HOVNANIAN ENTERPRISES INC MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-Q) - Marketscreener.com

Key Performance Indicators
contracts represents the dollars associated with net contracts executed in the
? Contract backlog is a volume indicator which represents the number of homes
that are under contract, but not yet delivered as of the stated date. The
dollar value of contract backlog represents the dollar amount of the homes in
contract backlog. These values are an indicator of potential future revenues;
? Active selling communities is a volume indicator which represents the number
of communities which are open for sale with ten or more home sites available
as of the end of a period. We identify communities based on product type;
therefore at times there are multiple communities at one land site. These
? Net contracts per average active selling community is used to indicate the
pace at which homes are being sold (put into contract) in active selling
communities and is calculated by dividing the number of net contracts in a
period by the average number of active selling communities in the same period.
? Contract cancellation rates is a volume indicator which represents the number
of sales contracts cancelled in the period divided by the number of gross
sales contracts executed during the period. Contract cancellation rates as a
percentage of backlog is calculated by dividing the number of cancelled
contracts in the period by the contract backlog at the beginning of the
period. Cancellation rates as compared to prior periods can be an indicator of
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The below highlights our overall positive operating results for the three and nine months ended July 31, 2022:
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CAPITAL RESOURCES AND LIQUIDITY
Operating, Investing and Financing Activities – Overview
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Senior Secured Notes: 10.0% Senior Secured 1.75 Lien Notes due November 15, 2025
$ 158,502 7.75% Senior Secured 1.125 Lien Notes due February 15, 2026
350,000
10.5% Senior Secured 1.25 Lien Notes due February 15, 2026
282,322
90,590
90,120
$ 180,710 Senior Unsecured Term Loan Credit Facility due February 1, 2027
$ 39,551 Senior Secured 1.75 Lien Term Loan Credit Facility due January 31, 2028
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See Note 11 to the Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report on Form 10-Q for a discussion of these agreements.
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(1) Active communities are open for sale communities with ten or more home sites
supplement to our consolidated results as an indicator of the volume managed
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(1) Active communities are open for sale communities with ten or more home sites
available. We identify communities based on product type. Therefore, at
supplement to our consolidated results as an indicator of the volume managed
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(1) Active selling communities (which are communities that are open for sale with
ten or more home sites available) were 108 and 124 at July 31, 2022 and
October 31, 2021, respectively. This ratio does not include substantially
completed communities, which are communities with less than ten home sites
Other Balance Sheet Activities
Prepaid expenses and other assets were as follows as of:
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Deferred tax assets, net, decreased $49.1 million from October 31, 2021 to July 31, 2022, due to the utilization of our deferred tax assets to offset tax expense on taxable income during the period.
Accounts payable and other liabilities were as follows as of:
Customers’ deposits increased $31.2 million from October 31, 2021 to $99.5 million at July 31, 2022. The increase was primarily related to the increase in backlog dollars during the period.
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RESULTS OF OPERATIONS FOR THE three and nine months ended July 31, 2022 COMPARED TO THE three and nine months ended July 31, 2021
Land sales and other revenues 18,052 13,280 4,772
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Information on homes delivered by segment is set forth below:
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(1) Net contracts are defined as new contracts executed during the period for the purchase of homes, less cancellations of contracts in the same period.
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Cancellation rates represent the number of cancelled contracts in the quarter divided by the number of gross sales contracts executed in the quarter. For comparison, the following are historical cancellation rates, excluding unconsolidated joint ventures:
Another common and meaningful way to analyze our cancellation trends is to compare the number of contract cancellations as a percentage of the beginning backlog. The following table provides this historical comparison, excluding unconsolidated joint ventures:
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Land Sales and Other Revenues
Land sales and other revenues consist primarily of land and lot sales. A breakout of land and lot sales is set forth below:
Homebuilding Selling, General and Administrative
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HOMEBUILDING OPERATIONS BY SEGMENT
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Variance Variance %
Northeast
Mid-Atlantic
Midwest
Southeast
Southwest
West
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Homebuilding Results by Segment
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Corporate General and Administrative
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Income from Unconsolidated Joint Ventures
Loss on Extinguishment of Debt
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? Changes in general and local economic, industry and business conditions and
impacts of a significant homebuilding downturn;
? Shortages in, and price fluctuations of, raw materials and labor, including
due to geopolitical events, changes in trade policies, including the
imposition of tariffs and duties on homebuilding materials and products, and
related trade disputes with, and retaliatory measures taken by other
countries;
? The outbreak and spread of COVID-19 and the measures that governments,
agencies, law enforcement and/or health authorities implement to address it,
as well as continuing macroeconomic effects of the pandemic;
? Adverse weather and other environmental conditions and natural disasters;
? The seasonality of the Company’s business;
? The availability and cost of suitable land and improved lots and sufficient
liquidity to invest in such land and lots;
? Reliance on, and the performance of, subcontractors;
? Regional and local economic factors, including dependency on certain sectors
of the economy, and employment levels affecting home prices and sales
activity in the markets where the Company builds homes;
? Increases in cancellations of agreements of sale;
? Fluctuations in interest rates and the availability of mortgage financing;
? Changes in tax laws affecting the after-tax costs of owning a home;
? Legal claims brought against us and not resolved in our favor, such as
product liability litigation, warranty claims and claims made by mortgage
? High leverage and restrictions on the Company’s operations and activities
imposed by the agreements governing the Company’s outstanding indebtedness;
? Availability and terms of financing to the Company;
? The Company’s sources of liquidity;
? Changes in credit ratings;
? Government regulations, including regulations concerning development of land,
the home building, sales and customer financing processes, tax laws and the
? Loss of key management personnel or failure to attract qualified personnel;
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