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Beazer Homes Reports Strong Second Quarter Fiscal 2018 Results


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Beazer Homes Reports Strong Second Quarter Fiscal 2018 Results

ATLANTA--(BUSINESS WIRE)--May 2, 2018-- Beazer Homes USA, Inc. (NYSE: BZH) (www.beazer.com) today announced its financial results for the three and six months ended March 31, 2018.

“Improvements in nearly every one of our core operational metrics led to a significant improvement in profitability in the second quarter,” said Allan P. Merrill, President and CEO of Beazer Homes. “Customer interest was quite strong as continuing job and wage growth, together with low inventories of new and used homes, more than offset concerns about higher home prices and mortgage rates.”

“Our commitment to deliver ‘extraordinary value at an affordable price’ has us well positioned in this environment. We anticipate reaching our ‘2B-10’ and de-leveraging objectives this year, while continuing to improve our return on assets in the quarters and years ahead.”

Beazer Homes Fiscal Second Quarter 2018 Highlights and Comparison to Fiscal Second Quarter 2017

  • Net income from continuing operations of $11.6 million, compared to net loss of $7.5 million in Fiscal 2017
  • Adjusted EBITDA of $39.5 million, up 19.1%
  • Homebuilding revenue of $441.1 million, up 4.6%, on a 2.2% increase in home closings to 1,266 and a 2.3% increase in average selling price to $348.4 thousand
  • Homebuilding gross margin was 16.9%, up 90 basis points. Excluding impairments, abandonments and interest amortized, homebuilding gross margin was 21.3%, up 60 basis points
  • SG&A as a percentage of total revenue was 12.8%, down 50 basis points
  • Unit orders of 1,679, up 8.4% on a 10.3% increase in sales/community/month to 3.7 and a 1.7% decline in average community count to 151
  • Dollar value of backlog of $885.4 million, up 14.0%
  • Unrestricted cash at quarter end was $158.8 million

Profitability. Net income from continuing operations was $11.6 million, an increase of $9.1 million after adjusting for the $15.6 million loss on debt extinguishment and impairments incurred in the second quarter of Fiscal 2017. Second quarter Adjusted EBITDA of $39.5 million was up $6.3 million, or 19.1%, compared to the same period last year.

Orders. Net new orders for the second quarter increased 8.4% from the prior year, which was achieved even as average community count decreased by 3 communities to 151. The growth in net new orders was driven by an increase in absorption rate to 3.7 sales per community per month, up 10.3% from the previous year. The cancellation rate was 14.9%, down 170 basis points from the second quarter of last year.

Homebuilding Revenue. Second quarter closings of 1,266 homes were 2.2% above the level achieved in the same period last year. Combined with a 2.3% increase in the average selling price to $348.4 thousand, homebuilding revenue rose 4.6% over the prior year to $441.1 million.

Backlog. The dollar value of homes in backlog as of March 31, 2018 increased 14.0% to $885.4 million, or 2,312 homes, which compared to $776.4 million, or 2,236 homes, for the same period last year. The average selling price of homes in backlog rose 10.3% year over year to $383.0 thousand.

Homebuilding Gross Margin. Homebuilding gross margin for the second quarter was 16.9%, an increase of 90 basis points over the prior year. Excluding impairments, abandonments and interest amortized, homebuilding gross margin was 21.3%, up 60 basis points.

SG&A Expenses. Selling, general and administrative expenses, as a percentage of total revenue, were 12.8% for the quarter, down 50 basis points compared to the prior year.

Liquidity. The Company ended the quarter with $329.1 million of available liquidity, including $158.8 million of unrestricted cash and $170.3 million available on its secured revolving credit facility.

Gatherings

The Company made continued progress with regard to its Gatherings expansion during the second quarter of Fiscal 2018. As of the end of March, two communities were open for sale and another three were owned and in various stages of development. In Orlando’s Gatherings at Lake Nona, building one was in its final stages and was expected to deliver its first closings in May. Additionally, land acquisition for a third Gatherings community in the Dallas market was approved during the second quarter. The Company is currently reviewing a large pipeline of potential communities across its geographic footprint and expects to see Gatherings acquisition activity accelerate in the second half of Fiscal 2018.

