BEAZER HOMES USA INC annual report, FY2023

Beazer Homes USA, Inc. — FY2023 Form 10-K Summary

Reporting period: Fiscal year ended September 30, 2023. The filing is an annual Form 10-K; the supplied metadata references 2023 Q4, but the reported financial statements cover the full fiscal year. Beazer is a geographically diversified U.S. homebuilder operating in 13 states across the West, East and Southeast regions.

Business context and operating metrics

Beazer designs, develops and sells single-family and multifamily homes, generally under sales contracts entered before construction.
Average active communities increased to 125 from 120; ending active communities increased to 134 from 123.
Controlled lots increased 4.0% to 26,189, including 14,490 lots under option agreements.
Net new orders declined 4.8% to 3,866, while closings declined 10.7% to 4,246.
Cancellation rates increased to 20.3% from 17.6%; the fourth-quarter cancellation rate was 16.5%.
Backlog declined to 1,711 homes valued at $886.4 million from 2,091 homes valued at $1.145 billion. Backlog average selling price decreased to $518.0 thousand from $547.5 thousand.

Financial performance and key metrics

Metric	FY2023	FY2022	Change
Total revenue	$2.207 billion	$2.317 billion	Down 4.8%
Homebuilding revenue	$2.198 billion	$2.303 billion	Down 4.5%
Gross profit	$442.7 million	$537.5 million	Down 17.6%
Total gross margin	20.1%	23.2%	Down 310 bps
Homebuilding gross margin	19.9%	23.1%	Down 320 bps
Operating income	$177.3 million	$272.5 million	Down 35.0%
Net income	$158.6 million	$220.7 million	Down 28.1%
Diluted earnings per share	$5.16	$7.17	Down 28.0%
Adjusted EBITDA	$272.0 million	$370.1 million	Down 26.5%

Home closing average selling price increased 7.0% to $517.8 thousand, primarily reflecting price appreciation and limited resale inventory.
Homebuilding gross margin excluding impairments, abandonments and interest declined to 23.1% from 26.3%, principally due to increased price concessions, closing-cost incentives and mortgage-rate buydowns.
SG&A increased to 11.5% of revenue from 10.9%, largely because of lower revenue.
Income tax expense was $24.0 million, compared with $53.3 million in FY2022; the effective tax rate was 13.1%, benefiting from $20.3 million of tax credits.
Inventory impairments and abandonments were $0.6 million, versus $3.0 million in FY2022. No project-in-progress impairments were recorded.

Cash flow, liquidity and capital structure

Net cash provided by operating activities was $178.1 million, compared with $81.1 million in FY2022. Operating cash flow benefited from earnings and only a $14.7 million increase in inventory, versus a $231.4 million increase in FY2022.
Capital expenditures were $20.3 million; net cash used in investing activities was $29.7 million.
Net cash used in financing activities was $13.9 million, primarily reflecting debt repayments, debt issuance costs and taxes related to stock-based compensation.
Cash and cash equivalents were $345.6 million, compared with $214.6 million at September 30, 2022. Including restricted cash, total cash was $386.3 million.
Total debt was $978.0 million, compared with $983.4 million. Debt-to-total-capitalization improved to 47.0% from 51.1%, and net debt-to-net-capitalization improved to 36.4% from 45.0%.
Stockholders’ equity increased to $1.103 billion and exceeded total debt for the first time in more than 15 years.
The unsecured revolving credit facility had $265.0 million of available capacity and no borrowings or letters of credit outstanding at year-end. Capacity was increased to $300.0 million in October 2023.
Outstanding senior notes had carrying value of $903.7 million, with maturities principally in 2025, 2027 and 2029. Junior subordinated notes had carrying value of $74.3 million and mature in 2036.
No dividends were paid in FY2023, and no common-stock repurchases were made. The remaining share-repurchase authorization was $41.8 million.

Material changes versus FY2022

Revenue, closings, orders, backlog, gross profit, operating income, net income and Adjusted EBITDA all declined, reflecting the impact of higher mortgage rates and affordability pressure.
Margins contracted as the Company increased price concessions, seller-paid closing costs and rate buydowns to support demand.
Demand improved after the first fiscal quarter as buyers adjusted to higher mortgage rates, but mortgage rates rose again near the end of the fiscal year.
Liquidity and leverage improved materially through stronger operating cash flow, higher cash balances and lower net leverage.
Spec homes under construction declined to 779 from 887, while total homes under construction declined to 2,163 from 2,688.
The Company repurchased $9.0 million principal amount of its 2025 Senior Notes during FY2023. It repurchased an additional $4.3 million in October 2023.
S&P upgraded the corporate and senior-note ratings from B to B+ in August 2023. Moody’s upgraded the issuer and senior-note ratings from B2 to B1 in October 2023; both outlooks were stable.

Outlook, management commentary and risks

Management expects uncertainty in mortgage rates, consumer confidence and the broader economy to persist. It views the long-term housing outlook positively because of demographic trends and an estimated multiyear housing shortage.
Management is targeting more than 200 active communities by the end of FY2026, a net debt-to-net-capitalization ratio below 30% by the end of FY2026, and Zero Energy Ready status for every home started by the end of calendar 2025.
Management expects affordability initiatives, including smaller homes or fewer base features, to limit or eliminate average selling price growth in FY2024. Further rate increases could reduce sales pace, pricing and margins.
Key risks include elevated mortgage rates, reduced mortgage availability, cancellations, economic downturns, inflation in land, labor and materials, supply-chain or subcontractor constraints, construction defects, warranty claims, natural disasters, regulatory requirements, cybersecurity events and restricted access to capital.
Land option commitments totaled $949.4 million, net of deposits, with $165.4 million of deposits and other non-refundable pre-acquisition costs at risk if options are abandoned.
Outstanding letters of credit and surety bonds were $31.2 million and $254.2 million, respectively. The Company believes its liquidity, warranty reserves and litigation accruals are adequate, but acknowledges that actual obligations could exceed estimates or insurance recoveries.
Deferred tax assets, net, were $133.9 million, including a $30.4 million valuation allowance. Realization depends on future taxable income and continued availability of tax attributes.

Important facts for investors to verify

Whether mortgage rates and affordability trends cause further declines in orders, backlog, closings and average selling prices.
Whether gross margins stabilize after the FY2023 reduction and whether incentives or rate buydowns remain elevated.
The timing and funding of the $202.2 million 2025 Senior Notes maturity and other contractual debt obligations.
Progress toward more than 200 active communities and a net debt-to-net-capitalization ratio below 30% by FY2026.
The exercise, renegotiation or abandonment of the $949.4 million of land options and the resulting cash requirements.
The recoverability of the $1.7 billion projects-in-progress inventory and $133.9 million of net deferred tax assets under weaker housing-market scenarios.
Potential exposure from construction-defect litigation, warranty claims, surety bonds and letters of credit beyond recorded reserves or insurance coverage.
The filing’s critical audit matter: valuation and impairment-indicator assessment for projects-in-progress inventory, which depends on highly judgmental assumptions regarding pricing, margins, sales pace, costs and discount rates.