Beazer Homes USA, Inc. — Q3 FY2023 Form 10-Q Summary
Reporting period: Fiscal quarter and nine months ended June 30, 2023. Fiscal year ends September 30. Beazer is a geographically diversified homebuilder operating in 13 states across the West, East and Southeast regions. The interim financial statements are unaudited.
Financial performance and position
| Metric | Three months ended June 30 | Year-over-year change | Nine months ended June 30 | Year-over-year change |
|---|---|---|---|---|
| Total revenue | $572.5 million | +8.7% | $1.561 billion | +4.8% |
| Homebuilding revenue | $570.5 million | +9.0% | $1.557 billion | +5.4% |
| Gross profit | $116.7 million | -11.9% | $305.4 million | -12.6% |
| Total gross margin | 20.4% | Down 480 bps | 19.6% | Down 390 bps |
| Operating income | $47.9 million | -28.8% | $115.2 million | -29.2% |
| Net income | $43.8 million | -19.3% | $102.9 million | -23.2% |
| Diluted EPS | $1.42 | -$0.34 | $3.36 | -$0.99 |
| Adjusted EBITDA | $72.8 million | -17.5% | $182.1 million | -19.7% |
Homebuilding gross margin was 20.2% for the quarter and 19.4% for the nine months. Excluding impairments, abandonments and interest amortized to cost of sales, homebuilding gross margin was 23.4% and 22.6%, respectively, versus 28.1% and 26.5% in the comparable periods. Management attributed the decline primarily to increased price concessions and closing-cost incentives, partially offset by lower lumber costs and reduced incentives sequentially.
- Orders and closings: Net new orders increased 29.7% to 1,200 in the quarter, while nine-month orders declined 14.7% to 2,863 due primarily to weak conditions in the fiscal first quarter. Quarterly closings increased 7.1% to 1,117; nine-month closings declined 4.0% to 3,013.
- Pricing and backlog: Quarterly closing ASP increased 1.8% to $510.8 thousand. June 30 backlog was 1,941 homes, down 35.4% year over year, with aggregate value of $1.010 billion, down 36.4%; backlog ASP was $520.3 thousand, down 1.6%.
- Sales pace: Sales per community per month improved to 3.2 from 2.5. The cancellation rate declined to 16.1% from 17.0% and was down from 18.6% in the prior fiscal quarter.
- Community count: Average active communities increased to 124 from 123, and period-end active communities were 125 versus 124.
- SG&A: Commissions plus general and administrative expenses were 11.5% of revenue in the quarter and 11.6% for the nine months, compared with 11.8% and 11.9%.
Cash flow, liquidity and debt
- Net cash provided by operating activities was $95.8 million for the nine months, compared with $164.5 million of cash used in the prior-year period. The change primarily reflected substantially lower inventory investment.
- Capital expenditures were $14.1 million. Investing cash outflow was $21.8 million, including $7.8 million of investment-security purchases.
- Financing cash outflow was $10.2 million, including $5.0 million of 2025 Senior Note repayments and $2.6 million of taxes on stock-based compensation.
- Cash, cash equivalents and restricted cash totaled $315.7 million at June 30, 2023, including $276.1 million of unrestricted cash, versus $251.8 million at September 30, 2022.
- Total debt, net of issuance costs and accretion, was $981.1 million, broadly consistent with $983.4 million at September 30, 2022. Senior Notes, net, totaled $907.3 million; junior subordinated notes totaled $73.8 million.
- The unsecured revolving facility had $265.0 million of available capacity, with no borrowings or letters of credit outstanding. Stand-alone letter-of-credit facilities had $32.1 million outstanding.
- Surety bonds totaled $283.6 million. Management stated that the Company was in compliance with debt covenants and had adequate capital resources and financing access for current and reasonably anticipated needs.
- Owned inventory was $1.742 billion, including $719.2 million of homes under construction and $785.8 million of land under development.
Material changes versus the prior comparable period
- Revenue increased, but profitability declined because gross margins compressed and operating expenses increased in absolute dollars.
- Quarterly demand improved materially, reflected in higher orders, sales pace and lower cancellations. However, year-to-date orders and backlog remained below the prior year because of the housing-market slowdown and higher mortgage rates beginning in late fiscal 2022.
- The Southeast was the strongest segment: quarterly revenue increased 27.5% and operating income increased $2.5 million. West and East operating income declined $9.5 million and $4.5 million, respectively.
- Operating cash flow improved by $260.3 million year over year because inventory growth was nearly flat in 2023 versus a $351.4 million increase in 2022.
- The Company entered into a $265.0 million senior unsecured revolving facility in October 2022, replacing its secured facility. The change generated a $0.5 million debt-extinguishment loss in the nine-month period.
- The Company repurchased $5.0 million of 2025 Senior Notes during the quarter and nine-month period. No common-stock repurchases occurred; $41.8 million remained available under the share-repurchase authorization.
Outlook, commentary and risks
Management expects housing-market uncertainty and affordability constraints to persist but views the long-term housing outlook favorably, citing demographic trends and an estimated multiyear housing shortage. For the remainder of fiscal 2023, the Company plans to invest strategically in land, increase active communities, use lot options and maintain liquidity while controlling risk and costs. No quantitative earnings or revenue guidance was provided.
- Supply-chain conditions had normalized, supporting shorter construction cycle times and improved backlog conversion. Management continues to target lower construction costs, shorter cycle times and disciplined overhead.
- The Company controlled 22,719 lots at June 30, including 11,510 active lots through option agreements. Deposits and non-refundable pre-acquisition costs were $144.7 million, with $747.9 million of remaining purchase price if options are exercised.
- Key risks include mortgage-rate increases, reduced mortgage availability, affordability and consumer demand, home-price concessions, labor and material costs, land and inventory valuations, backlog cancellations, construction defects and warranty claims, litigation, insurance and surety-bond availability, regulatory and permitting delays, cybersecurity, natural disasters and access to capital.
- Warranty reserves were $13.3 million and litigation accruals were $8.2 million at June 30. Management stated that insurance, warranty and litigation accruals were adequate, but acknowledged that ultimate losses could exceed estimates or insurance coverage.
- Variable-rate debt was approximately $73.8 million; a one-percentage-point increase in rates would increase estimated annual interest expense by approximately $1.0 million.
Important facts for investors to verify
- Whether improved quarterly orders and cancellation rates continue and translate into sustained backlog growth and closings.
- Whether homebuilding gross margins recover as incentives decline, lumber costs stabilize and construction efficiency improves.
- The magnitude and timing of required land-option exercises, inventory investment and related cash needs.
- Liquidity and refinancing risk associated with the $206.2 million net 2025 Senior Notes maturity, other debt maturities, interest rates and credit ratings.
- Potential exposure from construction-defect litigation, warranty claims, surety bonds and letters of credit.
- Whether inventory valuations remain recoverable if home prices, demand or local housing conditions weaken.
- The sustainability of energy-efficiency tax credits and other tax attributes supporting the comparatively low effective tax rate.