Beazer Homes Reports Third Quarter Fiscal 2018 Results
Staff Report From Metro Atlanta CEO
Monday, August 6th, 2018
Beazer Homes USA, Inc. announced its financial results for the three and nine months ended June 30, 2018.
“Our third quarter results reflected continued growth in revenue and a substantial increase in net income,” said Allan P. Merrill, President and CEO of Beazer Homes. “Housing demand remains strong across our markets, driven by rising consumer confidence, steady job growth, improving wage growth and a limited supply of for-sale homes. These positive tailwinds have allowed us to balance the impact of rising mortgage rates and cost pressures for land, labor and materials.
“As we approach the end of our fiscal year, we are positioned to achieve our multi-year ‘2B-10’ goal as well as our planned reduction in leverage. Looking into fiscal 2019, we remain optimistic about the fundamentals for our industry. With incremental contributions from the recently acquired Venture Homes communities, we expect to generate strong growth in revenue, net income and return on assets while improving the efficiency of our balance sheet.”
Beazer Homes Fiscal Third Quarter 2018 Highlights and Comparison to Fiscal Third Quarter 2017
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Net income from continuing operations of $13.4 million, up 88.8%. Earnings per share was $0.41, up 86.4%
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Adjusted EBITDA of $46.6 million, up 5.3%
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Homebuilding revenue of $507.0 million, up 7.3%, on a slight increase in home closings to 1,391 and a 7.0% increase in average selling price to $364.5 thousand
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Homebuilding gross margin was 16.4%, down 30 basis points. Excluding impairments, abandonments and interest amortized, homebuilding gross margin was 20.8%, down 50 basis points
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SG&A as a percentage of total revenue was 12.1%, down 30 basis points
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Unit orders of 1,450, down 9.1% on a 10.3% decrease in sales/community/month to 3.1 and a 1.3% increase in average community count to 157
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Dollar value of backlog of $920.7 million, up 7.1%
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Unrestricted cash at quarter end was $136.3 million
Profitability. Net income from continuing operations was $13.4 million, an increase of $6.3 million from the third quarter of fiscal 2017. Diluted earnings per share was $0.41, which was up 86.4% from the same period last year. Third quarter Adjusted EBITDA of $46.6 million was up $2.4 million, or 5.3%, compared to the same period last year.
Orders. Net new orders for the third quarter decreased 9.1% from the prior year. The drop in net new orders was driven by a decrease in the absorption rate to 3.1 sales per community per month, down from a strong 3.4 the previous year, but in line with third quarter absorptions throughout the upturn. The cancellation rate was 18.6%.
Homebuilding Revenue. Third quarter closings of 1,391 homes were 0.3% above the level achieved in the same period last year. Combined with a 7.0% increase in the average selling price to $364.5 thousand, homebuilding revenue rose 7.3% over the prior year to $507.0 million.
Backlog. The dollar value of homes in backlog as of June 30, 2018 increased 7.1% to $920.7 million, or 2,371 homes, which compared to $859.9 million, or 2,444 homes, at the same time last year. The average selling price of homes in backlog rose 10.4% year over year to $388.3 thousand.
Homebuilding Gross Margin. Homebuilding gross margin (excluding impairments, abandonments and interest amortized) was 20.8% for the third quarter, down 50 basis points from the same period in fiscal 2017. Our results last year included approximately 30 basis points of warranty related benefits.
SG&A Expenses. Selling, general and administrative expenses, as a percentage of total revenue, were 12.1% for the quarter, an improvement of 30 basis points compared to the prior year.
Liquidity. The Company ended the quarter with approximately $336.3 million of available liquidity, including $136.3 million of unrestricted cash and $200.0 million available on its secured revolving credit facility.
Gatherings
The Company continued to make progress with its Gatherings rollout during the third quarter of fiscal 2018. In Orlando’s Gatherings at Lake Nona, building one was completed and delivered its first closings in early July, while construction continued on building two. In addition to Lake Nona, projects are underway in Dallas, Nashville, and Atlanta. The Company continues to review a large pipeline of potential communities spread across its geographic footprint and expects to see Gatherings acquisition activity accelerate into fiscal 2019.
Venture Homes Acquisition
As previously disclosed, the Company acquired Venture Homes, a leading private homebuilder in the metropolitan Atlanta area. In the cash transaction, which closed on July 13, Beazer purchased more than 1,000 lots spread across 9 active communities and 18 future communities, which are being integrated into the Company’s existing operations in Atlanta. With nearly 500 homes closed during the trailing 12 months, the combined operation ranks among the top 10 builders in the market. Looking forward, the acquisition is expected to be accretive to both earnings per share and return on assets in fiscal 2019.
