• Revenue: $674 million, a 13% increase year-over-year.
• Adjusted Gross Margin: 18.3%, near the high end of guidance.
• SG&A Ratio: 12.9%, improved by 160 basis points year-over-year.
• Income from Unconsolidated Joint Ventures: $9 million, below guidance.
• Adjusted EBITDA: $72 million, above the high end of guidance.
• Adjusted Pre-Tax Income: $41 million, above the high end of guidance.
• Contracts Growth: 9% increase year-over-year, including joint ventures.
• Incentives: 9.7% of average sales price, up 160 basis points year-over-year.
• Quick Move-In Homes (QMI) Sales: 69% of total sales.
• Backlog Conversion Ratio: 76%, highest in 27 years for the first quarter.
• Open-for-Sale Communities: 148, a 10% increase year-over-year.
• Controlled Lots: 43,254, a 29% increase year-over-year.
• Liquidity: $222 million at the end of the first quarter.
• Net Debt to Net Cap: 52.2%, improved from 146.2% in fiscal '20.
• Return on Equity (ROE): 33%, second highest among peers.
• Adjusted EBIT Return on Investment: 29.8%, highest among mid-sized peers.

• Warning! GuruFocus has detected 3 Warning Sign with HOVNP.PFD.

Release Date: February 24, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Hovnanian Enterprises Inc (NASDAQ:HOVNP.PFD) reported a 13% increase in total revenues to $674 million compared to last year's first quarter.
• The company's adjusted EBITDA was $72 million, exceeding the high end of their guidance range.
• Contracts for the first quarter, including unconsolidated joint ventures, increased 9% year over year.
• The company ended the quarter with a 10% increase in open-for-sale communities, totaling 148.
• Hovnanian Enterprises Inc (NASDAQ:HOVNP.PFD) has a high percentage of land controlled via options at 84%, the highest in its history, which supports their strategic focus on land-light operations.

Negative Points

• Revenues were near the low end of guidance due to 50 fewer wholly owned deliveries than expected, partly because of delays in utility hookups.
• Gross margin decreased year-over-year due to increased use of incentives, including mortgage rate buy-downs.
• Income from unconsolidated joint ventures was below guidance due to delays in highly profitable deliveries.
• The company experienced significant monthly volatility in contracts, with a 10% year-over-year decline in January.
• Finished Quick Move-In Homes (QMIs) per community increased to 2.6, higher than desired, indicating slower than expected sales pace.

Q & A Highlights

Q: What do you attribute the recent softness in demand to, given that interest rates have slightly decreased? A: Ara Hovnanian, CEO, explained that the demand fluctuations are due to various concerns that change monthly, such as tariffs, interest rates, and geopolitical tensions. These factors create a volatile environment, causing sales to vary significantly from month to month.

Q: Can you provide insights into the DC market, especially with potential federal government layoffs? A: Ara Hovnanian noted that the broader DC market, including Delaware, Maryland, Northern Virginia, and West Virginia, has varied dynamics. Delaware is strong due to its retiree and second-home markets, while Northern Virginia remains robust due to tech and defense sectors. Maryland, particularly Baltimore, could be more affected by government workforce reductions.

Q: How have incentives changed over the past year, and what interest rates are you offering to remain competitive? A: Brad O'Connor, CFO, stated that incentives have increased by 300 basis points year-over-year to 9.7%. Mortgage rate buy-downs are a primary tool, with rates offered varying by market and community, typically ranging from 4.9% to 5.75%.

Q: What is the current level of finished Quick Move-In (QMI) homes, and how does it affect your strategy? A: The company ended the quarter with 319 finished QMIs, up from the previous quarter. Brad O'Connor mentioned that they are adjusting starts in communities with excess QMIs to avoid overbuilding, aiming to reduce the QMI count by the end of the second quarter.

Q: How long do you expect adjusted gross margins to remain at the current level of 18.5%? A: Ara Hovnanian indicated that due to the volatility in sales, it's challenging to predict margin levels accurately. The company remains optimistic about long-term fundamentals but acknowledges the potential for continued monthly fluctuations.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.