Beazer Homes Reports Second Quarter Fiscal 2019 Results

ATLANTA–(BUSINESS WIRE)–lt;a href=”https://twitter.com/hashtag/GetMoreWithBeazer?src=hash” target=”_blank”gt;#GetMoreWithBeazerlt;/agt;–Beazer Homes USA, Inc. (NYSE: BZH) (www.beazer.com)
today announced its financial results for the three and six months ended
March 31, 2019.

“We had a strong second quarter of fiscal 2019, with our results
surpassing our expectations across nearly every operational metric. We
benefited from the decrease in mortgage rates, which has contributed to
improved affordability and a more favorable demand environment,” said
Allan P. Merrill, President and CEO of Beazer Homes. “At the same time,
as part of our ongoing stock and debt repurchase program, we bought back
an additional $7.5 million, or 652 thousand shares, of stock and retired
more than $5.0 million of our outstanding Senior Notes.”

“During the quarter, we also took impairments on several of our
California assets. In response to recent changes in market conditions,
we concluded that it had become necessary to reduce prices in some of
our active communities, all of which were previously classified as land
held for future development. Additionally, after a thorough review of
our California assets, we made a strategic decision to sell or activate
all of the remaining assets which were still classified as land held for
future development. Although these decisions led to an impairment this
quarter, our actions will enable us to increase our sales pace, generate
cash more quickly and redeploy this capital to more attractive
investments.”

Beazer Homes Fiscal Second Quarter 2019 Highlights
and Comparison to Fiscal Second Quarter 2018

  • Net loss from continuing operations of $100.8 million, compared to net
    income of $11.6 million in fiscal second quarter 2018
  • Excluding impairment charges and gain on debt extinguishment
    recognized during the quarter, net income from continuing operations
    was $6.2 million compared to $11.6 million in fiscal second quarter
    2018
  • Impairment on certain California assets of $147.6 million
  • Adjusted EBITDA of $32.6 million, down 17.6%
  • Homebuilding revenue of $420.9 million, down 4.6%, on a 10.4% decrease
    in home closings to 1,134 and a 6.5% increase in average selling price
    to $371.2 thousand
  • Homebuilding gross margin excluding impairments and abandonments was
    15.4%, down 150 basis points. Excluding impairments, abandonments and
    amortized interest, homebuilding gross margin was 19.8%, also down 150
    basis points
  • SG&A as a percentage of total revenue was 12.7%, down 10 basis points
  • Unit orders of 1,598, down 4.8% on a 12.0% decrease in
    sales/community/month to 3.3 and an 8.2% increase in average community
    count to 163
  • Dollar value of backlog of $783.3 million, down 11.5%
  • Unrestricted cash at quarter end was $86.4 million
  • Repurchases of 652.2 thousand shares of common stock for $7.5 million
  • Repurchases of $5.1 million of Senior Notes

Profitability. Net loss from continuing operations was $100.8
million, including an impairment charge of $147.6 million on select
California assets, as discussed above. After adjusting for impairment
charges and gain on debt extinguishment taken during the quarter, the
Company generated net income from continuing operations of $6.2 million.
Second quarter Adjusted EBITDA of $32.6 million was down $6.9 million,
or 17.6%, compared to the same period last year.

Impairments. Of the total impairments during the quarter, $109.0
million related to 9 formerly land held for future development
communities that are currently generating sales or are under development
in Southern California and reflected the deterioration in conditions
that occurred in their respective markets. Concurrently, the Company
performed a strategic review of its remaining land held for future
development assets in California and now plans to sell all of these
parcels. As a result, land held for sale impairment charges totaling
$38.6 million were recognized on 6 of these communities. The Company no
longer has any land held for future development assets in California.

Orders. Net new orders for the second quarter decreased 4.8% from
the prior year period, to 1,598. The drop in net new orders was driven
by a decrease in the absorption rate to 3.3 sales per community per
month, down from 3.7 the previous year, but equal to the Company’s
average second quarter absorption rate over the previous five years. The
cancellation rate for the quarter was 14.5%, down 40 basis points
year-over-year and was the lowest recorded in the past five years in any
quarter.