Summary results for the three and six months ended March 31, 2018 are as follows:

   
Three Months Ended March 31,
2018     2017     Change*
New home orders, net of cancellations 1,679 1,549 8.4 %
Orders per community per month 3.7 3.4 10.3 %
Average active community count 151 154 (1.7 )%
Actual community count at quarter-end 153 158 (3.2 )%
Cancellation rates 14.9 % 16.6 % -170 bps
 
Total home closings 1,266 1,239 2.2 %
Average selling price (ASP) from closings (in thousands) $ 348.4 $ 340.5 2.3 %
Homebuilding revenue (in millions) $ 441.1 $ 421.9 4.6 %
Homebuilding gross margin 16.9 % 16.0 % 90 bps
Homebuilding gross margin, excluding impairments and abandonments and interest amortized to cost of sales 21.3 % 20.7 % 60 bps
 
Income (loss) from continuing operations before income taxes (in millions) $ 12.6 $ (12.0 ) $ 24.6
Expense (benefit) from income taxes (in millions) $ 1.0 $ (4.5 ) $ 5.5
Income (loss) from continuing operations (in millions) $ 11.6 $ (7.5 ) $ 19.1
Basic and diluted income (loss) per share from continuing operations $ 0.36 $ (0.23 ) $ 0.59
 
Income (loss) from continuing operations before income taxes (in millions) $ 12.6 $ (12.0 ) $ 24.6
Loss on debt extinguishment (in millions) $ $ 15.6 $ (15.6 )
Inventory impairments and abandonments (in millions) $ $ 0.3 $ (0.3 )
Income from continuing operations excluding loss on debt extinguishment and inventory impairments and abandonments before income taxes (in millions) $ 12.6 $ 3.9 $ 8.7
 
Net income (loss) $ 11.6 $ (7.5 ) $ 19.1
Net income excluding loss on debt extinguishment and inventory impairments and abandonments (in millions)*+ $ 11.6 $ 2.5 $ 9.1
 
Land and land development spending (in millions) $ 143.4 $ 102.9 $ 40.5
 
Adjusted EBITDA (in millions) $ 39.5 $ 33.2 $ 6.3
LTM Adjusted EBITDA (in millions) $ 189.1 $ 161.8 $ 27.3
 

*

Change and totals are calculated using unrounded numbers.

+

Loss on debt extinguishment was tax-effected at annualized effective tax rates of 26.8% and 36.7% for the three months ended March 31, 2018 and March 31, 2017, respectively.

“LTM” indicates amounts for the trailing 12 months.
 
   
Six Months Ended March 31,
2018     2017     Change*
New home orders, net of cancellations 2,789 2,554 9.2 %
LTM orders per community per month 3.1 2.8 10.7 %
Cancellation rates 16.5 % 18.6 % -210 bps
 
Total home closings 2,332 2,234 4.4 %
ASP from closings (in thousands) $ 346.9 $ 339.3 2.2 %
Homebuilding revenue (in millions) $ 808.9 $ 758.0 6.7 %
Homebuilding gross margin 16.6 % 15.9 % 70 bps
Homebuilding gross margin, excluding impairments and abandonments and interest amortized to cost of sales 21.1 % 20.6 % 50 bps
 
Loss from continuing operations before income taxes (in millions) $ (9.8 ) $ (15.9 ) $ 6.0
Expense (benefit) from income taxes (in millions) $ 109.1 $ (7.0 ) $ 116.1
Loss from continuing operations (in millions)* $ (119.0 ) $ (8.9 ) $ (110.1 )
Basic and diluted loss per share from continuing operations $ (3.71 ) $ (0.27 ) $ (3.44 )
 
Loss from continuing operations before income taxes (in millions) $ (9.8 ) $ (15.9 ) $ 6.0
Loss on debt extinguishment (in millions) $ 25.9 $ 15.6 $ 10.3
Inventory impairments and abandonments (in millions) $ $ 0.3 $ (0.3 )
Write-off of deposit on legacy land investment $ $ 2.7 $ (2.7 )
Income from continuing operations excluding loss on debt extinguishment, inventory impairments and abandonments and write-off of deposit before income taxes (in millions) $ 16.1 $ 2.7 $ 13.4
 
Net loss $ (119.4 ) $ (9.0 ) $ (110.4 )
Net income excluding loss on debt extinguishment, inventory impairments and abandonments and write-off of deposit (in millions)*+ $ 14.3 $ 2.5 $ 11.8
 
Land and land development spending (in millions) $ 285.1 $ 206.1 $ 79.0
 
Adjusted EBITDA (in millions) $ 67.9 $ 57.6 $ 10.3
 

*

Change and totals are calculated using unrounded numbers.

