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HE

HOVNANIAN ENTERPRISES INC (HOV)·Q4 2024 Earnings Summary

Executive Summary

  • Q4 revenue rose 10.4% to $979.6M while diluted EPS was $12.79; gross margin compressed (homebuilding GM after interest and land charges 18.0% vs 21.4% YoY) as management consciously traded margin for pace using mortgage buydowns and incentives .
  • Contracts accelerated sharply: consolidated up 44.5% to 1,355 homes (47.5% to 1,571 including JVs), with November contracts up 55% YoY; cancellation rate improved to 18% (consolidated) from 25% .
  • FY24 ended above the high end of guidance for adjusted pretax income and adjusted EBITDA; Q1 FY25 guidance introduced: revenue $650–$750M, adjusted gross margin 17.5–18.5%, adjusted EBITDA $55–$65M, adjusted pretax income $25–$35M; SG&A expected 13.5–14.5% of revenue .
  • Pivot to growth continued: record Q4 land spend $318.4M; controlled consolidated lots up 32% YoY to 41,891; liquidity $338.2M (above target), supporting delivery growth >10% annually over coming years per management .

What Went Well and What Went Wrong

What Went Well

  • Management drove a significant acceleration in contracts: “The 48% increase in total fourth quarter contracts followed by the 55% increase in November demonstrates that consumer demand remains strong…” .
  • Capital deployment and growth metrics were robust: land & land development spend +46.5% FY, +45.0% in Q4; controlled consolidated lots +32% YoY to 41,891; liquidity $338.2M, above the $170–$245M target range .
  • Returns stayed top-tier: trailing 12-month ROE 34.6% and Adjusted EBIT ROI 30.7%, among the highest in the peer set cited by management .

What Went Wrong

  • Margin compression: homebuilding GM after interest and land charges fell to 18.0% (21.4% prior-year Q4), primarily due to elevated incentives and mortgage buydowns (8.5% of ASP in Q4), with conscious pace-over-price strategy (particularly in the West) .
  • Quarterly profitability modestly lower YoY: net income $94.3M vs $97.3M; EBITDA $151.0M vs $159.1M; backlog dollar value declined (consolidated −11.7% to $936.8M; incl. JVs −6.2% to $1.23B) .
  • Operational friction: hurricanes and utility hookup delays constrained late-quarter deliveries and community openings, with elevated reliance on QMIs adding forecasting complexity .

Financial Results

Quarterly trend (sequential)

MetricQ2 2024Q3 2024Q4 2024
Revenue ($USD Millions)$708 $722.7 $979.6
Diluted EPS ($USD)—$9.75 $12.79
EBITDA ($USD Millions)—$127.9 $151.0
Homebuilding GM % (after interest & land)22.6% (Q2: before interest/land) 19.1% 18.0%
Homebuilding GM % (before interest & land)22.6% 22.1% 21.7%
SG&A % of revenue11.2% 12.4% 9.0%
Interest expense % of revenue—4.0% 3.2%

Year-over-year (Q4)

MetricQ4 2023Q4 2024
Revenue ($USD Millions)$887.0 $979.6
Diluted EPS ($USD)$13.05 $12.79
EBITDA ($USD Millions)$159.1 $151.0
Homebuilding GM % (after interest & land)21.4% 18.0%
Homebuilding GM % (before interest & land)24.5% 21.7%
SG&A % of revenue9.1% 9.0%
Interest expense % of revenue4.1% 3.2%

Segment breakdown (Q4 deliveries and sale-of-homes revenue)

SegmentDeliveries Q4 2023 (Homes)Deliveries Q4 2024 (Homes)Sale of Homes Revenue Q4 2023 ($USD ‘000)Sale of Homes Revenue Q4 2024 ($USD ‘000)
Northeast (DE, MD, NJ, OH, PA, VA, WV)532 579 $309,935 $365,115
Southeast (FL, GA, SC)231 206 $123,942 $98,003
West (AZ, CA, TX)754 962 $395,856 $464,381
Consolidated Total1,517 1,747 $829,733 $927,499

KPIs

KPIQ4 2023Q4 2024
Consolidated contracts (homes; $USD ‘000)938; $564,089 1,355; $705,564
Contracts incl. domestic JVs (homes; $USD ‘000)1,065; $648,362 1,571; $845,654
Contracts per community (consolidated)8.3 10.4
Contracts per community (incl. domestic JVs)8.3 10.7
Backlog $ (consolidated)$1.06B $936.8M
Backlog $ (incl. domestic JVs)$1.32B $1.23B
Gross contract cancellation rate (consolidated)25% 18%
Gross contract cancellation rate (incl. domestic JVs)24% 18%
Community count (consolidated / incl. JVs)113 / 129 130 / 147
Controlled consolidated lots31,726 41,891
Total liquidity—$338.2M

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Total Revenues ($USD Millions)Q1 FY2025N/A$650–$750Introduced
Adjusted Homebuilding Gross Margin %Q1 FY2025N/A17.5%–18.5%Introduced
Adjusted Income Before Income Taxes ($USD Millions)Q1 FY2025N/A$25–$35Introduced
Adjusted EBITDA ($USD Millions)Q1 FY2025N/A$55–$65Introduced
SG&A as % of RevenueQ1 FY2025N/A13.5%–14.5%Introduced
Income from Unconsolidated JVs ($USD Millions)Q1 FY2025N/A$15–$30Introduced

Notes: Guidance excludes phantom stock expense impacts tied solely to stock price movements and assumes no adverse changes in rates, supply chain, inflation, or cancellations .