Homebuilding Revenue. Second quarter home closings of 1,134 homes
were down 10.4% from the same period last year. This was partially
offset by a 6.5% increase in the average selling price to $371.2
thousand, leading to homebuilding revenue of $420.9 million, down 4.6%
from the prior year period.

Backlog. The dollar value of homes in backlog as of March 31,
2019 decreased 11.5% to $783.3 million, or 1,989 homes, which compared
to $885.4 million, or 2,312 homes, at the same time last year. The
average selling price of homes in backlog rose 2.8% year over year to
$393.8 thousand.

Homebuilding Gross Margin. Homebuilding gross margin (excluding
impairments, abandonments and amortized interest) was 19.8% for the
second quarter, down 150 basis points from the same period in fiscal
2018. The reduction in gross margin reflected the Company’s efforts to
respond to weak demand in the first quarter. Gross margin benefited from
approximately 60 bps of construction reimbursements and other benefits
that we do not expect to recur in the near term.

SG&A Expenses. Selling, general and administrative expenses,
as a percentage of total revenue, were 12.7% for the quarter, an
improvement of 10 basis points compared to the prior year period.

Liquidity. At the close of the second quarter, the Company had
approximately $221.4 million of available liquidity, including $86.4
million of unrestricted cash and $135.0 million available on its secured
revolving credit facility after accounting for borrowings.

Capital Allocation Update. Earlier this fiscal year, the Company
announced its Board of Directors had authorized the repurchase of up to
$50.0 million of common stock. As part of this program, the Company
repurchased $7.5 million of its common stock during the second quarter,
bringing the total year-to-date repurchases to $24.0 million. Further,
the Company repurchased $5.1 million of debt during the second quarter.
In line with its commitment to repurchase debt in excess of its share
repurchases by the end of the current fiscal year, the Company plans to
retire at least $25.0 million or more in debt, plus additional amounts
based on future share repurchases, during the second half of fiscal 2019.

Gatherings.

The Company continued the rollout of its Gatherings active-adult
communities during the second quarter of fiscal 2019 as Dallas’
Gatherings at Mercer Crossing began construction on its second building,
with its first building scheduled to be completed in April. Subsequent
to the end of the second fiscal quarter, the Company approved two new
communities in Charleston and Maryland. In addition, the Company now has
ongoing Gatherings activity in Houston, Orlando, Dallas, and Nashville.

Summary results for the three and six months ended March 31, 2019 are as
follows:

 
Three Months Ended March 31,
2019   2018   Change*
New home orders, net of cancellations 1,598 1,679 (4.8 )%
Orders per community per month 3.3 3.7 (12.0 )%
Average active community count 163 151 8.2 %
Actual community count at quarter-end 166 153 8.5 %
Cancellation rates 14.5 % 14.9 % -40 bps
 
Total home closings 1,134 1,266 (10.4 )%
Average selling price (ASP) from closings (in thousands) $ 371.2 $ 348.4 6.5 %
Homebuilding revenue (in millions) $ 420.9 $ 441.1 (4.6 )%
Homebuilding gross margin (10.5 )% 16.9 % -2740 bps
Homebuilding gross margin, excluding impairments and abandonments
(I&A)
15.4 % 16.9 % -150 bps
Homebuilding gross margin, excluding I&A and interest amortized to
cost of sales
19.8 % 21.3 %

-150 bps

 
(Loss) income from continuing operations before income taxes (in
millions)
$ (139.0 ) $ 12.6 $ (151.6 )
(Benefit) expense from income taxes (in millions) $ (38.2 ) $ 1.0 $ (39.2 )
(Loss) income from continuing operations (in millions) $ (100.8 ) $ 11.6 $ (112.4 )
Basic and diluted (loss) income per share from continuing
operations
$ (3.28 ) $ 0.36 $ (3.64 )
 