+

Loss on debt extinguishment was tax-effected at annualized effective tax rates of 26.8% and 36.7% for the six months ended March 31, 2018 and March 31, 2017, respectively.

 

As of March 31, 2018

    As of March 31,
2018     2017     Change
Backlog units 2,312 2,236 3.4 %
Dollar value of backlog (in millions) $ 885.4 $ 776.4 14.0 %
ASP in backlog (in thousands) $ 383.0 $ 347.2 10.3 %
Land and lots controlled 22,092 23,181 (4.7 )%
 

Conference Call

The Company will hold a conference call on May 2, 2018 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 over the Internet 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 800-284-7031 (for international callers, dial 203-369-3222) and enter the passcode “3740” (available until 11:59 p.m. ET on May 9, 2018), 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 is one of the country’s largest single-family homebuilders. The Company’s homes meet or exceed the benchmark for energy-efficient home construction as established by ENERGY STAR® and are designed with Choice Plans to meet the personal preferences and lifestyles of its buyers.In addition, the Company is committed to providing a range of preferred lender choices to facilitate transparent competition between lenders and enhanced customer service.The Company offers homes in Arizona, California, Delaware, Florida, Georgia, Indiana, Maryland, Nevada, North Carolina, South Carolina, Tennessee, Texas and Virginia.Beazer Homes is listed on the New York Stock Exchange under the ticker symbol “BZH.” For more info visit Beazer.com, or check out Beazer on Facebook 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, 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 additional asset impairment charges or writedowns; (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) a substantial increase in mortgage interest rates, increased disruption in the availability of mortgage financing, the recent change in tax laws regarding the deductibility of mortgage interest for tax purposes or an increased number of foreclosures; (viii) government actions, policies, programs and regulations directed at or affecting the housing market (including the Tax Cuts and Jobs Act, the Dodd-Frank Act and the tax benefits associated with purchasing and owning a home); (ix) changes in existing tax laws or enacted corporate income tax rates, including pursuant to the Tax Cuts and Jobs Act; (x) our cost of and ability to access capital, due to factors such as limitations in the capital markets or adverse credit market conditions, and 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; (xi) our ability to reduce our outstanding indebtedness and to comply with covenants in our debt agreements or satisfy such obligations through repayment or refinancing; (xii) increased competition or delays in reacting to changing consumer preferences in home design; (xiii) 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; (xiv) estimates related to the potential recoverability of our deferred tax assets; (xv) 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; (xvi) the results of litigation or government proceedings and fulfillment of any related obligations; (xvii) the impact of construction defect and home warranty claims, including water intrusion issues in Florida; (xviii) the cost and availability of insurance and surety bonds, as well as the sufficiency of these instruments to cover potential losses incurred; (xix) the performance of our unconsolidated entities and our unconsolidated entity partners; (xx) the impact of information technology failures or data security breaches; (xxi) terrorist acts, natural disasters, acts of war or other factors over which the Company has little or no control; or (xxii) 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 for management to predict all such factors.

-Tables Follow-

     

BEAZER HOMES USA, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS) AND COMPREHENSIVE INCOME (LOSS)

(In thousands, except per share data)

(Unaudited)

 
Three Months Ended Six Months Ended
March 31, March 31,
2018   2017 2018   2017
Total revenue $ 455,178 $ 425,468 $ 827,667 $ 764,709
Home construction and land sales expenses 380,101 357,788 691,761 643,366
Inventory impairments and abandonments   282     282  
Gross profit 75,077 67,398 135,906 121,061
Commissions 17,334 16,632 31,690 29,955
General and administrative expenses 40,852 40,100 78,137 76,488
Depreciation and amortization 3,066   3,155   5,573   5,832  
Operating income 13,825 7,511 20,506 8,786
Equity in income of unconsolidated entities 256 33 155 55
Loss on extinguishment of debt (15,563 ) (25,904 ) (15,563 )
Other expense, net (1,453 ) (3,940 ) (4,598 ) (9,136 )
Income (loss) from continuing operations before income taxes 12,628 (11,959 ) (9,841 ) (15,858 )
Expense (benefit) from income taxes 1,012   (4,464 ) 109,118   (7,004 )
Income (loss) from continuing operations 11,616 (7,495 ) (118,959 ) (8,854 )
Loss from discontinued operations, net of tax (58 ) (40 ) (430 ) (110 )
Net income (loss) and comprehensive income (loss) $ 11,558   $ (7,535 ) $ (119,389 ) $ (8,964 )
Weighted average number of shares:
Basic 32,140 31,969 32,097 31,931
Diluted 32,721 31,969 32,097 31,931
Basic earnings (loss) per share:
Continuing operations $ 0.36 $ (0.23 ) $ (3.71 ) $ (0.27 )
Discontinued operations     (0.01 )  
Total $ 0.36   $ (0.23 ) $ (3.72 ) $ (0.27 )
Diluted income (loss) per share:
Continuing operations $ 0.36 $ (0.23 ) $ (3.71 ) $ (0.27 )
Discontinued operations (0.01 )   (0.01 )  
Total $ 0.35   $ (0.23 ) $ (3.72 ) $ (0.27 )
 
