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Beazer Homes Reports Third Quarter Fiscal 2016 Results


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Beazer Homes Reports Third Quarter Fiscal 2016 Results

ATLANTA--(BUSINESS WIRE)--Jul. 28, 2016-- Beazer Homes USA, Inc. (NYSE: BZH) (www.beazer.com) today announced its financial results for the three and nine months ended June 30, 2016.

The Company reported net income from continuing operations of $6.1 million for the quarter ended June 30, 2016, compared with a net income of $12.2 million for the quarter ended June 30, 2015. This quarter’s results included tax expense of $5.3 million, compared to a tax benefit of $0.1 million last year, reflecting the reversal of a significant portion of the Company’s valuation allowance in the fourth quarter of fiscal 2015. Net income in the quarter also included a $15.5 million benefit from insurance recoveries, offset by $11.9 million in impairment charges and $6.4 million in additional year-over-year interest expense.

Revenue and Adjusted EBITDA both grew compared to the prior year. Revenue of $459.9 million was up 7.1%, driven by an increase in home closings, which totaled 1,364, up 5.5%, and Average Selling Prices, which reached $330.6 thousand, up 4.0%. Adjusted EBITDA rose 3.6% versus the prior year to $38.3 million.

Relative to the Company’s objective to achieve $2 billion in revenue with Adjusted EBITDA of at least $200 million, referred to as the “2B-10” Plan, for the trailing twelve months, total revenue was $1.8 billion, up 18.3%, and Adjusted EBITDA of $161.4 million was up $27.0 million, or 20.1%, compared to the same period last year.

The Company ended the quarter with more than $127 million of unrestricted cash and total available liquidity of more than $240 million. During the quarter, the Company reduced outstanding debt by nearly $30 million, bringing the fiscal year to date debt reduction total to over $71 million. The Company now intends to reduce debt by a total of at least $150 million during fiscal 2016, an increase of $50 million from previous expectations.

“Our results in the third quarter built on the strength we experienced in the first half of the year, as we generated EBITDA growth while reducing our leverage. Our sales pace and Average Selling Prices met our expectations in all regions, and gross margin was up sequentially as demand benefited from employment gains, low interest rates and a limited supply of new and used homes,” said Allan Merrill, CEO of Beazer Homes.

Mr. Merrill continued, “Looking forward, we are well positioned to continue delivering EBITDA growth and debt reduction through a combination of increased revenue, better operating margins and improved capital efficiency.”

Summary results for the three and nine months ended June 30, 2016 are as follows:

Q3 Results from Continuing Operations (unless otherwise specified)

    Three Months Ended June 30,
2016     2015     Change*
New Home Orders 1,490 1,524 (2.2 )%
Orders per community per month 3.0 3.1 (3.2 )%
Average active community count 166 164 1.2 %
Actual community count at quarter-end 168 168 %
Cancellation rates 19.6 % 19.6 %
 
Total Home Closings 1,364 1,293 5.5 %
Average selling price (ASP) from closings (in thousands) $ 330.6 $ 318.0 4.0 %
Homebuilding revenue (in millions) $ 451.0 $ 411.1 9.7 %
Homebuilding gross margin 17.0 % 18.1 % -110 bps
Homebuilding gross margin, excluding impairments and abandonments (I&A) 19.7 % 18.1 % 160 bps
Homebuilding gross margin, excluding I&A and interest amortized to cost of sales 24.1 % 21.3 % 280 bps
Homebuilding gross margin, excluding I&A, interest amortized to cost of sales and additional insurance recoveries from a third-party insurer 20.7 % 21.3 % -60 bps
 
Income from continuing operations before income taxes (in millions) $ 11.5 $ 12.1 $ (0.6 )
Provision for (benefit from) income taxes (in millions) $ 5.3 $ (0.1 ) $ 5.5
Income from continuing operations (in millions) $ 6.1 $ 12.2 $ (6.1 )
Basic income per share from continuing operations $ 0.19 $ 0.46 $ (0.27 )
Diluted income per share from continuing operations $ 0.19 $ 0.38 $ (0.19 )
 
Total Company land and land development spending (in millions) $ 72.6 $ 105.9 $ (33.4 )

Total Company Adjusted EBITDA, excluding additional insurance recoveries from a third-party insurer (in millions)

$ 38.3 $ 36.9 3.6 %
LTM Adjusted EBITDA, excluding unexpected warranty costs, a litigation settlement in discontinued operations and additional insurance recoveries from a third-party insurer (in millions) $ 161.4 $ 134.4 20.1 %
           
Nine Months Ended June 30,
2016 2015 Change*
New Home Orders 3,951 4,188 (5.7 )%
LTM orders per month per community 2.6 2.8 (7.1 )%
Cancellation rates 20.4 % 18.9 % 150 bps
 