(Loss) income from continuing operations before income taxes (in
millions)
$ (139.0 ) $ 12.6 $ (151.6 )
Gain on debt extinguishment (in millions) $ (0.2 ) $ $ (0.2 )
Inventory impairments and abandonments (in millions) $ 147.6 $ $ 147.6
Income from continuing operations excluding gain on debt
extinguishment and inventory impairments and abandonments before
income taxes (in millions)
$ 8.4 $ 12.6 $ (4.2 )
Income from continuing operations excluding gain on debt
extinguishment and inventory impairments and abandonments (in
millions)+
$ 6.2 $ 11.6 $ (5.4 )
 
Net (loss) income $ (100.9 ) $ 11.6 $ (112.5 )
 
Land and land development spending (in millions) $ 139.9 $ 143.4 $ (3.5 )
 
Adjusted EBITDA (in millions) $ 32.6 $ 39.5 $ (6.9 )
LTM Adjusted EBITDA (in millions) $ 196.2 $ 189.1 $ 7.1
 

*

Change and totals are calculated using unrounded numbers.

 
(+)

For the three months ended March 31, 2019, gain on debt
extinguishment and inventory impairments and abandonments were
tax-effected at the effective tax rate of 27.5%. There were no
debt extinguishment and inventory impairments and abandonments for
the three months ended March 31, 2018.

 

“LTM” indicates amounts for the trailing 12 months.

 
 
Six Months Ended March 31,
2019   2018   Change*
New home orders, net of cancellations 2,574 2,789 (7.7 )%
LTM orders per community per month 2.8 3.1 (9.7 )%
Cancellation rates 16.6 % 16.5 % 10 bps
 
Total home closings 2,217 2,332 (4.9 )%
ASP from closings (in thousands) $ 370.7 $ 346.9 6.9 %
Homebuilding revenue (in millions) $ 821.9 $ 808.9 1.6 %
Homebuilding gross margin 2.0 % 16.6 % -1460 bps
Homebuilding gross margin, excluding impairments and abandonments
(I&A)
15.4 % 16.6 % -120 bps
Homebuilding gross margin, excluding I&A and interest amortized to
cost of sales
19.8 % 21.1 % -130 bps
 
Loss from continuing operations before income taxes (in millions) $ (135.6 ) $ (9.8 ) $ (125.8 )
(Benefit) expense from income taxes (in millions) $ (42.1 ) $ 109.1 $ (151.2 )
Loss from continuing operations (in millions) $ (93.5 ) $ (119.0 ) $ 25.5
Basic and diluted loss per share from continuing operations $ (2.99 ) $ (3.71 ) $ 0.72
 
Loss from continuing operations before income taxes (in millions) $ (135.6 ) $ (9.8 ) $ (125.8 )
(Gain) loss on debt extinguishment (in millions) $ (0.2 ) $ 25.9 $ (26.1 )
Inventory impairments and abandonments (in millions) $ 148.6 $ $ 148.6
Income from continuing operations excluding (gain) loss on debt
extinguishment and inventory impairments and abandonments before
income taxes (in millions)
$ 12.8 $ 16.1 $ (3.3 )
Income from continuing operations excluding (gain) loss on debt
extinguishment, inventory impairments and abandonments, and
remeasurement of deferred tax assets due to Tax Act (in millions)+
$ 14.1 $ 14.3 $ (0.2 )
 
Net loss $ (93.6 ) $ (119.4 ) $ 25.8
 
Land and land development spending (in millions) $ 260.9 $ 285.1 $ (24.2 )
 
Adjusted EBITDA (in millions) $ 59.4 $ 67.9 $ (8.5 )
 

*

Change and totals are calculated using unrounded numbers.

 

+

For the six months ended March 31, 2019, gain on debt
extinguishment and inventory impairments and abandonments were
tax-effected at the effective tax rate of 27.5%. For the prior
year quarter, loss on debt extinguishment was tax-effected at the
effective tax rate of 26.8%, which excludes the impact of the
$112.6 million provisional tax expense that was recognized due to
the remeasurement of our deferred tax assets as a result of the
enactment of the Tax Cut and Jobs Act (Tax Act) in December 2017.