 
Three Months Ended Six Months Ended
March 31, March 31,
Capitalized Interest in Inventory 2018 2017 2018 2017
Capitalized interest in inventory, beginning of period $ 144,847 $ 144,299 $ 139,203 $ 138,108
Interest incurred 25,492 26,482 51,047 53,569
Interest expense not qualified for capitalization and included as other expense (1,650 ) (4,046 ) (5,085 ) (9,298 )
Capitalized interest amortized to home construction and land sales expenses (19,655 ) (19,819 ) (36,131 ) (35,463 )
Capitalized interest in inventory, end of period $ 149,034   $ 146,916   $ 149,034   $ 146,916  
 
       

BEAZER HOMES USA, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data)

(Unaudited)

 
March 31, 2018 September 30, 2017
ASSETS
Cash and cash equivalents $ 158,787 $ 292,147
Restricted cash 12,783 12,462
Accounts receivable (net of allowance of $346 and $330, respectively) 30,183 36,323
Income tax receivable 112 88
Owned Inventory 1,677,361 1,542,807
Investments in unconsolidated entities 4,293 3,994
Deferred tax assets, net 199,229 307,896
Property and equipment, net 20,166 17,566
Other assets 4,589   7,712  
Total assets $ 2,107,503   $ 2,220,995  
LIABILITIES AND STOCKHOLDERS’ EQUITY
Trade accounts payable $ 117,143 $ 103,484
Other liabilities 97,937 107,659
Total debt (net of premium of $3,027 and $3,413, respectively, and debt issuance costs of $15,905 and $14,800, respectively) 1,325,457   1,327,412  
Total liabilities 1,540,537   1,538,555  
Stockholders’ equity:
Preferred stock (par value $.01 per share, 5,000,000 shares authorized, no shares issued)
Common stock (par value $0.001 per share, 63,000,000 shares authorized, 33,628,126 issued and outstanding and 33,515,768 issued and outstanding, respectively) 34 34
Paid-in capital 876,978 873,063
Accumulated deficit (310,046 ) (190,657 )
Total stockholders’ equity 566,966   682,440  
Total liabilities and stockholders’ equity $ 2,107,503   $ 2,220,995  
 
Inventory Breakdown
Homes under construction $ 527,102 $ 419,312
Development projects in progress 825,355 785,777
Land held for future development 87,718 112,565
Land held for sale 9,927 17,759
Capitalized interest 149,034 139,203
Model homes 78,225   68,191  
Total owned inventory $ 1,677,361   $ 1,542,807  
 
       

BEAZER HOMES USA, INC.

CONSOLIDATED OPERATING AND FINANCIAL DATA – CONTINUING OPERATIONS

($ in thousands, except otherwise noted)

 
Three Months Ended March 31, Six Months Ended March 31,
SELECTED OPERATING DATA 2018 2017 2018   2017
Closings:
West region 652 561

 

1,178

1,071
East region 279 286

 

504

503
Southeast region 335 392

 

650

660
Total closings 1,266 1,239

 

2,332

2,234
 
New orders, net of cancellations:
West region 906 683

 

1,440

1,150
East region 321 414

 

580

642
Southeast region 452 452

 

769

762
Total new orders, net 1,679 1,549

 

2,789

2,554
       
As of March 31,
Backlog units at end of period: 2018 2017
West region

 

1,141

907
East region

 

489

583
Southeast region

 

682

746
Total backlog units

 

2,312

2,236
Dollar value of backlog at end of period (in millions)