Earnings Call Themes & Trends

TopicPrevious Mentions (Q2 & Q3 2024)Current Period (Q4 2024)Trend
Pace vs Price; IncentivesQ2: Buydowns used in 73% of deliveries; contracts per community 13.9 and price raises in 59% of communities . Q3: Buydowns ~71%; margin guide ~22%; West softness; choppy contracts .Management emphasized pace over price; incentives 8.5% of ASP in Q4; buydowns used by 72% of delivered homes; raising prices in ~34% of communities .More explicit pivot to pace; incentives elevated; margins down near term.
Supply chain / WeatherQ2: Utility hookups delayed; cycle times ~160 days . Q3: Hurricane Beryl impacted Texas; utility delays persisted .Hurricanes and utility delays constrained late-quarter deliveries and openings; cycle time commentary continued .Persistent operational friction, being managed.
Land-light strategy & inventory turnsQ2: Optioned lots 80%; high turns vs peers . Q3: Option lots 82%; turns among highest; maturation ladder improved .Option lots 84% (highest ever); high inventory turns cited; targeting >10% delivery growth .Intensifying land-light posture, supporting growth & ROIC.
Technology initiativesNew “Looks” national design portfolio highlighted; strong reception .New website launched Dec 2, 2024; “Looks” referenced as performance lever .Ongoing product/UX modernization.
Macro & RatesRate volatility; lower rates helped late-Q3 orders (23% last five weeks) .Rates rose since early Oct but remain lower vs last year; web traffic near COVID peaks; demand robust .Volatile rates; demand resilient with buydowns.
Credit metrics / RatingsDebt exchanges lowered face value; upgrades by S&P and Moody’s; net debt to net cap improving .Continued deleveraging narrative; plan to pay off $27M 13.5% notes early (Feb 2025) .Further balance sheet strengthening expected.

Management Commentary

  • “We adjusted our balance of pace versus price during the quarter… we offered additional incentives, particularly in the West. Although these contracts are at lower margins, this is a conscious effort and we are very pleased with the tradeoff of pace for margin given our focus on inventory turns, EBIT ROI and quick move in homes.” — Ara K. Hovnanian, CEO .
  • “Adjusted EBITDA [FY24] was $456M… adjusted pretax income was $327M… above the high end of the guidance range that we gave.” — Ara K. Hovnanian .
  • “We ended the quarter with 41,891 controlled lots… equates to a 7.8 years supply… even after spending a record $318M on land and land development, we ended the fourth quarter with $338M of liquidity.” — Brad O’Connor, CFO .
  • “Given our rapidly growing book value… despite our extremely high ROE, there are a number of peers that have a higher price-to-book ratio than us… our stock continues to be the most undervalued in the entire universe of public homebuilders.” — Brad O’Connor .

Q&A Highlights

  • Pace vs price framework: Management reiterated the deliberate margin trade-off to maximize ROI via higher turns, with expectation that gross margins should improve after Q1 seasonality and SG&A leverage with growth .
  • Asset-light/land-light resilience: No need to renegotiate/walk away from optioned lots; impairments limited to owned assets; land-light improves liquidity flexibility if markets slow .
  • Refinancing and debt trajectory: Plan to retire $27M of highest-coupon notes in Feb 2025; broader refinancing weighed against call premiums; potential significant interest savings as premiums decline .
  • JV income and consolidation: JV income guidance ($15–$30M in Q1) excludes consolidation gains; preferred structures can create future step-up consolidation events, but consolidated margins align with underwriting .
  • Share repurchase stance & SG&A trajectory: No Q4 buybacks; SG&A could trend to <10% over time with scale, partially offsetting margin compression .

Estimates Context

  • Wall Street consensus (S&P Global) for Q4 2024 EPS/Revenue was unavailable due to access limits today; as such, we cannot state a beat/miss vs consensus. Given company-introduced Q1 FY25 guidance (revenue $650–$750M; adjusted GM 17.5–18.5%; adjusted EBITDA $55–$65M), sell-side models should align near-term margin expectations lower while reflecting stronger order pace and revenue range guidance .
    Note: S&P Global consensus data was unavailable at time of analysis.

Key Takeaways for Investors

  • Demand inflection is clear: contracts surged 48% in Q4 and 55% in November, with improved cancellations, signaling robust near-term conversion despite rate volatility .
  • Near-term margin trough likely in Q1: guidance embeds lower adjusted gross margin (17.5–18.5%) on continued buydowns/incentives; watch SG&A leverage and cycle-time improvement to mitigate EBIT compression .
  • Growth pivot backed by land pipeline: record land spend and 32% YoY lot growth position deliveries to grow >10% annually, supporting medium-term revenue and ROIC expansion .
  • Balance sheet improving with targeted debt actions: planned early payoff of 13.5% notes and potential future refinancing as call premiums fall should reduce interest burden and enhance earnings power .
  • Mix and QMI strategy are key to turns: elevated QMIs (72% of Q4 sales) and land-light model accelerate inventory turns and ROI; monitor West region incentives and pricing power dispersion .
  • Valuation optionality: management highlights high ROE/EBIT ROI vs peers and argues for rerating as leverage declines; catalysts include sustained demand, execution on deliveries, and interest expense reduction .
  • Watch operational frictions: utility hookups and weather events can skew quarter-end deliveries; continued community count growth and backlog conversion are critical to tracking execution .