Total Home Closings 3,563 3,114 14.4 %
ASP from closings (in thousands) $ 326.9 $ 307.9 6.2 %
Homebuilding revenue (in millions) $ 1,164.8 $ 959.0 21.5 %
Homebuilding gross margin 16.6 % 16.9 % -30 bps
Homebuilding gross margin, excluding impairments and abandonments (I&A) 17.8 % 16.9 % 90 bps
Homebuilding gross margin, excluding I&A and interest amortized to cost of sales 22.1 % 20.2 % 190 bps
Homebuilding gross margin, excluding I&A, interest amortized to cost of sales, unexpected warranty costs and additional insurance recoveries from a third-party insurer 20.4 % 21.6 % -120 bps
 
Income (loss) from continuing operations before income taxes (in millions) $ 8.1 $ (8.7 ) $ 16.7
Provision for (benefit from) income taxes (in millions) $ 2.1 $ (0.7 ) $ 2.8
Income (loss) from continuing operations (in millions) $ 6.0 $ (7.9 ) $ 13.9
Basic and diluted income (loss) per share from continuing operations $ 0.19 $ (0.30 ) $ 0.49
 
Total Company land and land development spending (in millions) $ 267.8 $ 353.5 $ (85.6 )

Total Company Adjusted EBITDA, excluding unexpected warranty costs, a litigation settlement in discontinued operations and additional insurance recoveries from a third-party insurer (in millions)

$ 90.3 $ 73.0 23.8 %
* Change is calculated using unrounded numbers.
“LTM” indicates amounts for the trailing 12 months.
 

As of June 30, 2016

 

As of June 30,

2016   2015   Change
Backlog units 2,426 2,764 (12.2 )%
Dollar value of backlog (in millions) $ 814.6 $ 899.2 (9.4 )%
ASP in backlog (in thousands) $ 335.8 $ 325.3 3.2 %
Land and lots controlled 24,317 27,183 (10.5 )%

Conference Call

The Company will hold a conference call on July 28, 2016 at 9:30 a.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, verbally supply the passcode “BZH.” A replay of the call will be available shortly after the conclusion of the live call. To directly access the replay, dial 800-884-1524 or 402-280-9924 and enter the passcode “3740” (available until 10:59 p.m. ET on August 4, 2016), 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 a geographically diversified homebuilder with active operations in 13 states within three geographic regions in the United States. 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's active operations are in the following states: 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 production and overhead cost structure; (iv) 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; (v) our ability to reduce our outstanding indebtedness and to comply with covenants in our debt agreements or satisfy such obligations through repayment or refinancing; (vi) 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; (vii) 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; (viii) 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; (ix) a substantial increase in mortgage interest rates, increased disruption in the availability of mortgage financing, a change in tax laws regarding the deductibility of mortgage interest, or an increased number of foreclosures; (x) increased competition or delays in reacting to changing consumer preference in home design; (xi) continuing severe weather conditions or other related events could result in delays in land development or home construction, increase our costs or decrease demand in the impacted areas; (xii) estimates related to the potential recoverability of our deferred tax assets; (xiii) 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 these related to the environment; (xiv) the results of litigation or government proceedings and fulfillment of the obligations in the consent orders with governmental authorities and other settlement agreements; (xv) the impact of construction defect and home warranty claims, including water intrusion issues in Florida; (xvi) the cost and availability of insurance and surety bonds; (xvii) the performance of our unconsolidated entities and our unconsolidated entity partners; (xviii) the impact of information technology failures or data security breaches; (xix) terrorist acts, natural disasters, acts of war or other factors over which the Company has little or no control; or (xx) 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 do not undertake any obligation to update or revise any forward-looking statement, whether as a result of new information, future events or otherwise. New factors emerge from time to time and it is not possible for management to predict all such factors.

BEAZER HOMES USA, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
($ in thousands, except per share data)
       