 
 
As of March 31,
2019 2018 Change
Backlog units 1,989 2,312 (14.0 )%
Dollar value of backlog (in millions) $ 783.3 $ 885.4 (11.5 )%
ASP in backlog (in thousands) $ 393.8 $ 383.0 2.8 %
Land and lots controlled 22,383 22,092 1.3 %
 

Conference Call

The Company will hold a conference call on May 2, 2019 at 5:00 p.m. ET
to discuss these results. Interested parties may listen to the
conference call and view the Company’s slide presentation by visiting
the “Investor Relations” section of the Company’s website at www.beazer.com.
To access the conference call by telephone, listeners should dial
800-619-8639 (for international callers, dial 312-470-7002). To be
admitted to the call, enter the passcode “7072668.” A replay of the call
will be available shortly after the conclusion of the live call. To
directly access the replay, dial 866-492-3844 or 203-369-1740 and enter
the passcode “3740” (available until 5:59 p.m. ET on May 9, 2019), or
visit www.beazer.com.
A replay of the webcast will be available at www.beazer.com
for at least 30 days.

Headquartered in Atlanta, Beazer Homes (NYSE:BZH) is one of the
country’s largest homebuilders. All Beazer homes are built to provide
Surprising Performance, meaning more quality, more comfort and more
savings from the moment homeowners move in. Designed with Choice Plans
TM,
owners get more floor plan flexibility at no additional cost. In
addition, Beazer Homes is committed to providing a range of lender and
financing choices to facilitate transparent competition among lenders
and enhance customer service. Beazer Homes builds homes in Arizona,
California, Delaware, Florida, Georgia, Indiana, Maryland, Nevada, North
Carolina, South Carolina, Tennessee, Texas, and Virginia. For more
information, visit
beazer.com,
or check out Beazer on
Facebook,
Instagram
and
Twitter.

This press release contains forward-looking statements. These
forward-looking statements represent our expectations or beliefs
concerning future events, and it is possible that the results described
in this press release will not be achieved. These forward-looking
statements are subject to risks, uncertainties and other factors, many
of which are outside of our control, that could cause actual results to
differ materially from the results discussed in the forward-looking
statements, including, among other things: (i) economic changes
nationally or in local markets, changes in consumer confidence, and wage
levels, declines in employment levels, inflation or increases in the
quantity and decreases in the price of new homes and resale homes on the
market; (ii) the cyclical nature of the homebuilding industry and a
potential deterioration in homebuilding industry conditions; (iii)
factors affecting margins, such as decreased land values underlying land
option agreements, increased land development costs on communities under
development or delays or difficulties in implementing initiatives to
reduce our production and overhead cost structure; (iv) the availability
and cost of land and the risks associated with the future value of our
inventory, such as asset impairment charges we took on select California
assets during the second quarter of fiscal 2019; (v) shortages of or
increased prices for labor, land or raw materials used in housing
production, and the level of quality and craftsmanship provided by our
subcontractors; (vi) estimates related to homes to be delivered in the
future (backlog) are imprecise, as they are subject to various
cancellation risks that cannot be fully controlled; (vii) increases in
mortgage interest rates, increased disruption in the availability of
mortgage financing, a change in tax laws regarding the deductibility of
mortgage interest for tax purposes or an increased number of
foreclosures; (viii) our cost of and ability to access capital, due to
factors such as limitations in the capital markets or adverse credit
market conditions, and ability to otherwise meet our ongoing liquidity
needs, including the impact of any downgrades of our credit ratings or
reductions in our tangible net worth or liquidity levels; (ix) our
ability to reduce our outstanding indebtedness and to comply with
covenants in our debt agreements or satisfy such obligations through
repayment or refinancing; (x) our ability to implement and complete our
capital allocation plans, including our share and debt repurchase
programs; (xi) increased competition or delays in reacting to changing
consumer preferences in home design; (xii) weather conditions or other
related events that could result in delays in land development or home
construction, increase our costs or decrease demand in the impacted
areas; (xiii) estimates related to the potential recoverability of our
deferred tax assets, and a potential reduction in corporate tax rates
that could reduce the usefulness of our existing deferred tax assets;
(xiv) potential delays or increased costs in obtaining necessary permits
as a result of changes to, or complying with, laws, regulations or
governmental policies, and possible penalties for failure to comply with
such laws, regulations or governmental policies, including those related
to the environment; (xv) the results of litigation or government
proceedings and fulfillment of any related obligations; (xvi) the impact
of construction defect and home warranty claims; (xvii) the cost and
availability of insurance and surety bonds, as well as the sufficiency
of these instruments to cover potential losses incurred; (xviii) the
performance of our unconsolidated entities and our unconsolidated entity
partners; (xix) the impact of information technology failures or data
security breaches; (xx) terrorist acts, natural disasters, acts of war
or other factors over which we have little or no control; or (xxi) the
impact on homebuilding in key markets of governmental regulations
limiting the availability of water.

