Hovnanian Enterprises(HOV) - 2020 Q2 - Quarterly Report

Revenue Growth - For the three and six months ended April 30, 2020, home sales revenue increased by 22.4% and 27.0%, respectively, compared to the same periods of the prior year, driven by a 22.1% and 24.8% increase in deliveries[163] - Total revenues for the three months ended April 30, 2020, increased by $97.7 million, or 22.2$538.4 million compared to $440.7 million for the same period in 2019[215] - Homebuilding revenues from the sale of homes rose by$95.8 million, or 22.4%, for the three months ended April 30, 2020, driven by a 22.1% increase in home deliveries[216] - Total revenues for the six months ended April 30, 2020, increased by $211.1 million, or 25.7$1,032.4 million compared to $821.3 million for the same period in 2019[215] - Homebuilding revenues from the sale of homes for the six months ended April 30, 2020, increased by$212.9 million, or 27.0%, compared to the same period in 2019[216] Profitability and Margins - Gross margin percentage increased to 14.5% for the three months ended April 30, 2020, up from 13.3% in the same period of the prior year, while gross margin before cost of sales interest expense and land charges rose to 18.2%[164] - Homebuilding gross margin for the three months ended April 30, 2020, improved to 14.5% compared to 13.3% for the same period last year, while the six-month gross margin decreased to 13.7% from 14.0%[229] - Income before income taxes increased $6.6 million to$6.7 million for the three months ended April 30, 2020, primarily due to the increase in homebuilding revenues and an increase in gross margin percentage[238] - Income before income taxes increased $6.5 million to$12.5 million for the six months ended April 30, 2020, mainly due to increased homebuilding revenues and a decrease in selling, general and administrative costs[240] - Income before income taxes increased $15.0 million to$21.7 million for the six months ended April 30, 2020, due to increased homebuilding revenues and an increase in gross margin percentage[256] Costs and Expenses - Selling, general and administrative costs decreased by $4.5 million for both the three and six months ended April 30, 2020, with costs as a percentage of total revenue dropping to 10.4$3.6 million and $5.6 million for the three and six months ended April 30, 2020, respectively, attributed to lower selling overhead and advertising costs[233] - The company expects to reduce annualized overhead expenses by approximately$20 million beginning in fiscal 2021 due to operational optimization measures[160] Market Activity - Active selling communities decreased by 10.2% year-over-year as of April 30, 2020, while net contracts decreased by 3.8% and increased by 13.3% for the three and six months ended April 30, 2020, respectively[166] - The company opened 29 new communities while closing 34 communities in the first half of 2020, resulting in a total of 132 open for sale communities[223] - The number of net contracts per average active selling community increased to 11.1 for the three months ended April 30, 2020, compared to 10.5 in the same period of the prior year[223] Inventory and Backlog - Contract backlog increased from 2,254 homes at April 30, 2019, to 2,383 homes at April 30, 2020, with a dollar value of $958.1 million, representing a 0.9$11,900 thousand during the six months ended April 30, 2020[190] - Consolidated inventory not owned increased by $7,900 thousand, primarily due to an increase in land banking transactions[191] - The number of unsold homes decreased from 843 in October 31, 2019, to 716 by April 30, 2020, primarily due to delays in starting unsold homes amid COVID-19 uncertainty[202] Financial Position - Total liquidity at April 30, 2020, was$247.1 million, including $232.8 million in homebuilding cash and cash equivalents after drawing$125.0 million from the senior secured revolving credit facility[172] - The company spent $232.3 million on land and land development during the period, with cash provided from operations amounting to$79.7 million[173] - The company's long-term debt as of April 30, 2020 totaled $1,586.2 million, with a weighted average interest rate of 9.36$1,165,848 thousand as of October 31, 2019, to $1,159,490 thousand as of April 30, 2020[177] Risks and Future Outlook - The company anticipates potential declines in net contracts, deliveries, revenues, cash flow, and profitability due to the ongoing impacts of the COVID-19 pandemic[161] - The company anticipates continued restrictions on paying dividends due to financial covenants, which may persist for the foreseeable future[181] - The company faces various risks including high leverage, availability of financing, and fluctuations in interest rates that could impact operations[274] - Inflation has a long-term effect on home sale prices, which may limit the ability to raise prices if construction costs outpace income growth[269]