Hovnanian Enterprises(HOV) - 2024 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Revenues for Q3 2024 were $723 million, an 11% increase year-over-year, aligning with the midpoint of guidance [10][12] - Adjusted gross margin decreased to 22.1% from 22.6% in Q2 2024 and from 22.6% year-over-year [12][16] - Adjusted EBITDA increased by 20% to$ 131 million, exceeding guidance [11][12] - Adjusted pre-tax income rose 34% to $100 million, also above guidance [11][12] Business Line Data and Key Metrics Changes - Year-to-date contracts increased by 8%, but Q3 saw a 13% decline in contracts compared to the previous year [13][14] - Contracts per community decreased to 9.5 in Q3, close to the historical average of 9.9 [14][15] - The percentage of customers using mortgage rate buy downs was 71% in Q3, slightly down from 73% in Q2 [20][21] Market Data and Key Metrics Changes - Recent trends show a 23% increase in contracts over the last five weeks compared to the same period last year, indicating improved demand [18][19] - Mortgage rates have decreased recently, which is expected to positively impact future sales [17][18] Company Strategy and Development Direction - The company is focusing on significant community count growth, with a 20% increase in open communities year-over-year [25][26] - A land-light strategy is being emphasized, with 82% of lots controlled via options, the highest percentage to date [28][30] - The company aims to maintain high inventory turnover rates and reduce construction cycle times to improve ROI and ROE [29][30] Management's Comments on Operating Environment and Future Outlook - Management acknowledged economic, mortgage rate, and geopolitical uncertainties affecting buyer hesitancy [16] - The company remains optimistic about future demand due to low existing home supply and positive demographic trends [19][20] - Management expects continued growth in community count and deliveries, with a focus on joint ventures for capital efficiency [40][42] Other Important Information - The company recorded a$ 46 million gain from the consolidation of a joint venture, contributing to other income [24][25] - Liquidity at the end of Q3 was $250 million, above the targeted range, indicating strong financial health [30][32] Q&A Session Summary Question: Insights on JV consolidation and future income - Management clarified that while the gain from the consolidated JV will shift to wholly owned revenue, new JVs will continue to provide income [49][50] Question: Future gross margin expectations - Management indicated that a gross margin of around 22% is reasonable for Q4, with potential pressures from land costs and mortgage rates [53][54] Question: ROE projections and long-term outlook - Management expressed confidence that ROE will remain above peers due to strong EBIT ROI performance, even as book value normalizes [58][59] Question: Impact of Saudi venture on income - Management stated that meaningful profits from the Saudi venture are expected to materialize by late fiscal '25 or early '26 [65][66]