Any forward-looking statement speaks only as of the date on which
such statement is made and, except as required by law, we undertake no
obligation to update any forward-looking statement to reflect events or
circumstances after the date on which such statement is made or to
reflect the occurrence of unanticipated events. New factors emerge from
time-to-time, and it is not possible to predict all such factors.

-Tables Follow-

   

BEAZER HOMES USA, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 
Three Months Ended Six Months Ended
March 31, March 31,
in thousands (except per share data) 2019   2018 2019   2018
Total revenue $ 421,260 $ 455,178 $ 823,300 $ 827,667
Home construction and land sales expenses 356,329 380,101 696,707 691,761
Inventory impairments and abandonments 147,611     148,618    
Gross (loss) profit (82,680 ) 75,077 (22,025 ) 135,906
Commissions 15,998 17,334 31,735 31,690
General and administrative expenses 37,372 40,852 76,014 78,137
Depreciation and amortization 2,900   3,066   5,670   5,573  
Operating (loss) income (138,950 ) 13,825 (135,444 ) 20,506
Equity in income of unconsolidated entities 81 256 17 155
Gain (loss) on extinguishment of debt 216 216 (25,904 )
Other expense, net (337 ) (1,453 ) (379 ) (4,598 )
(Loss) income from continuing operations before income taxes (138,990 ) 12,628 (135,590 ) (9,841 )
(Benefit) expense from income taxes (38,158 ) 1,012   (42,080 ) 109,118  
(Loss) income from continuing operations (100,832 ) 11,616 (93,510 ) (118,959 )
Loss from discontinued operations, net of tax (30 ) (58 ) (41 ) (430 )
Net (loss) income $ (100,862 ) $ 11,558   $ (93,551 ) $ (119,389 )
Weighted average number of shares:
Basic 30,714 32,140 31,263 32,097
Diluted 30,714 32,721 31,263 32,097
Basic (loss) earnings per share:
Continuing operations $ (3.28 ) $ 0.36 $ (2.99 ) $ (3.71 )
Discontinued operations       (0.01 )
Total $ (3.28 ) $ 0.36   $ (2.99 ) $ (3.72 )
Diluted (loss) earnings per share:
Continuing operations $ (3.28 ) $ 0.36 $ (2.99 ) $ (3.71 )
Discontinued operations   (0.01 )   (0.01 )
Total $ (3.28 ) $ 0.35   $ (2.99 ) $ (3.72 )
 
 
Three Months Ended Six Months Ended
March 31, March 31,
Capitalized Interest in Inventory 2019 2018 2019 2018
Capitalized interest in inventory, beginning of period $ 151,886 $ 144,847 $ 144,645 $ 139,203
Interest incurred 25,803 25,492 50,724 51,047
Capitalized interest impaired (13,792 ) (13,907 )
Interest expense not qualified for capitalization and included as
other expense
(597 ) (1,650 ) (839 ) (5,085 )
Capitalized interest amortized to home construction and land sales
expenses
(18,544 ) (19,655 ) (35,867 ) (36,131 )
Capitalized interest in inventory, end of period $ 144,756   $ 149,034   $ 144,756   $ 149,034  
 
   

