Beazer Homes USA, Inc. Fiscal 2021 Form 10-K Summary
Business Context and Reporting Period
Beazer Homes is a geographically diversified U.S. homebuilder operating in 13 states across the West, East and Southeast regions. The filing covers the fiscal year ended September 30, 2021, with comparisons primarily to fiscal 2020. Fiscal 2021 benefited from strong housing demand, low mortgage rates and limited housing supply, but was constrained by labor shortages, material availability and extended construction cycle times.
Key Financial Metrics
| Metric | Fiscal 2021 | Fiscal 2020 |
|---|---|---|
| Total revenue | $2.140 billion | $2.127 billion |
| Homebuilding revenue | $2.128 billion | $2.117 billion |
| Gross profit | $404.3 million | $347.6 million |
| Total gross margin | 18.9% | 16.3% |
| Operating income | $146.9 million | $79.1 million |
| Operating margin | 6.9% | 3.7% |
| Net income | $122.0 million | $52.2 million |
| Diluted earnings per share | $4.01 | $1.74 |
| Adjusted EBITDA | $262.7 million | $204.4 million |
| Cash flow from operating activities | $31.7 million | $289.1 million |
| Total debt, net | $1.054 billion | $1.131 billion |
| Cash and cash equivalents | $246.7 million | $327.7 million |
Homebuilding gross margin increased to 18.9% from 16.4%; excluding impairments, abandonments and interest amortized to cost of sales, the margin was 23.0% versus 21.0%. SG&A declined to 11.4% of revenue from 11.9%. The effective tax rate was 15.0%, although management states that effective tax rates are not necessarily meaningful because of tax credits, valuation allowances and other tax attributes.
The Company closed 5,287 homes at an average selling price of $402,400, compared with 5,492 closings at $385,500 in fiscal 2020. Net new orders declined 11.6% to 5,564, while the cancellation rate improved to 11.1% from 15.8%. Backlog increased to 2,786 homes valued at $1.284 billion, with backlog average selling price rising 16.2% to $460,900.
Operating cash flow fell substantially because inventory increased by $147.5 million as the Company invested in land, land development and home construction. Land acquisition and development spending totaled approximately $595.5 million, compared with $440.8 million in fiscal 2020.
Material Changes Versus the Prior Comparable Period
- Net income increased approximately 134%, and Adjusted EBITDA increased 28.5%.
- Operating margin improved by 320 basis points, driven primarily by higher pricing, lower sales incentives and improved overhead efficiency.
- Closings decreased 3.7%, but average selling price increased 4.4%, producing a slight increase in homebuilding revenue.
- Net orders decreased because the average active community count fell to 127 from 163; sales per community per month nevertheless increased to 3.7 from 3.2.
- Controlled lots increased 23.3% to 21,987. Approximately 46.6% of active lots were under option contracts, compared with 34.8% in the prior year.
- Total debt declined by approximately $76.8 million. The Company repurchased $30.7 million of 2027 Senior Notes and repaid $50.0 million of its term loan.
- Inventory impairments and abandonments declined to $0.9 million from $2.9 million. No project-in-progress or land-held-for-sale impairment was recorded in fiscal 2021.
- Cash, cash equivalents and restricted cash declined by $68.4 million, compared with an increase of $219.7 million in fiscal 2020.
Guidance, Outlook, Risks and Unusual Items
Management expects fiscal 2022 priorities to include expanding the land position, increasing land acquisition and development investment, improving operating margin, delivering a strong customer experience and reducing debt to below $1.0 billion by the end of fiscal 2022. Management expects housing fundamentals to remain favorable because of demographics, household formation, workplace changes and the structural shortage of homes, while acknowledging that higher home prices, mortgage underwriting and potential interest-rate increases may moderate appreciation and demand.
- Supply-chain disruptions and shortages of materials and skilled labor extended construction cycle times. Backlog delivery timing increased from historically three to six months to approximately four to nine months after construction commencement.
- Management limited sales in certain communities to align orders with production capacity, protect customer experience and support pricing.
- COVID-19 remains a potential source of operating disruption, including lower demand, construction delays, higher costs, reduced subcontractor availability and possible inventory impairments or option-contract abandonment charges.
- The Company controlled $676.1 million of remaining purchase obligations under land option contracts, with approximately $114.7 million of deposits and non-refundable pre-acquisition costs at risk if options are not exercised.
- Outstanding debt included $50.0 million maturing in September 2022, $229.6 million of 2025 Notes, $363.3 million of 2027 Notes, $350.0 million of 2029 Notes and $70.2 million of junior subordinated notes.
- Liquidity at September 30, 2021 consisted of $246.7 million of cash and $250.0 million of unused revolving credit capacity. The Company reported compliance with its debt covenants.
- Outstanding letters of credit and surety bonds were $33.6 million and $282.3 million, respectively, primarily supporting development obligations.
- Warranty reserves were $12.9 million, and litigation accruals excluding warranty matters were $8.3 million. The filing states that certain legal outcomes and potential losses cannot presently be estimated.
- Inventory valuation is a critical accounting judgment. Projects-in-progress inventory totaled $1.473 billion, and future changes in home prices, sales pace, construction costs or discount rates could result in material impairments.
- The Company had $204.8 million of net deferred tax assets, including a $29.1 million valuation allowance, and stated that approximately $927.4 million of cumulative future pretax income would be required to realize its deferred tax assets before expiration.
Most Important Facts for Investors to Verify
- Whether supply-chain and labor constraints improve sufficiently to convert the $1.284 billion backlog without additional cost escalation or cancellations.
- Whether fiscal 2022 cash flow can support planned land investment, option exercises and the $50.0 million term-loan maturity while reducing debt below $1.0 billion.
- Whether the 23.0% adjusted homebuilding gross margin is sustainable after accounting for labor, materials, land and interest-cost pressures.
- The sensitivity of the $1.473 billion projects-in-progress inventory balance to changes in home prices, sales pace, construction costs and discount rates.
- The potential cash impact of $676.1 million of land option obligations, $282.3 million of surety bonds and $33.6 million of letters of credit.
- The status and ultimate exposure of construction-defect, warranty and other litigation matters, including whether insurance and subcontractor indemnification will be sufficient.
- The effect of mortgage-rate increases, housing affordability pressures and any renewed COVID-19 disruption on orders, cancellations, closings and backlog conversion.
- The terms and enforceability of debt covenants, the September 2022 maturity and the Company’s ability to refinance or repay obligations under changing credit-market conditions.