Summary results for the three and nine months ended June 30, 2018 are as follows:
| Three Months Ended June 30, | |||||||||||||||
| 2018 | 2017 | Change* | |||||||||||||
| New home orders, net of cancellations | 1,450 | 1,595 | (9.1 | )% | |||||||||||
| Orders per community per month | 3.1 | 3.4 | (10.3 | )% | |||||||||||
| Average active community count | 157 | 155 | 1.3 | % | |||||||||||
| Actual community count at quarter-end | 158 | 154 | 2.6 | % | |||||||||||
| Cancellation rates | 18.6 | % | 16.9 | % | 170 bps | ||||||||||
| Total home closings | 1,391 | 1,387 | 0.3 | % | |||||||||||
| Average selling price (ASP) from closings (in thousands) | $ | 364.5 | $ | 340.6 | 7.0 | % | |||||||||
| Homebuilding revenue (in millions) | $ | 507.0 | $ | 472.4 | 7.3 | % | |||||||||
| Homebuilding gross margin | 16.4 | % | 16.7 | % | -30 bps | ||||||||||
| Homebuilding gross margin, excluding impairments and abandonments and interest amortized to cost of sales | 20.8 | % | 21.3 | % | -50 bps | ||||||||||
| Income from continuing operations before income taxes (in millions) | $ | 17.7 | $ | 12.9 | $ | 4.8 | |||||||||
| Expense from income taxes (in millions) | $ | 4.3 | $ | 5.7 | $ | (1.5 | ) | ||||||||
| Income from continuing operations (in millions) | $ | 13.4 | $ | 7.1 | $ | 6.3 | |||||||||
| Basic income per share from continuing operations | $ | 0.42 | $ | 0.22 | $ | 0.20 | |||||||||
| Diluted income per share from continuing operations | $ | 0.41 | $ | 0.22 | $ | 0.19 | |||||||||
| Income from continuing operations before income taxes (in millions) | $ | 17.7 | $ | 12.9 | $ | 4.8 | |||||||||
| Inventory impairments and abandonments (in millions) | $ | 0.2 | $ | 0.5 | $ | (0.3 | ) | ||||||||
| Income from continuing operations excluding loss on debt extinguishment and inventory impairments and abandonments before income taxes (in millions) | $ | 17.9 | $ | 13.3 | $ | 4.5 | |||||||||
| Net income | $ | 13.4 | $ | 7.1 | $ | 6.3 | |||||||||
| Net income excluding loss on debt extinguishment and inventory impairments and abandonments (in millions)*+ | $ | 13.5 | $ | 7.4 | $ | 6.1 | |||||||||
| Land and land development spending (in millions) | $ | 155.5 | $ | 103.8 | $ | 51.7 | |||||||||
| Adjusted EBITDA (in millions) | $ | 46.6 | $ | 44.3 | $ | 2.4 | |||||||||
| LTM Adjusted EBITDA (in millions) | $ | 191.4 | $ | 167.9 | $ | 23.6 | |||||||||
| * | Change and totals are calculated using unrounded numbers. | |
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+ |
Loss on debt extinguishment was tax-effected at annualized effective tax rates of 26.7% and 36.7% for the three months ended June 30, 2018 and June 30, 2017, respectively. | |
| “LTM” indicates amounts for the trailing 12 months. | ||
| Nine Months Ended June 30, | |||||||||||||||
| 2018 | 2017 | Change* | |||||||||||||
| New home orders, net of cancellations | 4,239 | 4,149 | 2.2 | % | |||||||||||
| LTM orders per community per month | 3.0 | 2.9 | 3.4 | % | |||||||||||
| Cancellation rates | 17.2 | % | 17.9 | % | -70 bps | ||||||||||
| Total home closings | 3,723 | 3,621 | 2.8 | % | |||||||||||
| ASP from closings (in thousands) | $ | 353.4 | $ | 339.8 | 4.0 | % | |||||||||
| Homebuilding revenue (in millions) | $ | 1,315.8 | $ | 1,230.4 | 6.9 | % | |||||||||
| Homebuilding gross margin | 16.5 | % | 16.2 | % | 30 bps | ||||||||||
| Homebuilding gross margin, excluding impairments and abandonments and interest amortized to cost of sales | 21.0 | % | 20.9 | % | 10 bps | ||||||||||
| Income (loss) from continuing operations before income taxes (in millions) | $ | 7.9 | $ | (3.0 | ) | $ | 10.9 | ||||||||
| Expense (benefit) from income taxes (in millions) | $ | 113.4 | $ | (1.3 | ) | $ | 114.6 | ||||||||
| Loss from continuing operations (in millions)* | $ | (105.5 | ) | $ | (1.7 | ) | $ | (103.8 | ) | ||||||
| Basic and diluted loss per share from continuing operations | $ | (3.29 | ) | $ | (0.05 | ) | $ | (3.24 | ) | ||||||
| Income (loss) from continuing operations before income taxes (in millions) | $ | 7.9 | $ | (3.0 | ) | $ | 10.9 | ||||||||
| Loss on debt extinguishment (in millions) | $ | 25.9 | $ | 15.6 | $ | 10.3 | |||||||||
| Inventory impairments and abandonments (in millions) | $ | 0.2 | $ | 0.8 | $ | (0.6 | ) | ||||||||
| 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) | $ | 33.9 | $ | 16.0 | $ | 17.9 | |||||||||
| Net loss | $ | (106.0 | ) | $ | (1.8 | ) | $ | (104.1 | ) | ||||||
| Net income excluding loss on debt extinguishment, inventory impairments and abandonments and write-off of deposit (in millions)*+ | $ | 27.9 | $ | 10.3 | $ | 17.6 | |||||||||
| Land and land development spending (in millions) | $ | 440.6 | $ | 309.9 | $ | 130.7 | |||||||||
| Adjusted EBITDA (in millions) | $ | 114.6 | $ | 101.9 | $ | 12.7 | |||||||||
| * | Change and totals are calculated using unrounded numbers. | |
| + | Loss on debt extinguishment was tax-effected at annualized effective tax rates of 26.7% and 36.7% for the nine months ended June 30, 2018 and June 30, 2017, respectively. | |
As of June 30, 2018
| As of June 30, | ||||||||||||
| 2018 | 2017 | Change | ||||||||||
| Backlog units | 2,371 | 2,444 | (3.0 | )% | ||||||||
| Dollar value of backlog (in millions) | $ | 920.7 | $ | 859.9 | 7.1 | % | ||||||
| ASP in backlog (in thousands) | $ | 388.3 | $ | 351.8 | 10.4 | % | ||||||
| Land and lots controlled | 22,524 | 22,481 | 0.2 | % | ||||||||
