Beazer Homes USA, Inc. — Fiscal 2022 Form 10-K Summary
Reporting period: Fiscal year ended September 30, 2022. The filing is an annual Form 10-K, not a standalone fourth-quarter report; fourth-quarter operating data is provided where disclosed. Beazer is a geographically diversified homebuilder operating in 13 states across the West, East and Southeast regions.
Financial and Operating Highlights
| Metric | FY 2022 | FY 2021 | Change |
|---|---|---|---|
| Total revenue | $2.317 billion | $2.140 billion | +8.3% |
| Homebuilding revenue | $2.303 billion | $2.128 billion | +8.2% |
| Gross profit | $537.5 million | $404.3 million | +32.9% |
| Operating income | $272.5 million | $146.9 million | +85.5% |
| Net income | $220.7 million | $122.0 million | +80.9% |
| Diluted EPS | $7.17 | $4.01 | +78.8% |
| Adjusted EBITDA | $370.1 million | $262.7 million | +40.9% |
| Homebuilding gross margin | 23.1% | 18.9% | +420 bps |
| Operating margin | 11.8% | 6.9% | +490 bps |
| Cash flow from operations | $81.1 million | $31.7 million | +$49.4 million |
- Closings declined 10.0% to 4,756, but average selling price increased 20.3% to $484,100, reflecting prior price appreciation, limited supply and inflation.
- Net new orders declined 27.0% to 4,061. Sales per community per month fell to 2.8 from 3.7.
- Cancellation rate increased to 17.6% from 11.1%; the rate reached 32.8% in the fourth fiscal quarter.
- Backlog declined 24.9% to 2,091 homes, while backlog value declined 10.8% to $1.145 billion. Backlog average selling price increased 18.8% to $547,500.
- SG&A declined to 10.9% of revenue from 11.4%, although dollar SG&A increased $8.2 million to $251.7 million.
- Owned inventory increased to $1.738 billion from $1.502 billion, primarily reflecting increased land, development and construction spending.
Cash Flow, Debt and Liquidity
- Cash, cash equivalents and restricted cash totaled $251.8 million at September 30, 2022, including $214.6 million of unrestricted cash and $37.2 million of restricted cash.
- Operating cash flow was $81.1 million, despite a $231.4 million increase in inventory. Capital expenditures were $15.0 million.
- Total debt declined to $983.4 million from $1.054 billion, achieving management’s goal of reducing debt below $1.0 billion.
- The Senior Unsecured Term Loan was fully repaid, and the Company repurchased $24.4 million of Senior Notes, consisting of $18.4 million of 2025 Notes and $6.0 million of 2027 Notes.
- At September 30, 2022, the existing secured revolving facility had $244.5 million of remaining capacity and no borrowings outstanding. On October 13, 2022, it was replaced by a $265.0 million Senior Unsecured Revolving Credit Facility, with potential expansion to $400.0 million, maturing October 13, 2026.
- Available liquidity at fiscal year-end was reported at $459.1 million, comprising cash and remaining revolver capacity.
- Contractual commitments totaled $2.258 billion, including $827.6 million of remaining obligations under land option agreements and $399.2 million of future interest commitments.
Material Changes Versus the Prior Period
- Profitability improved substantially: gross margin, operating income, net income and Adjusted EBITDA all increased materially.
- Demand weakened sharply in the second half of fiscal 2022 as mortgage rates increased, home prices remained elevated and inflation reduced affordability.
- Closings and orders declined, cancellation rates increased and backlog contracted, despite higher selling prices.
- The Company increased controlled lots 14.5% to 25,170 and increased the proportion of active lots under option agreements to 54.6% from 46.6%, reducing upfront land ownership exposure.
- Land acquisition spending was approximately $418.5 million and land development spending was $155.1 million.
- The Company repurchased 570,000 shares for $8.2 million and had $41.8 million remaining under its $50.0 million authorization. No dividends were paid.
- On May 20, 2022, Beazer acquired substantially all assets of Imagine Homes, a San Antonio homebuilder in which Beazer had held a one-third ownership interest.
Guidance, Outlook and Key Risks
Management did not provide a specific quantitative fiscal 2023 earnings or revenue forecast in the filing. For fiscal 2023, management expects continued weakness in demand and pricing, while focusing on strategic land investment, maintaining operating margin, activating communities, reducing construction cycle times and preserving liquidity.
- Management expects higher mortgage rates, inflation and affordability pressures to continue negatively affecting demand.
- Supply-chain disruptions and labor shortages extended construction cycle times by an average of two to three months, reducing backlog conversion. Management expects some improvement in fiscal 2023.
- The Company is using more conservative land underwriting and may renegotiate or terminate land deals that no longer meet its standards.
- Inventory valuation is highly sensitive to future home prices, sales pace, construction costs, margins and discount rates. Fiscal 2022 included $2.96 million of inventory impairment and abandonment charges, including $1.9 million of land-held-for-sale impairments.
- Projects-in-progress inventory totaled $1.70 billion and was identified as the critical audit matter because impairment testing requires significant judgment.
- Other material risks include interest-rate and mortgage-financing availability, cancellations, competition, construction defects and warranty claims, regulatory and permitting requirements, natural disasters, cybersecurity, insurance availability and access to capital.
- Warranty reserves were $13.9 million and litigation accruals were $9.8 million at September 30, 2022. The filing states that certain pending litigation losses cannot presently be estimated.
- The Company reported $35.2 million of outstanding letters of credit and $279.6 million of surety bonds, primarily supporting development obligations.
- Management’s long-term objective remains to make every home Net Zero Energy Ready by the end of 2025.
Investor Verification Items
- Verify fourth-quarter demand trends, cancellation rates, incentives, pricing and backlog conversion against the annual figures.
- Assess whether higher mortgage rates and affordability pressures lead to further order declines, price reductions or margin compression.
- Monitor inventory growth, land option exercises and potential impairment or abandonment charges.
- Review liquidity, revolver covenant compliance, debt maturities and refinancing requirements, particularly the $211.2 million of Senior Notes maturing in 2025.
- Evaluate whether construction cycle times, labor availability and materials costs improve as management expects.
- Review the quality and realizability of deferred tax assets: net deferred tax assets were $156.4 million, with a $25.4 million valuation allowance and approximately $907.1 million of required cumulative future pre-tax income to realize the assets before expiration.
- Consider exposure to construction-defect litigation, warranty claims, insurance coverage and surety or letter-of-credit obligations.
- Distinguish GAAP results from non-GAAP measures such as Adjusted EBITDA and gross margin excluding impairments, abandonments and interest.