest. CFO. Yes, am a

little we are in next already growth. substantial a did XXXX, which year, So, we XXXX some. year more than this say is more maybe conservative in expect really we I'm But and

Alan Ratner

is very trajectory understood. last if encouraging. the sneak I then And could Thanks. one order one, Okay, in

as the a be seem across well. curious, that entry you resurgence kind focusing to industry the and lot guys of Just about we're level, on a hearing

this months three, publicized the order California some seen the example? well or growth, strong or up four maybe have in really in for year higher maybe any five well the been last and maybe as points improvement geographies that as price earlier have or like you lagging thinking about move Within

Ara Hovnanian

geographies either we've across Board. significant in can steady any last months or audiences. shift in or noted the target six I fairly been say points the It's price

Alan Ratner

Got guys. Good it. Ara. Thanks, luck,

Operator

with from Center. Our next comes Housing Barron Instructions] Alex question [Operator Research

is line now Your open.

Alex Barron

we're year? to time going guys. or guys for hey, to the going I kind or like do what at job you the about you're in on new to to try Yes, were you think guidance since wanted whether on quarter. offer any that? revenues Great of ask Any anything estimate this orders

Larry Sorsby

did some quarter we provide remarks. my Yes, respect color in the first with to formal

are prepared year. not We guidance to any full for provide formal the

Alex Barron

the that Okay. And what the are back take sheet put in what DTA, you're balance profitable? that terms guys it would able for be you now then to rules of the or to Larry, on

Larry Sorsby

need and that continue Those the are on look Yes, be and able to forward believe a three-year be projections, with that I I profitable. our rules. right, we solidly profitable basis Brad? cumulative internal to be we to get

Brad O'Connor

of Yes, debt on the the we that look else, profit is only after that. to at loss the counts make is on everything that that note thing

So, our that thinking we're way, that because work point out. just I'll if doing you're three-year it still you're doesn't longer that in profit, adjusted so cum

Alex Barron

Got it.

trailing a it's thing. So,

Brad O'Connor

three-years, Trailing yes.

Alex Barron

discount balance quite that you of And couldn't a where now? guys given then, or any stock bit; buy it it's given a trading at I why restriction the big either got back bonds or you Okay, that some there are on your is okay. - sheet fixed any thoughts right at have guess the

Ara Hovnanian

to those to on ruled to of our think cash debt executing more we it's a early a cash Well, focus that aren't on on there using growth restrictions certain restrictions. there complicated There really probably there, question. are us in others by securities certain perspective, terms being From plans. our answer important usage is

really At repairing debt. balance higher we'll a I'm sustainable our to when levels count, the sustainable on Once revenues, level sheet grow is this higher community of our profitability focus reduce profitability. reach further point, begin trying those grow trying get to to to we and of

Alex Barron

XX%. of And it. guys mentioned back trying could think to last get I SG&A, Got you one, I a one if target quarter, ask towards to last

So, we seems year be this expect leverage some now see SG&A line that should the top you'll growing again? to that

Larry Sorsby

that. kind for top line that we comes just mean, the actually along that fourth some quarter results should of showed as Yes, SG&A grows, went the leverage with that. I there over be

expect grow, as we leverage ratio So, revenues to SG&A the down.

Alex Barron

lot. a Okay, thanks

Larry Sorsby

you. Thank

Operator

to I'm like at questions remarks. in no I'd the Mr. back for call further Hovnanian, queue, closing time. this to showing turn

Ara Hovnanian

quarter Great. for Thank were as to We and you the the good very news more you. XXXX pleased with forward look Thank the unfolds. much. you giving results year we and

Operator

This conference participating Thank have parties for call for and you a nice day. concludes now All today. may our disconnect. all

Hovnanian Enterprises (HOV) 5 Dec 192019 Q4 Earnings call transcript