BEAZER HOMES USA, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

 
in thousands (except share and per share data) March 31, 2019 September 30, 2018
ASSETS
Cash and cash equivalents $ 86,441 $ 139,805
Restricted cash 12,197 13,443
Accounts receivable (net of allowance of $373 and $378, respectively) 18,486 24,647
Owned inventory 1,634,399 1,692,284
Investments in unconsolidated entities 3,726 4,035
Deferred tax assets, net 256,347 213,955
Property and equipment, net 26,662 20,843
Goodwill 10,605 9,751
Other assets 6,478   9,339  
Total assets $ 2,055,341   $ 2,128,102  
LIABILITIES AND STOCKHOLDERS’ EQUITY
Trade accounts payable $ 125,403 $ 126,432
Other liabilities 99,020 126,389
Total debt (net of premium of $2,254 and $2,640, respectively, and
debt issuance costs of $12,911 and $14,336, respectively)
1,301,760   1,231,254  
Total liabilities 1,526,183   1,484,075  
Stockholders’ equity:
Preferred stock (par value $0.01 per share, 5,000,000 shares
authorized, no shares issued)
Common stock (par value $0.001 per share, 63,000,000 shares
authorized, 32,043,664 issued and outstanding and 33,522,046 issued
and outstanding, respectively)
32 34
Paid-in capital 858,709 880,025
Accumulated deficit (329,583 ) (236,032 )
Total stockholders’ equity 529,158   644,027  
Total liabilities and stockholders’ equity $ 2,055,341   $ 2,128,102  
 
Inventory Breakdown
Homes under construction $ 536,039 $ 476,752
Development projects in progress 836,829 907,793
Land held for future development 28,531 83,173
Land held for sale 12,926 7,781
Capitalized interest 144,756 144,645
Model homes 75,318   72,140  
Total owned inventory $ 1,634,399   $ 1,692,284  
 
   

BEAZER HOMES USA, INC.

CONSOLIDATED OPERATING AND FINANCIAL DATA – CONTINUING
OPERATIONS

 

 

Three Months Ended March 31,

Six Months Ended March 31,
SELECTED OPERATING DATA

 

2019

2018

2019   2018
Closings:
West region

 

606

652 1,207 1,178
East region

 

213

279 401 504
Southeast region

 

315

335 609   650
Total closings

 

1,134

1,266 2,217   2,332
 
New orders, net of cancellations:
West region

 

806

906 1,325 1,440
East region

 

334

321 535 580
Southeast region

 

458

452 714   769
Total new orders, net

 

1,598

1,679 2,574   2,789
   
 
As of March 31,
Backlog units at end of period: 2019 2018
West region 976 1,141
East region 415 489
Southeast region 598   682
Total backlog units 1,989   2,312
Dollar value of backlog at end of period (in millions) $ 783.3   $ 885.4
 
 
in thousands Three Months Ended March 31, Six Months Ended March 31,
SUPPLEMENTAL FINANCIAL DATA 2019   2018 2019 2018
Homebuilding revenue:
West region $ 210,430 $ 224,361

$

419,374

$ 400,917
East region 93,751 103,731 181,516 189,419
Southeast region 116,764   113,023     221,037   218,533
Total homebuilding revenue $ 420,945   $ 441,115  

$

821,927

  $ 808,869
 
Revenue:
Homebuilding $ 420,945 $ 441,115

$

821,927

$ 808,869
Land sales and other 315   14,063     1,373   18,798
Total revenues $ 421,260   $ 455,178  

$

823,300

  $ 827,667
 
Gross (loss) profit:
Homebuilding $ (44,148 ) $ 74,366

$

16,471

$ 134,598
Land sales and other (38,532 ) 711     (38,496 ) 1,308
Total gross loss $ (82,680 ) $ 75,077  

$

(22,025

) $ 135,906
 

Reconciliation of homebuilding gross profit and the related gross margin
before impairments and abandonments and interest amortized to cost of
sales to homebuilding gross (loss) profit and gross margin, the most
directly comparable GAAP measure, is provided for each period discussed
below.

Contacts

Beazer Homes USA, Inc.
David I. Goldberg
Vice President of
Treasury and Investor Relations
770-829-3700
investor.relations@beazer.com

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