Three Months Ended Nine Months Ended
June 30, June 30,
2016     2015 2016     2015
Total revenue $ 459,937 $ 429,438 $ 1,189,993 $ 994,561
Home construction and land sales expenses 370,367 353,081 980,094 829,073
Inventory impairments and abandonments 11,917   249   15,098   249  
Gross profit 77,653 76,108 194,801 165,239
Commissions 17,500 17,246 45,856 40,141
General and administrative expenses 40,457 37,669 111,024 101,837
Depreciation and amortization 3,387   3,497   9,434   8,619  
Operating income 16,309 17,696 28,487 14,642
Equity in income of unconsolidated entities 62 153 71 377
Gain (loss) on extinguishment of debt 429 (2,030 )
Other expense, net (5,344 ) (5,763 ) (18,467 ) (23,670 )
Income (loss) from continuing operations before income taxes 11,456 12,086 8,061 (8,651 )
Expense (benefit) from income taxes 5,349   (135 ) 2,067   (726 )
Income (loss) from continuing operations 6,107 12,221 5,994 (7,925 )
Loss from discontinued operations, net of tax (325 ) (46 ) (447 ) (4,236 )
Net income (loss) $ 5,782   $ 12,175   $ 5,547   $ (12,161 )
Weighted average number of shares:
Basic 31,813 26,482 31,793 26,473
Diluted 31,820 31,800 31,797 26,473
Basic income (loss) per share:
Continuing operations $ 0.19 $ 0.46 $ 0.19 $ (0.30 )
Discontinued operations $ (0.01 ) $ $ (0.01 ) $ (0.16 )
Total $ 0.18 $ 0.46 $ 0.18 $ (0.46 )
Diluted income (loss) per share:
Continuing operations $ 0.19 $ 0.38 $ 0.19 $ (0.30 )
Discontinued operations $ (0.01 ) $ $ (0.01 ) $ (0.16 )
Total $ 0.18 $ 0.38 $ 0.18 $ (0.46 )
  Three Months Ended     Nine Months Ended
June 30,   June 30,
2016     2015 2016     2015
Capitalized interest in inventory, beginning of period $ 140,139 $ 112,476 $ 123,457 $ 87,619
Interest incurred 28,758 30,748 89,313 91,290
Capitalized interest impaired (626 ) (710 )
Interest expense not qualified for capitalization and included as other expense (5,406 ) (5,954 ) (19,471 ) (23,396 )
Capitalized interest amortized to house construction and land sales expenses (20,467 ) (13,558 ) (50,191 ) (31,801 )
Capitalized interest in inventory, end of period $ 142,398   $ 123,712   $ 142,398   $ 123,712  
 
BEAZER HOMES USA, INC.
UNAUDITED CONSOLIDATED BALANCE SHEETS
($ in thousands, except share and per share data)
       
June 30, 2016 September 30, 2015
ASSETS
Cash and cash equivalents $ 127,209 $ 251,583
Restricted cash 18,846 38,901
Accounts receivable (net of allowance of $866 and $1,052, respectively) 65,905 52,379
Income tax receivable 221 419
Owned Inventory 1,731,850 1,697,590
Investments in unconsolidated entities 9,361 13,734
Deferred tax assets, net 324,763 325,373
Property and equipment, net 21,008 22,230
Other assets 19,464   18,994  
Total assets $ 2,318,627   $ 2,421,203  
LIABILITIES AND STOCKHOLDERS’ EQUITY
Trade accounts payable $ 109,449 $ 113,539
Other liabilities 138,319 148,966
Total debt (net of discounts of $4,819 and $3,639, respectively) 1,429,483   1,528,275  
Total liabilities $ 1,677,251   $ 1,790,780  
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, 33,083,145 issued and outstanding and 32,660,583 issued and outstanding, respectively) 33 33
Paid-in capital 862,959 857,553
Accumulated deficit (221,616 ) (227,163 )
Total stockholders’ equity 641,376   630,423  
Total liabilities and stockholders’ equity $ 2,318,627   $ 2,421,203  
 
Inventory Breakdown
Homes under construction $ 520,313 $ 377,281
Development projects in progress 736,587 809,900
Land held for future development 221,148 270,990
Land held for sale 38,791 44,555
Capitalized interest 142,398 123,457
Model homes 72,613   71,407  
Total owned inventory $ 1,731,850   $ 1,697,590  
BEAZER HOMES USA, INC.
CONSOLIDATED OPERATING AND FINANCIAL DATA – CONTINUING OPERATIONS
($ in thousands, except otherwise noted)
   
Three Months Ended June 30, Nine Months Ended June 30,
SELECTED OPERATING DATA 2016     2015 2016     2015
Closings:
West region 620 473 1,666 1,175
East region 373 412 907 986
Southeast region 371   408   990   953
Total closings 1,364   1,293   3,563   3,114
 
New orders, net of cancellations:
West region 661 691 1,820 1,811
East region 343 390 982 1,164
Southeast region 486   443   1,149   1,213
Total new orders, net 1,490   1,524   3,951   4,188
 
As of June 30,
2016 2015
Backlog units at end of period:
West region 1,109 1,193
East region 562 778
Southeast region 755   793
Total backlog units 2,426   2,764
 