$

885.4

$ 776.4
 
 
Three Months Ended March 31, Six Months Ended March 31,
SUPPLEMENTAL FINANCIAL DATA 2018 2017 2018 2017
Homebuilding revenue:
West region $ 224,361 $ 185,155 $ 400,917 $ 356,904
East region 103,731 113,279

 

189,419

194,529
Southeast region 113,023   123,440

 

218,533

206,567
Total homebuilding revenue $ 441,115   $ 421,874 $ 808,869 $ 758,000
 
Revenues:
Homebuilding $ 441,115 $ 421,874 $ 808,869 $ 758,000
Land sales and other 14,063   3,594

 

18,798

6,709
Total revenues $ 455,178   $ 425,468 $ 827,667 $ 764,709
 
Gross profit:
Homebuilding $ 74,366 $ 67,324 $ 134,598 $ 120,528
Land sales and other 711   74

 

1,308

533
Total gross profit $ 75,077   $ 67,398 $ 135,906 $ 121,061
 

Reconciliation of homebuilding gross profit and the related gross margin before impairments and abandonments and interest amortized to cost of sales to homebuilding gross profit and gross margin, the most directly comparable GAAP measure, is provided for each period discussed below. Management believes that this information assists investors in comparing the operating characteristics of homebuilding activities by eliminating many of the differences in companies' respective level of impairments and level of debt.

     
Three Months Ended March 31, Six Months Ended March 31,
2018   2017 2018   2017
Homebuilding gross profit/margin $ 74,366   16.9 % $ 67,324   16.0 % $ 134,598   16.6 % $ 120,528   15.9 %
Inventory impairments and abandonments (I&A)   188     188  
Homebuilding gross profit/margin before I&A 74,366 16.9 % 67,512 16.0 % 134,598 16.6 % 120,716 15.9 %
Interest amortized to cost of sales 19,655   19,819   36,123   35,463  
Homebuilding gross profit/margin before I&A and interest amortized to cost of sales $ 94,021   21.3 % $ 87,331   20.7 % $ 170,721   21.1 % $ 156,179   20.6 %
 

Reconciliation of Adjusted EBITDA to total company net income (loss), the most directly comparable GAAP measure, is provided for each period discussed below. Management believes that Adjusted EBITDA assists investors in understanding and comparing the operating characteristics of homebuilding activities by eliminating many of the differences in companies' respective capitalization, tax position and level of impairments. These EBITDA measures should not be considered alternatives to net income determined in accordance with GAAP as an indicator of operating performance.

The reconciliation of Adjusted EBITDA to total company net income (loss) below differs from the prior year, as it provides a more simplified presentation of EBIT, EBITDA and Adjusted EBITDA that excludes certain non-recurring amounts recorded during the periods presented. Management believes that this presentation best reflects the operating characteristics of the Company.

     

Three Months Ended
March 31,

Six Months Ended
March 31,

LTM Ended March 31,(a)

(In thousands) 2018   2017 2018   2017 2018   2017
Net income (loss) $ 11,558 $ (7,535 ) $ (119,389 ) $ (8,964 ) $ (78,612 ) $ (4,036 )
Expense (benefit) from income taxes 993 (4,493 ) 108,972 (7,072 ) 118,665 12,511
Interest amortized to home construction and land sales expenses and capitalized interest impaired 19,655 19,819 36,131 35,463 89,488 84,977
Interest expense not qualified for capitalization 1,650   4,046   5,085   9,298   11,423   20,621  
EBIT 33,856 11,837 30,799 28,725 140,964 114,073
Depreciation and amortization and stock-based compensation amortization 5,664   5,495   10,781   10,354   22,600   22,272  
EBITDA 39,520 17,332 41,580 39,079 163,564 136,345
Loss on extinguishment of debt 15,563 25,904 15,563 22,971 26,527
Inventory impairments and abandonments (b) 282 450 282 2,557 11,757
Additional insurance recoveries from third-party insurer (15,500 )
Write-off of deposit on legacy land investment       2,700     2,700  
Adjusted EBITDA $ 39,520   $ 33,177   $ 67,934   $ 57,624   $ 189,092   $ 161,829  
 
(a) “LTM” indicates amounts for the trailing 12 months.
(b) In periods during which we impaired certain of our inventory assets, capitalized interest that is impaired is included in the line above titled “Interest amortized to home construction and land sales expenses and capitalized interest impaired.”

Source: Beazer Homes USA, Inc.

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