Dollar value of backlog at end of period (in millions) $ 814.6   $ 899.2
  Three Months Ended June 30,     Nine Months Ended June 30,
SUPPLEMENTAL FINANCIAL DATA 2016     2015 2016     2015
Homebuilding revenue:
West region $ 201,848 $ 143,328 $ 535,984 $ 338,412
East region 136,204 148,898 332,411 347,488
Southeast region 112,925   118,923   296,430   273,053
Total homebuilding revenue $ 450,977   $ 411,149   $ 1,164,825   $ 958,953
 
Revenues:
Homebuilding $ 450,977 $ 411,149 $ 1,164,825 $ 958,953
Land sales and other 8,960   18,289   25,168   35,608
Total revenues $ 459,937   $ 429,438   $ 1,189,993   $ 994,561
 
Gross profit:
Homebuilding $ 76,803 $ 74,221 $ 193,141 $ 161,877
Land sales and other 850   1,887   1,660   3,362
Total gross profit $ 77,653   $ 76,108   $ 194,801   $ 165,239
 

Reconciliation of homebuilding gross profit before impairments and abandonments and interest amortized to cost of sales and the related gross margins 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.

In addition, given the unusual size and nature of the charges recorded related to the Florida stucco issues, as well as additional insurance recoveries from a third-party insurer, homebuilding gross profit is also shown excluding these charges. Management believes that this representation best reflects the operating characteristics of the Company.

  Three Months Ended June 30,     Nine Months Ended June 30,
2016     2015 2016     2015
Homebuilding gross profit $ 76,803   17.0 % $ 74,221     18.1 % $ 193,141   16.6 % $ 161,877     16.9 %
Inventory impairments and abandonments (I&A) 11,899     14,512    
Homebuilding gross profit before I&A 88,702 19.7 % 74,221 18.1 % 207,653 17.8 % 161,877 16.9 %
Interest amortized to cost of sales 20,080   13,548   49,520   31,524  
Homebuilding gross profit before I&A and interest amortized to cost of sales 108,782   24.1 % 87,769   21.3 % 257,173   22.1 % 193,401   20.2 %
Unexpected warranty costs related to Florida stucco issues (net of expected insurance recoveries)

(3,612 ) 13,582

Additional insurance recoveries from a third-party insurer

(15,500 )

  (15,500 )

 

Homebuilding gross profit before I&A, interest amortized to cost of sales, unexpected warranty costs and additional insurance recoveries from a third-party insurer $ 93,282   20.7 % $ 87,769   21.3 % $ 238,061   20.4 % $ 206,983   21.6 %

Reconciliation of Adjusted EBITDA (earnings before interest, taxes, depreciation, amortization, debt extinguishment, impairments and abandonments) to total Company net 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.

In addition, given the unusual size and nature of certain charges recorded during the periods presented, Adjusted EBITDA is also shown excluding these charges. Management believes that this representation best reflects the operating characteristics of the Company.

  Three Months Ended   Nine Months Ended   LTM Ended
June 30, June 30,

June 30, (a)

2016   2015 2016   2015 2016   2015
Net income (loss) $ 5,782 $ 12,175 $ 5,547 $ (12,161 ) $ 361,802 $ 47,686
Provision (benefit) from income taxes 5,168 (137 ) 1,809 (731 ) (323,387 ) (40,868 )
Interest amortized to home construction and land sales expenses, capitalized interest impaired and interest expense not qualified for capitalization 26,499 19,512 70,372 55,197 101,161 81,989
Depreciation and amortization and stock compensation amortization 5,444 5,128 15,278 13,165 21,586 18,014
Inventory impairments and abandonments (b) 11,291 249 14,388 249 17,248 5,390
(Gain) loss on debt extinguishment (429 )   2,030     2,110    
Adjusted EBITDA $ 53,755 $ 36,927 $ 109,424 $ 55,719 $ 180,520 $ 112,211
Unexpected warranty costs related to Florida stucco issues (net of expected insurance recoveries) (3,612 ) 13,582 (3,612 ) 17,872
Unexpected warranty costs related to water intrusion issues in New Jersey (net of expected insurance recoveries) 648
Additional insurance recoveries from third-party insurer (15,500 ) (15,500 ) (15,500 )
Litigation settlement in discontinued operations       3,660     3,660  
Adjusted EBITDA excluding unexpected warranty costs, a litigation settlement in discontinued operations and additional insurance recoveries from a third-party insurer $ 38,255   $ 36,927   $ 90,312   $ 72,961   $ 161,408   $ 134,391  

(a) “LTM” indicates amounts for the trailing 12 months.
(b) Amounts for both the three and nine months ended June 30, 2016 exclude $0.6 million and $0.7 million, respectively, in capitalized interest impaired during the current period. This amount is included in the line above titled “Interest amortized to home construction and land sales expenses, capitalized interest impaired and interest expense not qualified for capitalization.”

Source: Beazer Homes USA, Inc.

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